In 1981, George Gilder published “Wealth and Poverty,” an apologia for supply-side economics. His timing proved fortuitous: the book, released a few weeks into Ronald Reagan’s first term, not only popularized its subject matter, but also turned Gilder himself into “Reagan’s most-quoted living author” and thus plausibly helped launch the supply-side revolution of the Reagan era.
Now, in “Knowledge and Power,” Gilder’s latest work, he has combined science and analysis with autobiography and travelogue to present an updated understanding of economics: the “information theory” of capitalism. Inspired by the technological revolutions of Silicon Valley, Gilder believes that “for the purposes of economics, the key insight of information theory is that information is measured by the degree to which it is unexpected.”
The economy, in other words, resembles a circuit, and economies prosper to the degree this ‘circuit’ lacks interference and genuine entrepreneurial ‘surprises’ can occur. Government functions best when it acts as a stable channel for information while refraining from excessive interference in the form of taxes, regulations, subsidies, and the like.
The free flow of information, then, is the goal of economic policy, not the equilibrium sought in one form or another by conventional economists of left and right. It’s certainly a novel insight. Understandably, Gilder constructs much of the foundation for it with insights drawn directly from Silicon Valley. Unfortunately, this renders the beginning of the work rather arcane.
But once this heavy lifting is over, Gilder can apply his new theory, with devastating results for some of his targets plucked from conventional wisdom. Economies become not closed loops of demand, as Keynesians believe, but ever-expanding, unpredictable loops of new supply. Modern environmentalism becomes largely a waste of time, since its concomitant policies “…erode the value of every entrepreneurial initiative in the U.S. economy” while “the wealth and technology brought by economic growth are indispensable to a clean environment.”
Economic inequality and low taxation for wealthy investors become not merely necessary but moral “because of the superiority of [their] entrepreneurial knowledge as investor[s] of capital.” Free markets did not cause the 2008 financial crisis. It was the collusion of big government and big banks to prevent the free flow of information.
Gilder makes these and other assertions with an intellectual freshness likely to give his ideas significant staying power. His diagnosis of the financial crisis, in particular, is one of the more convincing to emerge out of that young, but already extensive field (though one must wonder whether his analysis is guilty of the same retroactive “predicting” of which he accuses some economists).
Gilder is on less sure ground, however, when positively advocating his own program, as was implicit in some of his criticisms of the programs of others. Does his belief that wealthy investors deserve lower tax rates because their capital conveys more information tacitly justify ‘regressive’ taxation? How firmly can the U.S. economy rely on its entrepreneurial class if, as Gilder himself notes, it is prone to indulging in costly whims like modern environmentalism? Can one easily write off Tyler Cowan’s “Great Stagnation” (the theory that our economy has made all the ‘easy’ innovations and new ones will come much harder), as Gilder does, if only a technocratic elite can understand, much less master, the new technology it promises? Gilder does not say.
His belief, moreover, that “the most important question for the future of America is how we treat our entrepreneurs” also mystifies. Currently, much of the Republican Party’s economic platform reflects the economic interests of entrepreneurs, but the Democratic Party’s reflects their political and social interests. That is to say, our politics already treats entrepreneurs quite well. But no matter how much progress these generators of surprise have enabled on our behalf, no practical political program can succeed without somehow speaking to the interests of everybody else. The failed presidential campaign of Mitt Romney ought to have shown this clearly; a chapter included about Romney on the assumption he would win makes one doubt Gilder has learned this.
Ultimately, “Knowledge and Power” is indeed a unique book that could to change the nature of this country’s economic debate. One ought at least to credit Gilder for advancing a highly original understanding and defense of free markets. Yet he too often relies on and digresses into abstruse technical or philosophical language, does not articulate a practical, winning political program, and never fully transcends the perception that this new theory is merely an Information-Age disguise for the old. Gilder’s ideas have potential, but getting the surprise our political economy needs may require a superior work or another author.
