72 and still overflowing with ideas.
I WAS AT THE WATERGATE THE OTHER EVENING for a book party, held in the apartment of John Wohlstetter. He has a grand piano, a beautiful view over the Potomac River, and a book to sell. Actually there were two books: Wohlstetter’s Sleepwalking with the Bomb (see TAS, October 2012) and a new edition of George Gilder’s best seller Wealth and Poverty (Regnery Publishing). Gilder’s original text is augmented by a new prologue and epilogue and a section on monetary policy.
With Wealth and Poverty (1981), Gilder, who would go on to co-found the Discovery Institute, became one of the leading supply-siders. This is a school of thought that aims to revive the economy by reducing income- and capital-gains tax rates. Also regulations. President Reagan agreed, and by 1983 the U.S. economy had improved dramatically. In contrast, Gilder writes that under Obama we have experienced
a morbid subversion of the infostructures of its economy. The public sector has become a manipulative force, aggressively intervening in the venture and financial sectors with guarantees and subventions that attract talent and debauch it. At the same time the government provides constant downside surprises of taxation, currency devaluation, and multifarious regulation.
This in turn has lead to “real estate depreciation, disinvestment, capital flight, skilled emigration and contraction of private employment.” Obama has been so “drastically negative” toward the private economy that the right changes could release “huge positive energies.” That happened in Canada, New Zealand, and Israel. Here, we need a “full supply-side solution.”
Few commentators mention these ideas today. A grim consensus has settled over the establishment in favor of “root canal economics”—the late Jude Wanniski’s phrase. All talk of supply-side has been pushed offstage. Paul Ryan is an exception and Gilder singles him out for praise.
We keep trying to solve our problems by cutting spending (which the Democrats won’t allow) and by raising tax rates (which the House Republicans have blocked). So the root canal work hasn’t happened yet. Post-election may be another story. But those policies are afflicting Europe with a highly destructive austerity. In response to rioting in Greece and Spain, the consensus didn’t budge. Keep on with more of the same, the ruling class ordered.
One of Gilder’s new messages is that we should refer to information rather than “incentives.” A successful economy is driven less by “the sharp edge of incentives than by the unimpeded flow of information.” High tax rates impede that flow, just as needless stop signs impede the flow of traffic. Advances in the economy come from “the development and application of productive knowledge,” not from sticks and carrots.
Focusing on incentives also implies that capitalism is based on greed, when in reality greed “prompts capitalists to seek guarantees.” Gilder mentions the wasteful dollars lavished on “archaic windmills, ethanol farms and subsidized Druidical sun-henges.”
He is also critical of the “shrink the budget” rhetoric admired by many conservatives. Our focus on “deficits,” the European obsession, assumes that “balance” can be restored by higher taxes. Economics is thereby reduced to accountancy. Jimmy Carter pretty much balanced the budget. Bad spending, often called “investment,” tends to be set to one side and overlooked.
Gilder also has little time for the ceaseless taxpayer subsidy of science, of which climate change is only the best-known example. Its goal is to disguise the billions already wasted and to lay the groundwork for billions more to come by claiming that scientific breakthrough is just around the corner.
Here are seven Gilder items, compressed from the prologue to the new edition of Wealth and Poverty:
RE-READING THE FIRST EDITION of Wealth and Poverty to make room for newer ideas, Gilder found he was writing a new book. It will be published as Knowledge and Power, probably next spring. I managed to talk with him briefly before the speeches began. He is 72 now and still overflowing with ideas.
He has much to say on information theory. Kurt Gödel showed that all mathematical proofs are incomplete and always need further assumptions. Gilder turns this idea into a platform from which to criticize modern economics, Darwinian biology, and the behaviorist psychology of B.F. Skinner. They all try to imitate physics, but physics itself is marred by uncertainty. So the blind are leading the blind.
“Information theory defines information as surprise,” Gilder said. But deterministic theories can never predict it. If they could, socialism would work. “Profit measures surprising returns and is measured by entropy,” he said. “It takes a low entropy carrier—no surprises—to differentiate between the carrier and the content at the receiving end. Gold is a low entropy carrier for the surprises of creative capitalism. Activist monetary policy [read: Bernanke] shortens the time horizons of the economy and pushes all the profits to short-term financial arbitrage.”
A man of faith in a godless age is hitting Americans where it hurts.
Mr. and Mrs. American Spectator Reader, let P.J. O’Rourke talk sense to your kids.
In Britain, defending your property can get you life.
It won’t take long for conservatives to scratch this presidential wannabe off their 2008 scorecard.
Was the President done in by the economy, or by the politics of the economy?