Copyright © 2013 by George Gilder All rights reserved No part of this publication may be reproduced or transmitted in any form or by any means electronic or mechanical, including photocopy, recording, or any information storage and retrieval system now known or to be invented, without permission in writing from the publisher, except by a reviewer who wishes to quote brief passages in connection with a review written for inclusion in a magazine, newspaper, broadcast, or on a website eISBN : 978-1-621-57028-8 Published in the United States by Regnery Publishing, Inc One Massachusetts Avenue NW Washington, DC 20001 www.Regnery.com Manufactured in the United States of America Books are available in quantity for promotional or premium use Write to Director of Special Sales, Regnery Publishing, Inc., One Massachusetts Avenue NW, Washington, DC 20001, for information on discounts and terms, or call (202) 216-0600 Distributed to the trade by Perseus Distribution 250 West 57th Street New York, NY 10107 Table of Contents Title Page Dedication Foreword PART ONE - The Theory Chapter Chapter Chapter Chapter Chapter Chapter Chapter Chapter Chapter Chapter Chapter - The Need for a New Economics - The Signal in the Noise - The Science of Information - Entropy Economics - Romney, Bain, and the Curve of Learning - The Extent of Learning - The Light Dawns - Keynes Eclipses Information - Fallacies of Entropy and Order 10 - Romer’s Recipes and Their Limits 11 - Mind over Matter PART TWO - The Crisis Chapter Chapter Chapter Chapter Chapter Chapter 12 13 14 15 16 17 - The Scandal of Money The Fecklessness of Efficiency Regnorance California Debauch Doing Banking Right The One Percent PART THREE - The Future Chapter Chapter Chapter Chapter 18 19 20 21 - The Black Swans of Investment The Outsider Trading Scandal The Explosive Elasticities of Freedom Flattening Taxes Chapter Chapter Chapter Chapter 22 23 24 25 - The Technology Evolution Myth Israel : InfoNation The Knowledge Horizon The Power of Giving Acknowledgments KEY TERMS FOR THE NEW ECONOMICS Notes Index Copyright Page For David Rockefeller, Ph.D in economics, Hayek tutee, who taught me the limits of knowledge and power and the valor of virtue “While market economies are often thought of as money economies, they are still more so knowledge economies… Economic transactions are purchases and sales of knowledge.” “After all, the cavemen had the same natural resources at their disposal as we have today… We are all in the business of buying and selling knowledge from one another, because we are each so profoundly ignorant of what it takes to complete the whole process of which we are a part.” “‘How could we have gone so wrong?’ … The short answer is that power trumps knowledge.” —THOMAS SOWELL, Knowledge and Decisions, 1979 (P 47), AND Basic Economics, 2007 (P 424) “Life is plastic, creative! How can we build this out of static, eternal, perfect mathematics? We shall use post-modern math, the mathematics that comes after Gödel, 1931, and Turing, 1936, open not closed math, the math of creativity….” —GREGORY CHAITIN, Proving Darwin, 2012 (P 14) disorder in entrepreneur’s supremacy in importance of, to economies laws of, first identified operation of, at higher level of generality and abstraction than physical sciences order in quantum regulation from perspective of surprise and Innovator’s Dilemma Inquiry into the Nature and Causes of the Wealth of Nations, An Inside Real Innovation Intel International Monetary Fund Introduction to Information Theory, An: Symbols, Signals, and Noise Intucell investment, black swans of Investor’s Business Daily Invisible Wealth Iran IRS Isaacson, Walter Isaac, William Islamotopia Israel, entrepreneurial engineers returning from America to indispensable portion of cognitive elite reside in new technologies supported by second only to U.S in information technology transition from socialist economy in crisis to free enterprise in treatment of, by The Spirit Level uses information processing to provide water Israel Test, The J Jabotinsky, Zev Jackson, Jesse Jacobs, Irwin Japan earthquake and tsunami in economic competition with U.S and financial crisis in spending in, on research and development treatment of, by The Spirit Level Jefferson, Thomas Jensen, Michael Jobs, Steve Johnson, Steven Joint Chiefs of Staff J P Morgan & Co Just One Thing K Kaarlgard, Rich Kaizen Kaku, Michio Kalecki, Michael Kamprad, Ingvar Kashkari, Neel Kelleher, Herb Kelly, Kevin–50 Kemeny, John Kennedy, John F Kennedy, Ted Kessler, Andy Keynes, John Maynard Khosla, Vinod Kindle Kindleberger, Charles Klein, Burton Kleiner Perkins Caufield & Byers Kling, Arnold Knight, Frank Knowledge and the Wealth of Nations Kodak Krugman, Paul Kurzweil, Ray L Laffer, Arthur Lambert, Frank L Lam Research Landsberg, Steven Latin America Latvia Laughlin, Robert Law and Revolution Leavitt, Steven Lehman Brothers Lehrman, Lewis Leibenstein, Harvey Leibniz, Wilhelm Leonhardt, David Lewis, Michael Limbaugh, Rush Limits to Growth Lindsay, John Lippman, Greg Lithuania Litsyn, Simon Livingston, James Lloyd, Seth Louis XIV Love Canal Lovins, Amory Lusignan, Bruce Luskin, Donald Lysenko, Trofim M Macaulay, Thomas Babington macro-stability, micro-stability versus Madagascar Madoff, Bernard Makers: The New Industrial Revolution Malkiel, Burton Malthus, Thomas Mandelbaum, Michael Mandelbrot, Benoit Manhattan Project Manias, Panics, and Crashes mark-to-market accounting Marsden, Keith Marshall, Alfred Martin, Paul Marxism Marx, Karl Mauldin, John Mauritius Maximum Achievable Control Technology McCain, John McKinley, Vern McKinnon, Ronald McLuhan, Marshall McTigue, Maurice Mead, Carver Medicare Merkel, Angela Merrill Lynch Metcalfe’s Law Mexico financial crisis in sovereign debt crisis in MiaSole Microcosm: The Quantum Era in Science and Technology Microsoft micro-stability, macro-stability versus Milken, Michael miracles Misbehavior of Markets Mises, Ludwig von Mission and the Dream, The Misunderstanding Financial Crises MIT Mitchell, Daniel Mitchell, George Mitsubishi Mitterrand, Franỗois money price of scandal of Monsanto Moore, Gordon Moore’s Law moral hazard Morgan, J P Morgenstern, Oskar Morgridge, John Morningstar Motorola Mozilo, Angelo M&T (Merchants & Traders) Bank suffered no loss during 2008 crisis Mullen, Michael Multibank Mundell, Robert Murray, Charles Myrvold, Nathan N National Bureau of Economic Research National Review Natural Resources Defense Council Negroponte, Nicholas Netanyahu, Benjamin Netanyahu, Benzion Netflix New Century Financial new economics described as information theory of capitalism See also information theory introduced by author need for new physics versus New Growth Theory Newsweek Newton, Isaac New York Times New Zealand Nike Nixon, Richard Nocera, Joe noise destructive, power as great generator of government as most common and destructive source of signal in white Nordhaus, William Northwestern University Novellus O Obama, Barack American economy suffering capital flight under Obamacare Office of the Controller of the Currency Office of Management and Budget Office of Price Administration Office of Thrift Supervision Olson, Mancur O’Neill, Tip Only Three Questions That Count, The Oracle order defined in information theory spontaneous OTOY outsider trading scandal P Pacific Gas and Electric Packard, David PACs Page, Larry Palantir Palestine Panic: The Betrayal of Capitalism by Wall Street and Washington Parker House Parkinson’s Corollary patents abolition of function of Paul, Rand Paul, Ron Paulson, Henry Paulson, John PayPal Peace of Utrecht Penn Square Bank Pennsylvania Department of Environmental Protection (DEP) Perera, George Phillips Petroleum Piatelli-Palmarini, Massimo Pickett, Kate Pierce, John R Poland Polanyi, Michael Polyconomics Portnoy, Frank Posner, Richard Post, Emil Prince, Charles Princeton University Principles of Economics Provigent Q Qualcomm Corporation quantum theory Quicken R Rand, Ayn Random Walk on Wall Street, A Rational Optimist, The Rausing, Ruben Reagan, Ronald Reason Redleaf, Andrew Regulators Gone Wild Reich, Robert Reinhardt, Vincent Return of Depression Economics, The Reynolds, Alan Ricardo, David Ridley, Matt Rifkin, Jeremy Rise and Decline of Nations, The Road to Serfdom, The Robertson, Gregg Roberts, Russ Rockefeller Center Rockefeller, David Rockefeller, Nelson Rockefeller, Peggy Dulany Romania Romer, Paul Romer, Roy Romneycare Romney, George Romney, Mitt Rosen, Ben Rothbard, Murray Rothschild, Michael Russia See also Soviet Union immigrants from bring technical skills to Israel tax rates reduced and revenues increased in Rwanda Ryan, Paul S Sachs, Jeffrey Salomon Brothers Samuelson, Paul Sanders, Jerry San Diego Union-Tribune Santa Fe Institute Sarbanes-Oxley Act (Sarbox) (Public Company Accounting Reform and Investor Protection Act of 2002) saving Savitz, Eric Say, Jean-Baptiste Say’s Law Schlafly, Phyllis Schmidt, Eric Schultz, Harold Schulz, Nick Schumpeter, Joseph Schwarzenegger, Arnold scientism Searle, John Securities and Exchange Commission (SEC) Segway Seldon Technologies Self-Organizing Economy, The Sequoia Serbia Shamir, Yitzak Shannon, Claude Elwood Shecter, Claude Shelley, Percy Bysshe Shillman, Robert Siegfried & Roy Sierra Club Singapore heavy saving in low flat-rate tax system in treatment of, by The Spirit Level Singularity is Near, The Sismondi, Sigmund Skinner, B F Skousen, Mark Slovakia Smith, Adam socialism capitalism versus Israel’s transition from economy in crisis based on, to free enterprise key error of New Zealand stagnated under Social Security Solomon, Doron Solow, Robert Solyndra South Korea Southwest Airlines Soviet Union (U.S.S.R.) See also Russia Jews barred from manufacturing jobs in Jews left to the detriment of the economy in kept up with U.S in secret technology after WW II U.S ahead of, in information technology Sowell, Thomas Spectator Spirit Level, The: Why Equality is Better for Everyone Spitzer, Eliot Stalin, Josef Standard Oil Stanford University Starbucks startups, all new jobs come from Steele, Guy Stephenson, Neal Stigler, George stochastic process Stockman, David Stop This Depression Now! Stryker Stuart, Charles Edward See also Bonnie Prince Charlie Sullivan, Scott Summers, Lawrence Sun supply-side economics abandoned by David Stockman policy changes today following principles of, would launch new American century Reagan established credentials of targeted by environmental movement surprise(s) entrepreneurship as the launching of information entropy defined as upside survivorship bias Sweden economic growth in treatment of, by The Spirit Level Swift, Jonathan Switzerland T Tabarrok, Alexander Taiwan Taleb, Nassim Nicholas TARP (Troubled Asset Relief Program) TDMA (time division multiple access) Teller, Edward Tesoro Tetra-Pak Texas Instruments (TI) Thailand financial crisis in rapid growth in That Used to Be Us Thiel, Peter Thinking Machines Thorp, Edward Thurow, Lester Time Toffler, Alvin Toshiba Trammel, Steve Troubled Asset Relief Program (TARP) Truman, Harry Trump, Donald Trzupek, Richard TSA Tucker, Bill Turing, Alan Turing machine Turing’s Cathedral : The Origins of the Digital Universe Twitter U Ukraine United Kingdom See Great Britain United States economic growth in, slower than in former communist world Soviet Union kept up with in secret technology after WW II spending in, on research and development tax rates drifting higher in and capital fleeing from treatment of, by The Spirit Level University of California, Berkeley University of Chicago University of North Carolina UpWind Solutions Urbach, Jules U.S Constitution U.S Steel U.S Treasury V Valentine, Donald Valero Vanderbilt University Vanguard venture capital environmental movement aided by outlays of, in Israel Vietnam Vietnam War Vigilante, Richard virtualization VisiCalc Viterbi, Andrew Vivaldi, Antonio Volcker, Paul von Neumann, John W Wachovia Wait Until Dark (film) Wake Forest University Wall Street (film) Wall Street Journal Walmart Walras, Leon Walton, Sam War Labor Board War Production Board Warsh, David War of the Spanish Succession Washington Mutual Washington Post Watkins, Bill Watson, James WDM (wavelength division multiplexing) Wealth and Poverty Weaver, Warren Weber, Max Weekly Standard Weinberg, Steven Weiner, Norbert Welch, Jack Wells Fargo West Germany What Technology Wants Wheeler, John Archibald Where Good Ideas Come From: The Natural History of Innovation Whitebox Whitehead, Alfred North Wikipedia Wilkinson, Richard Williamson, Kevin Willow Garage Wilmers, Robert G “Bob,” Winfrey, Oprah Wired Wolfe, Tom World Bank WorldCom World War II breaking German codes during government spending plummeted after learning curve origin and Manhattan Project and Soviet Union kept up with U.S in secret technology after tax cuts after upsurge of economy after X x-efficiency Y Yale University Yockey, Hubert Z Zuckerberg, Mark Zynga a This negative sign in Shannon’s equation prompted some eminent theorists—Norbert Wiener and Erwin Schrödinger, among others—to blunder into the idea of negentropy, which is an oxymoron “Because all probabilities must range from zero to one the logarithm is negative and that means that [entropy] is positive,” wrote the great Hubert Yockey The temptation of negative entropy comes from a confusion of entropy and complexity with order b Hans Christian van Bayer, Information: The New Language of Science (Cambridge: Harvard University Press, 2005) ... information theory is a measure of freedom of choice The principle of matter, on the other hand, is not liberty but limitation it has weight and occupies space The power of any science is limited by its... better.”3 Allison was espousing a central insight of the new economics of information At the heart of capitalism is the unification of knowledge and power As Friedrich Hayek, the leader of the Austrian... arrived just in time The great economic crisis of our day, a crisis of theory as well as practice, is a crisis of information It can be grasped and resolved only by an economics of information Pioneered