The expression ‘signal to noise’ comes from the telecom and audio world. In the haydays of electronic transmission it was of course a battle to make it efficient as possible to transmit data, morse code in the beginning, over long disances. As you transmit a signal over a line (be it copper wire or making it bounce around our atmosphere) the signal slowely gets drowned out by thermal and other noise. The signal is a perturbation in the medium (so for example the local electron density in copper) but other factors also cause perturbations (heat moves electrons around and magnetic fields push them as well). At a certain point its no longer possible to distinguish a signal from the noise, and the signal is lost. Its like making waves with your hand in choppy water. You can see the waves you make expand from where your hand moves, up to a point where the choppyness of the water ‘swallows’ your signal.
You can find S/N ratings in many devices. We want to hear the radio signal clearly, we want to hear the voice on the phone clearly, we want to know our GPS position precisely and we want to identify possible enemies on the radar screen correctly. One of the important names in the history of humanity that few people know is that of Claude Shannon. He wrote a small book about information, his information theory, in which he originated the concept of a ‘Bit’ of information. The way he saw information transfer was a process of enabling the recieving end to make a choice between options. A message is transmitted without error if the receiving end can make the same choice as the orginator intended.
Say if I want you to say ‘Potato’ and I have to signal to you from 400 meter with my hands. If you never seen a potato or said the word potato or connected the two (you call a car a potato) then my position is pretty hopeless. Luckily we can share information beforehand. Now I can give you a little note that says if I hold up my right hand I mean potato, and if I don’t I mean something else. This seems trivial but of course that is sufficient, job done, case closed. This is me transmitting one bit of information, and that bit allows a choice between ‘potato’ and everything else. The only noise possible here would be fog or smoke or night without a moon making it impossible to see my hand.
We are used to transmitting a lot more over one ‘line’, for example the alphabet, audio, although these days much of all transmission is digital. The big advantage of digital transmission is that you can compress data and use compression ‘libaries’. The latter are like notes you send out. So the for example the JPEG image libary is a set of tiles, little pieces of image, that have a number and can be used to reconstruct an image. You can choose to do it 100% correct (so no loss of any pixel) or less. This is like letting someone rephare your message to make it more compact before it is send. This is what many people do to understand what other people say, they go ‘Oh, you mean to say xyz’, by which they translate what is said to language they better understand, but the translation can be biased. A capitalist will translate almost anything that is not capitalism to mean communism.
When we apply signal to noise to economics we find that the theory in principle has flaws, the foremost being that the economy only looks at what exists, in order to trade it for profit. It does not conserve resources or protect what lives or do anything to keep the situation fit for humans. But even if we where to fix that, we have humans testing and checking every economic activity (small shops, industry etc.) for their impact on humans, animals, the planet, we still have challenges.
In the economy the signal is opportunity to profit. Its not so much the profit itself. The signal changes something on the other end of the line. The words in the message change your behavior and anticipation of the future. If I was standing with my hand raised to signal potato to you all day, you only have to look once and you know ‘its potato’. The economy has profitable activities, it will do them until the situation changes, until there is a signal of some kind. You can work a man to death, but if he dies, that’s a clear signal you have to stop and find another man.
Luckily we have a less barbaric method of signalling in our economy, and that is our spending, or where money can be earned. Now if we have for example a farm that has employees, those employees can earn a living. It is the task of the farmer to pay their salaries. For the employees the signal is clear and their behavior is stabile (of course ignoring many possible influences from living a human life). Some signal does not get transmitted though, the farmer will perhaps hide financial problems and use his reserves to cover the cost of his employees, because he knows how hard it is to find them, or how being layed off will impact their lives. This is an exampe of ‘noise’ in the transmission of the signal. It prevents the employees from sensing that they should look elsewhere to secure their lifestyles.
In other places in the economy the noise can take other forms. For example you have a big chemical company that produces toxic chemicals that pollute the public waters (like Chemours in Dordrecht, Holland). Why does that company keep going? It did not recieve much if any signal in its economic ‘transmission lines’ (money flows)? This is indeed unlikely. This is a major problem of the world economy as a whole. The ‘transmission lines’ or money flows of many companies are totally isolated from the public. The public only sees the balance sheet and profit and loss etc. If the company is polluting, maybe some politician should complain and make a law to fight it? But that person has economic dependencies. In principle his economic signal is not directly dependent on the pollution, only on what the public thinks about it. Strangely the economic ‘signalling’ system does not tie into governance in a way that protects the population. This is an example of blocked transmission, no noise needed!
Of course the director of the polluting company can also have a signal with a lot of noise. To stay with the analogy, and moving into the realm of cryptography, the signal can not only be degraded by noise (which you first have to know is happening mind you), it can also be replaced, tampered with, faked, replayed to hid what is going on on the sending end of the line. How does this translated into economics? Well, you have people making a lot of money to keep things as they are. They may be at the head of an organization that has a governance task, but they get the same money no matter what happens. So where is the signal? No signal, no (possible) change. On the other side you can have a bonus system, which is designed to evoke behavior in order to recieve a signal (a bit of reverse psychology). Its a no cure no pay (so cheap) method of paying for what you want. It can however completely drown out the actual (especially human) relevant signal. Many scandals are with companies who’s leaders get bonusses and rewards even though they did an absolute shit job (literally now with the pullution of UK waterways by priviatized water companies)
Economics recognizes that our society is made up of many individuals that all have partial control over our environment, streets, factories, companies. The idea is to make them all cooperate to the benefit of all. The signals send between people and people and organizations etc. all seem to or pretend to serve that purpose. In reality we have some people and organizations that have quite a biased motivation, their economic signal is to extract money and control the amount of money we use to send the signals. These are the financial companies (don’t call them institutions, they are all privately owned!). We all know they are not like normal businesses. They pretend that the only way to transmit economic signals is with their money.
Another group of companies that is not quite fairly operating in our economic signalling system are energy companies, especially those where the energy originates, so oil, gas,coal and even solar and wind energy companies. Its not that they are intrinsically economically bad (of course fossil companies are ultimately devastating to our economies), it is that what they sell is money, which is confusing. You can buy a barrel of oil for $95 at the monent. Say its converted to gasoline, say its 158 liter. That is about 1000 km in a small car. You can drive a lot of Uber passengers over that distance. I guess you’d make at least $1000. This is called profit. How can that be? Because there is no way to turn that $1000 into anything usefull without more oil. I theory you could get 9 other people to drive Ubers and take 10% you’d be golden. But even if you have $100.000 eventually and you could not buy oil, suddenly that money would be worthless (unless you drive a Tesla but then you’d have to consider where the energy came from and at what cost). What this tells you is 1. There are more and less profitable things you can do with energy and 2. That profit is not worth much (zero) if you have no energy. You would have a strong ‘signal’ but it would be meaningless because it can not drive behavior, you need energy to have behavior.
So in the system we have the producers of the signal (Banks) and the behavior (Energy) and noise in the transmission (corruption, hoarding) and blindness of the signal to the plight of humans. You can clearly observe that banks and energy companies introduce noise and sabotage the economic signals to retain their control. This perspective of signal to noise may be helpfull to fix the way the economic system functions. Part of this can be by tuning the signal to reflect relevant factors. Another part can be to introduce signal in order to reflect the needs of our planet and humanity. The biggest challenge in this is to have a stable transmission system to begin with. You can see prices as part of the ‘note’ which explains the options the signal can have. If a car that is damanging to the environment, your health and future is cheaper than one that is not, your behavioral options will be distorted.
There are many ways in which economic signals get muddled, the media plays a role in it too. It is clear humans are not optimizing profit naturally, but lifestyle. The social aspect is way more imporant, and although it is recognized the conflict with the goals of banks is evident. This results in a constant barrage of marketing and lifestyle advertisement that create the wrong signal for humanity and even the individual. Is sitting in front of a laptop at Starbucks the highest attainable goal for a mid 20 woman? Or doing Yoga? While we all are supposed to work as hard as we can? Why do men spend so much on watches, in the hundreds of thousands on some tiny metal object. What does this solve rally? Are Rolexes really a good ‘investment’? How come if companies manage economic signals they are very precise about it, using performance indicators, quantifying everything, while in our lifestyles we are asked to ignore money when we spend it?
My suggestion would be to start looking at the noise and view it as a cost to society. Capitalism is not bad, it is the way to solve challenges as a community (share resources, that is the traditional meaning). Bank dominance and widespread noise (also called ‘hidden cost’) in our economic system is bad, and a true economists would talk about this!