Search This Blog

Sunday, April 12, 2015

Grasping the essence

It has been my experience that in studying the literature on complex subjects in social science such as economics,  many of the people with significant insights could be considered polymaths.  Some time in the past year I was discussing some ideas espoused by George Gilder with  my coblogger.  He asked if I considered Mr. Gilder to be a polymath.  I've read many articles and most of the books authored by Mr. Gilder but had not thought about that question.  After a pause to think about the matter, the reply was a clear "yes."  A few weeks later while watching a video of Deirdre McCloskey, George Gilder and his ideas came up in discussion.  It was clear that McCloskey, herself an obvious polymath, considers Gilder to be a polymath.  With that introduction, here are some excerpts from  Unleash the Mind by George Gilder:
The belief that wealth consists not chiefly in ideas, attitudes, moral codes, and mental disciplines but in definable static things that can be seized and redistributed—that is the materialist superstition. It stultified the works of Marx and other prophets of violence and envy. It betrays every person who seeks to redistribute wealth by coercion. It balks every socialist revolutionary who imagines that by seizing the so-called means of production he can capture the crucial capital of an economy. It baffles nearly every conglomerateur who believes he can safely enter new industries by buying rather than by learning them. It confounds every bureaucrat of science who imagines he can buy or steal the fruits of research and development.  
Even if it wished to, the government could not capture America’s wealth from its one percent of the one percent. As Marxist despots and tribal socialists from Cuba to Greece have discovered to their huge disappointment, governments can neither create wealth nor effectively redistribute it. They can only expropriate and watch it dissipate. If we continue to harass, overtax, and oppressively regulate entrepreneurs, our liberal politicians will be shocked and horrified to discover how swiftly the physical tokens of the means of production dissolve into so much corroded wire, abandoned batteries, scrap metal, and wasteland rot. 
Capitalism is the supreme expression of human creativity and freedom, an economy of mind overcoming the constraints of material power. It is not simply a practical success, a “worst of all systems except for the rest of them,” a faute de mieux compromise redeemed by charities and regulators and proverbially “saved by the New Deal.” It is dynamic, a force that pushes human enterprise down spirals of declining costs and greater abundance. The cost of capturing technology is mastery of the underlying science. The means of production of entrepreneurs are not land, labor, or capital but minds and hearts. Enduring are only the contributions of mind and morality.

Entrepreneurship is the launching of surprises. The process of wealth creation is offensive to levelers and planners because it yields mountains of new wealth in ways that could not possibly be planned. But unpredictability is fundamental to free human enterprise. It defies every econometric model and socialist scheme. It makes no sense to most professors, who attain their positions by the systematic acquisition of credentials pleasing to the establishment above them. Creativity cannot be planned because it is defined by information measured as surprise. Leading entrepreneurs—from Sam Walton to Larry Page to Mark Zuckerberg—did not ascend a hierarchy; they created a new one. They did not climb to the top of anything. They were pushed to the top by their own success. They did not capture the pinnacle; they became it.

Most of America’s leading entrepreneurs are bound to the masts of their fortunes. They are allowed to keep their wealth only as long as they invest it in others. In a real sense, they can keep only what they give away. It has been given to others in the form of investments. It is embodied in a vast web of enterprises that retains its worth only through constant work and sacrifice. Capitalism is a system that begins not with taking but with giving to others.
 
For this reason, wealth is nearly as difficult to maintain as it is to create. Owners are besieged on all sides by aspiring spenders—debauchers of wealth and purveyors of poverty in the name of charity, idealism, envy, or social change. Bureaucrats, politicians, bishops, raiders, robbers, short-sellers, and business writers all think they can invest money better than its owners. In fact, of all the people on the face of the globe, it is usually only the legal owners of businesses who know enough about the sources of their wealth to maintain it. It is usually they who have the clearest interest in building wealth for others rather than spending it on themselves.

Entrepreneurial knowledge has little to do with certified expertise, advanced degrees, or the learning of establishment schools. The fashionably educated and cultivated spurn the kind of fanatically focused learning commanded by the innovators. Wealth all too often comes from doing what other people consider insufferably boring or unendurably hard. 
The treacherous intricacies of software languages or garbage routes, the mechanics of frying and freezing potatoes, the mazes of high-yield bonds and low-collateral companies, the murky lore of petroleum leases or housing deeds or Far Eastern electronics supplies, the multiple scientific disciplines entailed by fracking for natural gas or contriving the ultimate search engine—all are considered tedious and trivial by the established powers. 
Most people consider themselves above the gritty and relentless details of life that allow the creation of great wealth. They leave it to the experts. But in general you join the one percent of the one 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.

Most of the world, then as now, was engaged in one of its periodic revulsions against capitalist  “greed” and waste. Lester Thurow of MIT was proclaiming a “zero sum society,” where henceforth any gains for the rich must be extracted from the poor and middle classes. William Sloane Coffin, the formidable Yale chaplain, was inveighing against capitalist orgies of greed and environmental devastation. Howard Zinn and Noam Chomsky were denouncing Western capitalism for displacing American Indians and condemning Israelis for displacing Palestinians (rather than praising the settlers in both countries for reclaiming and redeeming wastelands and hugely enlarging the populations they could support). Edward Said was conducting his Columbia classes (fatefully introducing the works of Frantz Fanon to future president Barack Obama) on Western psychological colonization and hegemonic evisceration of the entire Third World. 
Here we go again, deep in the New Millennium. The themes of exploitation and zero-sum equality continue to preoccupy the media. Congress remains enthralled with static accounting rules that assume tax-rate reductions will not alter economic behavior. In this model, the only way to expand tax receipts is to raise rates on the “rich.”

By focusing on incentives rather than on information and creativity, free-market economists have encouraged the idea that capitalism is based on greed, although, as we have seen, entrepreneurs cannot in general revel in their wealth, because most of it is not liquid. Greed, in fact, only motivates capitalists to seek government guarantees and subsidies that denature and stultify the works of entrepreneurs. The financial crash of 2007 and beyond reflected orgies of greed among crony capitalists awash in government guarantees and subsidies, sitting on their Fannies and Freddies, feeding in the troughs of Treasury privileges and government insurance scams. Greed leads as by an invisible hand to an ever-growing welfare and plutocratic state—to socialism and near-fascist corporatism (see Jonah Goldberg’s Liberal Fascism for details).  
The secret of supply-side economics is not merely to incentivize people to work harder or accept more risk in order to gain a greater reward. That could be done under socialism. The reason lower marginal tax rates produce more revenues than higher ones is that the lower rates release the creativity of employers, allowing them to garner more information. They can move more rapidly down the curves of learning and experience. They can learn more because they command more capital to use in their trade. With more capital they can attract more highly skilled labor from around the globe. They reduce time and effort devoted to avoiding taxes and interpreting regulations and consulting lawyers and accountants. With fewer resources diverted to government bureaucracy, they can conduct more undetermined experiments, test more falsifiable hypotheses, try more business plans, generate more productive knowledge. 
It is not the enlargement of incentives and rewards that generates growth and progress, profits and capital gains for the entrepreneur and revenues for the government, but the combination of new knowledge with the power to test and extend it. Volatile and shifting ideas, not heavy and entrenched establishments, constitute the source of wealth.

These are not the conventional ideas that enter most discussions about economics, growth and wealth creation, but they are part of much deeper insight than most people will ever acquire.

15 comments:

Harry Eagar said...

'Most of America’s leading entrepreneurs are bound to the masts of their fortunes. They are allowed to keep their wealth only as long as they invest it in others. In a real sense, they can keep only what they give away. It has been given to others in the form of investments. It is embodied in a vast web of enterprises that retains its worth only through constant work and sacrifice. Capitalism is a system that begins not with taking but with giving to others.'

hat explains D. Trump. Thank for clearig that up.

Clovis e Adri said...
This comment has been removed by the author.
Clovis e Adri said...

I also enjoyed that part:

"Howard Zinn and Noam Chomsky were denouncing Western capitalism for displacing American Indians and condemning Israelis for displacing Palestinians (rather than praising the settlers in both countries for reclaiming and redeeming wastelands and hugely enlarging the populations they could support)."

To be clear, if you can make some place more efficient by displacing and killing its previous populations, it is all right.

You see, the Holocaust is justified here too, all those Germans were in need of ever more efficiency... and they've got it!

Harry Eagar said...

Lebensraum, a capitalist concept.

Howard said...

So before commercial culture gained greater acceptance, warrior culture was only about peace and political culture was only about gentle persuasion...right. I forgot, everything bad in the world is the fault of capitalism...or Bush.

Also, inability or willful refusal to acknowledge the difference between "most" and "all" is duly noted.

Howard said...

Lebensraum also derived from roots in Romanticism which you conveniently leave out.

Clovis e Adri said...

Howard,

You won't get away so easily by invoking the past here.

The quote I showed has no temporal qualifiers. It is a simple opinion that, I believe, means pretty much what I pointed out above.

This "survival of the fittest" kind of position is very pervasive in right-wing ideology, even when a bit disguided, so I am just making it clear above. You can defend or disagree with it if you wish, but what you can not do is to hide it again by use of generic historical comments.

Harry Eagar said...

I was being sarcastic. If you want to get historical about it, the Drang nach osten was justified, when it needed moral justification, by Christianity.

I don't agree with Gilder. I was introduced to him more than 40 years ago by the man (I have mentioned him before) who was the first conservative I ever met who was not racist.

Rather than polymath, I'd call Gilder the most successful commercialization of the Dunning-Krueger Effect.

Howard said...

Harry,

Some people make a lot of progress in 40 years, others not so much. Given that Mr. Gilder was able to write a book like Wealth & Poverty in 1981, it's possible that your assessment was a tad off the mark.

Clovis,

Fair enough - good point. I was a bit surprised that Gilder made that point and did it so glibly. That is not the way I would explain or justify things. The Israeli/Palestinian matter requires a separate post to even begin explaining... My dismissal of Zinn and Chomsky is that they present some legitimate denunciations but that they are in service of a dangerous nihilism and not as a corrective.

Harry Eagar said...

True, but that didn't happen with Gilder:

http://pandasthumb.org/archives/2006/07/the-technogeek.html

Howard said...

Harry,

That website has an enthusiasm that seems appropriate for "true believers." Not the kind of sobriety one would hope for...

The author of that review is part of a "shooting war."

I am not an Intelligent Design type. However, there is mounting evidence that will leave evolution fanboys stuck with a much narrower range of explanatory power within the debate. That will require a seperate post.

Annoying Old Guy said...

Howard;

None of those fanboys *really* believe in evolution, in that they don't think it applies to humans. For instance, the claim that gender is a social construct isn't compatible with evolutionary belief, yet it's easy to find people who claim both.

Howard said...

AOG,

Good point. If we give them credit for understanding the limits - questionable - what's left? A handy bludgeon to use against people of faith and an easy means of social signaling.

Annoying Old Guy said...

Howard;

Yes. It's purely a status marker.

Harry Eagar said...

People of faith do not have to be people without science, but a lot of them are.

They do have to compartmentalize, which seems like the kind of effort that would tend to lessen faith, but for many it doesn't. We are a labile species.