For Your Information - The American Spectator | USA News and Politics
For Your Information
by

Knowledge and Power: The Information Theory of Capitalism and How it is Revolutionizing our World
(Regnery, 400 pages, $27.95)

George Gilder has done it again. Nobody ventures out onto the cutting edge of technology to bring back its wonderful news than the sage of Tyringham, Massachusetts who, thirty years after inspiring the Reagan Administration with Wealth and Poverty, is still vigorously preaching the gospel of creative capitalism.

In Knowledge and Power, Gilder has absorbed the teachings of Claude Shannon, John von Neumann, Alan Turing — names most people wouldn’t recognize — who derived the mathematics of Information Theory in the 1940s and 1950s that created the world of ever-increasing contacts and networking we inhabit today.

As if that weren’t enough, Gilder has drawn all this abstruse theory into a seamless web that illustrates once again why capitalism and free enterprise are the critical element of creating a prosperous society while socialism and Obamism are a dead hand on the jugular of the economy that can only produce the dispirited and ever-more-malevolent stagnation we see now.

You see, it’s all a matter of INFORMATION.

Here’s where it all began. Right after World War II, Shannon, Von Neumann, and others established the principle that Information is a kind of third element in the universe, something entirely separate from matter and energy.

The physical sciences had established the law of conservation of matter and energy and Einstein’s equation of E=mc2 made the startling proposal that they were interchangeable. (That’s the basis of “nuclear power.”) But Von Neumann and Shannon argued that Information is something entirely different and has its own laws. You could think of it along the lines of Aristotle’s “Form,” which exists entirely apart from Matter but interacts with it.

The first rule of Information, as worked out by Shannon, who worked at MIT and Bell Labs, is that the more information is contained in a stream of data, the more irregular it will be. This seems somewhat counterintuitive. You would think irregularity would mean randomness and randomness wouldn’t give you any information. Not so. Actually, randomness has a kind of simplicity and predictability that is not entrained in any message of significant import. New information is unpredictable and therefore always a “surprise.” This is how the world evolves, through new information.

Gilder’s best illustration of this is his comparison of a casino and the stock market. At first there would not seem to be any difference — and in fact some highly trained economists argue that the stock market is nothing but a casino. But a casino is actually a very orderly place. The odds are determined by the owners and the outcome is quite predictable, no matter how chaotic or unpredictable it may seem to individual bettors.

The stock market is entirely different. It is constantly being changed by new information. And although that information may not be immediately accessible to all the participants — and is always somewhat unexpected — things do change and the world changes along with it. If all goes well, new information is constantly improving the world in which we live.

The key to all this, Gilder explains, is a theorem first expounded by Shannon that information works best when it is transmitted through a “low-entropy” carrier that has a minimum of irregularity. This makes it possible to separate the high irregularity of the message from the random static or “noise.” As you might expect, Gilder quickly elevates this into a grand model (or is it just a metaphor?) for the economy. The “low-entropy carrier” is the non-interventionist state, which maintains property rights, settles disputes, provides a reliable money supply and creates a secure and predictable environment but does not try to interpose its own message into the information stream. This allows the high-entropy informational “messages” of entrepreneurs to flourish as they discover and create new things on the borders of technology that improve our lives. It is only when the government tries to write the message — using its power to substitute its own information and purpose — that information becomes garbled and stagnation abides.

“From the perspective of information theory, [government] regulation is mainly an effort to replace knowledge with power,” he writes. “In general, the more regulation, the less information.”

Where Gilder is at his finest is when he describes just exactly what it is that makes entrepreneurs — some of them at least — so successful and why “the 1 percent” ends up with all that money:

Look at the “Forbes 400” list of America’s wealthiest people… and hold your nose (no movie stars here). Many of them are short and crabby, beaked and mottled, fat and foolish. Several never finished high school, and only about two-thirds of those who sent to college managed to graduate. A society may tolerate an aristocracy certified by merit. But capitalism seems to exalt strange riffraff with no apparent rhyme or reason.

So what makes these people so rich? Is it greed or luck or inheritance or the willingness to take advantage of other people? No, says Gilder, it is their knowledge that brings them success — and a very specific kind of knowledge at that:

Entrepreneurial knowledge has little to do with the certified expertise of an advanced degree from an establishment school. It has little to do with the gregarious charm of the high school student voted most likely to succeed. The fashionably educated and cultivated spurn the kind of fanatically focused learning undertaken by the 1 percent. Wealth all too often comes from doing what other people consider insufferably boring or unendurably hard.

The treacherous intricacies of building codes or garbage routes or software languages or groceries, the mechanics of butchering sheep and pigs or frying and freezing potatoes, the mazes of high-yield bonds and low-collateral companies, the murky arcana of petroleum leases or housing deeds or Far Eastern electronics supplies, the ways and means of pushing pizzas or insurance policies or hawking hosiery or pet supplies, the multiple scientific disciplines involve in fracking for natural gas or tapping shale oil or contriving the ultimate search engine, the grind of grubbing for pennies in fast-food unit sales, the chemistry of soap or candy or the silicon-silicon dioxide interface, the endless round of motivating workers and blandishing union basses and federal inspectors and the IRS and EPA and SCE and FDA all are considered tedious and trivial by the established powers.

Most people think they are above learning the gritty and relentless details of life that lead to the creation of great wealth. They leave it to the experts. But in general, you join the 1 percent of the 1 percent not by leaving it to the experts but by creating new expertise, not by knowing what the experts know but by learning what they think is beneath them. Entrepreneurship is the launching of surprises.

Has anybody ever said it better? Is there anything else you need to know about entrepreneurs?

The problem, of course is that people such as Senator Elizabeth Warren or our dear President Barack Obama think that because they built a road in front of the entrepreneur’s house or provided him with a third-grade education, they deserve as much credit as the person who founded a multi-million-dollar fast-food chain or for that matter a local plumbing company. Such people are good at appropriating, not creating.

Of course as anyone who has ever watched a politician in action knows they are all closet entrepreneurs themselves with big plans of how to spend money if only they could get their hands on some. President Obama himself has a grand plan for closing down the fossil fuel economy and replacing it with “energy from wind, sun and soil.” If you asked him, he probably couldn’t explain to you the difference between voltage and amperage but that’s alright — he’s got history and the popular opinion of academia on his side.

The great advantage of capitalism, declares Gilder, is that it puts money in the hands of people who know what they’re doing. When people can keep the fruits of their success, they create more successes. Or alternately, if they don’t, their money soon departs. When the government “invests,” however, there is no such confinement. If something goes wrong the government just pats itself on the back and says its intentions were good, then hands the bill to taxpayers. Only last week Secretary of Energy Ernest Moniz was telling everyone the lending program that produced Solyndra and Range Fuels was a big success.

All this wouldn’t seem so serious if there were not people out there who are arguing just the opposite. As Gilder documents in an early chapter, there is now a whole school of economists who claim to prove that private investment contributes nothing to the economy and that all economic progress comes from government spending. Just look around you and you’ll see the results (unless of course you live in the upside down world of Washington).

There are some annoying tics in this book. Gilder never, never lets up on Darwinism but seems to think that all the bad ideas in the world can be traced back to the notion that Evolution leaves no room for the “élan vital,” as French used to call it. He also finds it necessary to distance himself from Adam Smith, Ludwig von Mises, Friedrich Hayek and all the other great economists who have defended capitalism and free markets. None of them, he says, appreciated the de novo creativity of the entrepreneur.

In the end, Gilder’s entrepreneur becomes almost a shaman-like figure, dancing on the edge of the future, bringing us back secrets from who knows where. I don’t know whether I believe all this and I don’t know whether most entrepreneurs would accept it either. But I do know that the world around us was built by people who had a vision of something that once didn’t exist and who spent their whole lives trying to turn it into a reality. And I know that anyone who comes along and tells them “You didn’t build that” not only never built anything in their lives but are only leading us into a future that will only be a degraded version of what we already have.

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