The use of variable I could complicate the analysis in various ways. R&D could be an economic activity affecting social welfare itself, amending (40.1) etcetera. But the present formulation suffices for our purposes. Note, the maximisation process itself finds its operational implementation in the actual work of some agents in the economy. Such work might be implicit and thus not explicitly remunerated. More conventionally there are some administrators (e.g. a “Council of Economic Advisers“) who are explicitly paid for their information handling activities (often: whatever outcome on t).
Piore (1987) reminds us that unemployment is not a natural disaster like an earthquake, but derives its cause, nature and significance from the social system as a whole. In this line, when unemployment arises, we would find the solution by studying the whole system. This includes information. And Piore’s reminder, being a reminder, is a piece of information. Indeed, one important social type of information concerns theory itself, and economic models in particular. The development of the theory of Rational Expectations (or model-consistency) implies this too. Economic theories about unemployment are themselves part of the information sets in society. An adequate description of unemployment not only requires a statement of taxes, social security and e.g. legal minimum wage, and their technical interaction, but also a statement of people’s perceptions, of the theories in the journals, and of what journalists and politicians make of these.
When unemployment arises, it may be caused by the power distribution, but the cause can also be plain lack of knowlegde. It may very well be that Piore’s proposition has not gotten sufficient attention from policy makers and advisers. And this lack of attention, if it were true, would be a prime example of the influence of the information set on economic activity.
There are two relevant states of information: I = 1 meaning that those in power perceive of a (sound, compact) solution of unemployment, and I = 0 meaning that this is not the case. Note that knowledge about the theorem on co-ordination, that is to be formulated next, might but need not be included itself in I = 1.
The Dissipation of Knowledge
I by science, education and media need not be detriment to those in power, but it might be. In the latter case
I would not be POC in the ordinary sense. However, many would hold that