Sunday Book Review #95 – Wealth and Poverty and Freedom Manifesto

Wealth and Poverty by George Gilder is one of the best books on economics that I have ever read, right alongside Milton Friedman’s Free to Choose.  But before discussing Gilder’s book, I will briefly discuss the book that directed me to Gilder.   

A couple of weeks ago, I read Freedom Manifesto by Steve Forbes.  Forbes is an erstwhile Republican presidential candidate (1996 and 2000) and current editor-in-chief of the namesake magazine founded by his grandfather.  Despite his nepotistic life, Forbes has a history of accomplishment, and that is why I decided to give his book a gander.

Forbes is famous as an arch conservative (flat tax, school vouchers, privatization of Social Security), but he does not use Freedom Manifesto to flack his policy solutions.   Rather, he uses it to describe how America has deviated from the fundamental economic values that made it great and how it can return to greatness by returning to those values.  His principal rhetorical device is to contrast examples of old-time good America with new-style deviant America:

1. FedEx or the Post Office?  Free markets meet people’s needs; big government meets its own needs.  Bottom line: do you want the bureaucracy that gave you the Post Office to direct your medical treatment and run critical industries?  What has government ever run well?  Some might say the military, but actually the military only needs to compete against other militaries.  Parkinson’s Law – bureaucracies are amazingly unproductive.  People talk about the need for Zuckerberg or Jobs to “give back.”  That’s a variation of Obama’s “you didn’t build that.”  Forbes thinks that Thomas Edison didn’t need to give back; he’d already given as part of his capitalism trade – the basis of the free market is giving, not greed.  Profit enables markets to do good.  That’s why Jobs was correct in trying to make a profit off Wozniak’s invention even though Wozniak wanted to give it away.
2. Freedom or Big Brother?  Choice v. Coercion.  Choice is being taken away in education and health care.  Big government’s coercive “cure” is often worse than the disease.  Rent control; mandatory coverage in health insurance policies.  Economic freedom means more “common good.”
3. Silicon Valley or Detroit?  Creativity and abundance v. rigidity and scarcity.  The true engine of innovation: free markets, not government.  Creative markets advance “the greater good.”  Entrepreneurial creativity is in the Judeo-Christian tradition.  Big government: the anti-innovator.  Big government creates scarcity.  How big government kills innovation: the case of the FDA.  Military innovation?  Yes, but….  Big government kills innovation by “encouraging” it – Volt.
4. Paychecks or Food Stamps?  Empowerment v. dependence.  Bottom line: Aren’t people better off developing their talents and learning how to help themselves rather than being trapped in dependency on government?  Pay people for something – and get more of it.  Assistance or enabling.  “Moral hazard”: how dependency corrupts your judgment.  Big government moral hazard and the bubble of “unfair” college tuition.  Dependence on government erodes your freedom.
5. Apple or Solyndra?  Meritocracy v. Cronyism.  Big government cronyism crushes the little guy.  How crony capitalism destroys wealth creation. 
6. The Spirit of Reagan or Obama?  Optimism and cooperation v. pessimism and distrust.  Problem-mongering: the surest path to power.  Rahm Emanuel – you never want a serious crisis to go to waste.

In his book, Forbes makes several glowing references to George Gilder and his classic 1981 book titled Wealth and Poverty.  Because Gilder had recently authored an updated 2012 edition of this classic, I decided to read that, too.

Like Freedom Manifesto, Gilder’s Wealth and Poverty is eye-opening and inspirational.  Instead of being an apologist for capitalism (i.e., a necessary evil), Gilder unabashedly claims that capitalism brings out the best in people, including altruism.  Because Gilder is a great fan of Ayn Rand, he felt it necessary in his Prologue to explain why Rand was incorrect in concluding that capitalism and altruism were inconsistent:

• “I hugely admired Rand, who flung her moral defense of capitalism in the face of Soviet terror and socialist intellectual tyranny.  But toward Christian altruism she indulged an implacable hostility, stemming in part from her own simplistic atheism and in part from her disdain for the leveler babble of sanctimonious clerics.”

Gilder is a confirmed supply-sider and his protagonists are Arthur Laffer, along with Friedman, Hayek, Buckley, Kristol, Kemp, and Wanniski, while his antagonists are demand-siders Galbraith, Thurow, Zinn, Chait, Krugman, and of course Keynes. 

In addition to Gilder’s moral defense of capitalism, I was most impressed by his two-pronged argument that effective capitalism requires (a) the accumulation of capital, and (b) a capitalistic spirit in its people. 

With respect to the need for accumulated capital, I have long argued that kids from third-world countries can get a world-class college education in America and then flounder when they go back home because there is no accumulated capital to leverage their education.  Barack Obama, Sr., would be an excellent example of this. 

But Gilder takes my argument one step deeper by pointing out that, even with accumulated capital, a society will not be able to maintain its prosperity unless its people have an entrepreneurial spirit.  That is why, according to Gilder, rich companies that are nationalized invariably waste away; and why countries rich in mineral resources become impoverished once those resources are depleted.              

Based on these beliefs, Gilder believes that the future success of America is endangered not as much by its exploding debt as it is by the stifling of risk-taking entrepreneurs and the encouragement of slacker/dependency.  As long as Americans are infused with the entrepreneurial, capitalistic mindset, Gilder thinks we will do just fine.  Fortunately for me, I don’t have to choose which is more important because working for a smaller government will serve both goals – vibrant capitalism and a manageable debt.

p.s., Margaret Thatcher famously said that the trouble with socialism is that eventually you run out of other people’s money to spend.  Gilder suggests a similar problem with liberal disdain for rich people – “Liberals seem to want wealth without the rich.”  How true!  Gilder makes a strong argument in this book for great wealth being in the hands of very few.  Those people, most who have personally accumulated their wealth, are by far the best people to allocate that capital to productive purposes.  Although a few of the rich are obsessed with conspicuous consumption, the vast majority of capital is deployed in ways that ultimately benefit all of society. 

Don’t kill the goose that lays the golden eggs.