September 22, 2014

George Gilder Has A Very Big, Economy Boosting Idea

binary-universeYou’ve heard me assert elsewhere that just as Marx and Freud have fallen, so will Darwin. And by it I mean Darwinian creation mythology, particulary the idea that the universe is random. Think of it this way: if the universe was indeed random at the outset, then where did the laws that govern matter come from? They could not have existed apart from matter because in that case the universe would not be random. The only place the laws could have originated from is the matter itself. Anything else explodes the mythology.

The real problem here is course are the materialist presumptions that shaped the mythology. We call it philosophical materialism and it created what historians call The Myth of Progress. The Myth was heady stuff in its day but it was exclusively dependent on philosophical materialism, the idea that all that exists is matter. Freud applied the thesis to the person, Marx to history, and Darwin to origins. Faith in the Myth died on the killing fields of WWI when Europe sacrificed a generation of young men for essentially nothing, although the philosophical precepts would live on (Marxism fosters gulags, Nazi eugenics fosters concentration camps, and so forth) even to today.

What would a world free of the materialist presumptions look like? Read the essay below. It deals with economics, but what it really challenges is the notion that systems are self-contained (like the laws of nature emerging from matter). This materialist presumption also is the philosophical ground of ideology — of the self-referencing closed system applied to politics (including the more recent Progressive variants). The breaking the strangle hold of the mythology by rejecting the presumption that systems can be closed will lead to all sorts of new associations not presently visible.

One quote:

Kurt Gödel. . .was Einstein’s best friend all through the last years of his life, and Gödel in 1930 was testing the proposition – you know, Whitehead and Russell were trying to create Principia Mathematica, were trying to create a hermetically sealed, logical scheme that essentially could encompass the entire universe in its determinist findings — and Gödel discovered that any logical scheme whatsoever is necessarily dependent on propositions that can’t be proven within the logical scheme. This means that that whole determinist aspiration of 20th century science and physics is doomed. Then Alan Turing — the great inventor of the Turing Machine, the fundamental computer architecture — proved that no computer can be a consistent and coherent logical scheme. Computers need programmers, they need what Turing called ‘oracles’, they need a source of axioms outside the computer system itself. These oracles in the computer industry are programmers; in the economy these oracles are entrepreneurs. They’re creative inventors and innovators.

Source: Forbes Magazine | Jerry Bowyer

George Gilder made a name for himself with his instant classic Wealth and Poverty. Published in 1981, it appeared at precisely the right moment, explaining the principles of supply side economics, while revealing that the left didn’t have a monopoly on intellectuals. It also showed that the conservative movement had serious thinkers of its own.

I read Wealth and Poverty back in my college years when it was fresh off the presses. It changed my life in ways too numerous to list here. I gave it a refresher read several years ago and was well rewarded for doing so. It’s one of those books that changes things, that spawns imitators and movements. So is his new book Knowledge and Power, at least I think so.

In fact, I suspect that it may be the most important economics book of the 21st century. I had the pleasure of sitting across a Skype connection with Gilder at the other end at a Discovery Institute conference. To listen to the interview which ran almost a full hour, click here. For a partial transcription of the interview, read what’s below and the remaining two articles in the series.

Jerry: “First, let’s start off with the major question. Every great book has a big idea; what’s your big idea? What’s the big idea in Knowledge and Power?”

George: “That capitalism is chiefly a knowledge system, rather than an incentive system. After all, when the Neanderthal in his cave had the same set of physical appetites and natural resources that we have today — the difference between our lives and the lives of Stone Age penury is the growth of knowledge, which is a process of learning which depends on falsifiable experiments. A great result of the research in Knowledge and Power is that crony capitalism necessarily fails because it thwarts the emergence of knowledge. Knowledge comes from experiments that can either succeed or fail. If they’re guaranteed ahead of time, information theory tells us that they cannot yield real profit; any profit they yield is extorted from the rest of us.”

Jerry: “So, perhaps moral objections to crony capitalism – the unfairness of it – are true, but beside the main point. Crony capitalism makes us stupider.”

George: “Yeah, that’s right. A sure way to stultify an economy is to separate the knowledge which is in all our heads, dispersed around the world with each person with a different perspective and set of skills, from the power to actually carry through these experiments of enterprise. Power is centripetal, it tends to go to the people with guns in Washington, and knowledge is dispersed. What makes an economy work is the alignment of knowledge and power.”

Jerry: “Hence the title of the book. Knowledge and power have to be in proper alignment with one another.”

George: “Yeah. And the crisis of our time is epitomized by heavily subsidized and guaranteed leviathans, like Goldman Sachs, Archer Daniels Midland, Harvard University, or Fannie Mae and Freddie Mac. They’re all these gigantic institutions who essentially depend on government guarantees.”

Jerry: “When you say that the system is principally a system of knowledge, and not of incentives, are you saying that incentives don’t matter or more so that they’re just not the main driver of economic growth?”

George: “They’re just not the main driver. They don’t, in themselves, create wealth. They’re universal in all human societies – they’re all governed by incentives. What makes capitalism different is it allows experimental enterprise, which could succeed or fail and thus yield increasing knowledge. Wealth inheres in the creation of knowledge.”

Jerry: “There’s been a strong emphasis among our supply-side brethren – I’m a supply-sider, as are you, or at least I’d still hold to that label – but there certainly is a strong emphasis among supply-siders on incentives. What do you say to that? Do you say to them, “Yes, but that’s not the whole story”? “No, that’s not what matters”? How do you talk to traditional supply-side thinking, with its strong emphasis on incentives rather than on knowledge-gathering?”

George: “Well, I say that the incentives are significant but that the reason they’re significant, and the reason the supply-side is so much more important than the demand-side, is that the supply-side is actually generating new knowledge. Whenever a company launches a new product it’s really testing an idea; and if the idea succeeds, if it’s supported in the market place, the knowledge inhering in that idea is incarnate in the economy. That is how growth occurs. It’s a process of learning. Demand-side has very little knowledge in it — it’s really reduced to pricing and transactions. The big mistake of most economics is it tries to parlay a theory of transactions into an entire economy, but what really makes the economy work is creativity, and creativity always comes as a surprise to us. If it didn’t, planning socialism would work. We wouldn’t need creativity. But the essence of creativity is surprise; it’s the unexpected product. My big discovery was that we already have a whole apparatus of mathematics and theory called Information Theory, which defines information itself as surprise. Information, according to Claude Shannon, the real founder of information theory, is unexpected bets. He defined it as entropy — it’s unpredictable results. And the mistake of all prevailing economic models is that they’re focused on equilibrium, they’re determinist theories. A determinist theory can’t accommodate surprise, by definition; it has to patch in surprise or treat surprise as exogenous and thus it can’t address creativity. And creativity is the source of all our wealth in human progress.”

Jerry: “Creativity is from outside the system, right? That’s Kurt Gödel’s insight: That there have to be givens from outside any mathematical system, that the givens of a system can’t be generated by the system itself.”

George: “Yeah. I think this was the most important discovery of the 20th century. It’s Kurt Gödel, who was Einstein’s best friend all through the last years of his life, and Gödel in 1930 was testing the proposition – you know, Whitehead and Russell were trying to create Principia Mathematica, were trying to create a hermetically sealed, logical scheme that essentially could encompass the entire universe in its determinist findings — and Gödel discovered that any logical scheme whatsoever is necessarily dependent on propositions that can’t be proven within the logical scheme. This means that that whole determinist aspiration of 20th century science and physics is doomed. Then Alan Turing — the great inventor of the Turing Machine, the fundamental computer architecture — proved that no computer can be a consistent and coherent logical scheme. Computers need programmers, they need what Turing called ‘oracles’, they need a source of axioms outside the computer system itself. These oracles in the computer industry are programmers; in the economy these oracles are entrepreneurs. They’re creative inventors and innovators.”

Jerry: “So the market system is the operating system at best, but it’s not the user. That the entrepreneur uses an operating system called the market economy: there’s hardware to it, there’re rails and canals and buildings and factories; there’s software to it, in the sense that there’s operating system software equivalent to DOS or Windows or Linux or whatever, but that thing just lies there dormant until a user sits down at the keyboard and starts changing things, and that user’s the entrepreneur.”

George: “That’s right. And those operating systems themselves in turn were generated by other inventors and entrepreneurs and programmers. Every logical scheme and every machine requires an oracle, as Turing put it. The only thing Turing could say about that oracle, and he italicized it, is that it cannot be a machine. A machine is an orderly system, and all information is disorder; it’s disruption; it’s surprise.”

Jerry: “So, the basic operating system or the machine or whatever you want to call it, it has to have an order precisely so you can identify it, precisely so that you can filter it out so you can see the signal.”

George: “That’s right. That’s exactly true. The way the put it in Information Theory is to say that it takes a low-entropy, no-surprises carrier to bear high-entropy, surprising content. Any influence from the carrier to the content is called ‘noise’. In an economy, that low-entropy carrier is constitutional government, and contract law, and the rules of the road as Hayek defined them. Property rights are absolutely indispensable, they’re essential.”

Jerry: “Stable family?”

George: “Stable families are a further crucial institution that project the economy into the future. Without stable families, people aren’t oriented toward a long-term future embodied in children.”

Jerry: “So, is the problem with progressive ideologies that they want to introduce the change, the dynamism of society, into the carrier instead of into the signal?”

George: “That’s right. That’s a very good way to put it. It’s not precisely in those terms but that’s a good summation of the theme of Knowledge and Power. One of the themes is that the illegitimate effort of lawyers and politicians to manipulate the law in order to advance their own interests is a kind of cancer of capitalism. When entrepreneurship is addressed not to falsifiable experiments of enterprise but to guaranteed ventures of law and political power, that’s the great disorder of our time.”

Jerry: “So, they introduce dynamism into the system in the sense of new family forms, new constitutional doctrines, and new moral codes rather than ‘those things are the stable carrier’ and what’s new is new technologies, new business models, new trading partners…”

George: “New inventions, new ideas. When the institutional structure is unstable — when the money supply gyrates massively — interest rates are manipulated, government regulations are constantly intervening. The result is to shrink the horizons of the economy, the time horizons of the economy. What you get is the kind of economy we’ve been experiencing in the United States where a third of all profits migrate to financial transactions, and where a company like Goldman Sachs invests much of its effort into reducing from microseconds to nanoseconds the speed of their trading programs.”

Jerry: “Because they live off distortions in the signal; they don’t live off the signal. They live off the distortion, they live off interest rate suppression, for example.”

George: “That’s right. That’s well put. The way I put it is: Main Street and Silicon Valley want long-term monetary stability, they want to be able to make long-term bets on companies that last years and decades – Wall Street — and for this they want a guaranteed legal structure so that the upsides, when they come, can be protected. What Wall Street likes, a lot of the time, is volatility and instability, and they want the downsides protected by government guarantees. That’s why there is this tension between Wall Street and Main Street and Silicon Valley, and why I think one of the tragedies of the recent era has been Silicon Valley’s defection to the government side; Silicon Valley now is oriented toward getting government guarantees for their green projects.”

Jerry: “I think you said once, “It’s covered with green goo.””

George: “Yeah, that’s green goo. Another way is, “Silicon Valley is sicklied o’er by a pale cast of green goo,” is the way I put it in the book, I believe.”

Jerry: “It’s a shame. That’s a lot of talent wasted.”

George: “It’s a tremendous talent. As Forbes has calculated, a fifth of all GDP and close to 70% of corporate market cap in America comes from companies launched by venture capitalists.”

Jerry: “If the US were on the gold standard and the world’s currencies were linked, were pegged to a gold dollar, than the profession of currency trader would essentially disappear. There’s nothing to trade, it’s all gold-backed. And a lot of bond-trading jobs would disappear from that, and I guess those people would gravitate towards a more honest living – creating their own new signal to send down the channel.”

George: “That’s right.”

Comments

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    geo michalopulos says:

    The creation myth of Darwinism will crumble in time.

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      James Bradshaw says:

      My knowledge of evolutionary theory is limited, and I’m hoping someone can explain something in a way that even a non-scientific person like myself can understand because Google isn’t telling me: how does Darwinism explain how complex systems formed over time? For example, before there was a circulatory system (which requires a beating heart and a network of blood vessels), what was there? Further, how could an organism that possessed this crude and non-functioning system exist long enough to transmit this information onward to another physical being via reproduction or some other mechanism?

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    Michael Bauman says:

    James, the real problem with evolutionary theory is that it is based on philosophical naturalism and therefore cannot account for origins in any other way than material processes. There are a lot of holes. They really can’t account for the existence of life at all. Even a well known atheist, Thomas Nagel, has written a book recently calling into question the adequacy of that kind of approach: Mind and Cosmos. I haven’t read it, but I understand that it created a bit of consternation in the evolutionary community.

    Remember, facts are meaningless outside of context. The a priori assumptions that one uses to identify, select, organize and interpret facts is the context. Such assumptions even determine what is considered a fact and what is not.

    Two vastly different fundamental assumptions:

    Evolutionists: No God, no divine intelligence nothing unseen, all material. The organization and life we see around us and in us just happens. No reason, no motive, just “billions and billions of stars”. We are a cosmic accident.

    Orthodox Christians: A loving Triune God creates from love out of nothing both visible and invisible creatures and material things imbuing them with His life and us with His image and likeness. Hence man is at the center of creation as mediator between the seen and the unseen.

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      Fr. Johannes Jacobse says:

      Another point. If the universe was indeed random (no overarching or penetrating logic/intelligence existed) as the Darwinian creation story contends, then where did the laws the govern matter come from? The only possible answer is from matter itself. (Theological evolution does not work because that negates the axiom that the universe was random.)

      You might like this article:

      George Gilder: Evolution and Me

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