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Takeaway: Buy it. Read it.

Hedgeye Risk Management CEO Keith McCullough shares some of his thoughts on Knowledge and Power: The Information Theory of Capitalism and How it is Revolutionizing Our World, by George Gilder (2013). 

"This is a thought leader’s book," according to McCullough. "With so many people whining about not having a 'solution' to Washington’s economic policies, ask yourself if we’re asking the right leaders for new ideas."

Bottom line according to Keith?

"This book is the Antichrist of broken Western-academic-economic-policy groupthink."

Book Review: Knowledge and Power - gild2

Summary Thoughts

  1. One of the few books that attempts to link non-linearity and information/chaos theory to today’s markets/economies
  2. Using economic history and market practitioners, Gilder effectively crushes the perceived wisdoms of broken sources
  3. Juxtaposed vs government intervention, a refreshing reminder of the role of the capitalistic entrepreneur in America

Content Highlights

  1. “Most human beings understand that their life is full of surprises.” (pg 1) #intro chapter – The Need for a New Economics
  2. “We are almost entirely incapable of predicting the future. Yet economics purports to be strangely exempt from this fact” (pg 1)
  3. “It is an economics of surprise that distributes power as it extends knowledge” (pg 5) #truth about innovation and evolution
  4. “All information is surprise; only surprise qualifies as information. This is the fundamental axiom of information theory” (pg 15)
  5. “From Adam Smith’s days to ours, economics has focused on the nature of economic order” (pg 16) promising #certainty?
  6. “Interest rates are critical for information-theory economic analysis because they are an index of real economic conditions” (pg 24)
  7. “Profits differentiate between the normally predictable yield of commodities and the unexpected returns of creativity” (pg 25)
  8. #EntropyEconomics (Chapter 4) = one of the best named chapters of the last 3 yrs #study
  9. “economists everywhere have counseled governments… to attend everything except what matters most: innovation” (pg 27)
  10. “The most important feature of an information economy… is the overthrow, not the attainment, of equilibrium” (pg 30) #nonlinear
  11. “Entropy is a measure of surprise, disorder, randomness… its opposites are predictability, order, tyranny…” (pg 34)
  12. “Republicans… both Bushes through McCain… all cherish the illusion that leading economists possess vital wisdom” (pg 38) #joke
  13. “Believing that a weaker Dollar is just the thing to spur a sluggish economy… they miss the devaluation of all the assets” (pg 38)
  14. “George Romney capitulated to these forces” (pg 38) and being advised by Glenn Hubbard, ultimately Mitt did too #BigMiss
  15. “Wealth actually springs from the expansion of information and learning” (pg 46) #capitalism #freedom #liberty
  16. “Smith’s vision of the entrepreneur as a tool of the market… rather than its creator constitutes the original sin” (pg 47) #AdamSmith
  17. The Light Dawns (chapter 7 concludes that Smith, Keynes, Hayek, and Samuelson have all been proven wrong) (pg 63) #true
  18. “Looking for disequilibria to reconcile into equilibrium, economists suppress multifarious complexities” (pg 71) #yep
  19. “Savings reflect the profitability – the upside entropy – in an economy” (pg 72) excess cash flows born out of positive info surprise
  20. “The entrepreneur is the savior of the system because he capitalizes himself” (pg 77) #evolution
  21. Fallacies of Entropy and Order (chapter 9) (pg 79)
  22. “Most of the history of economics revolves around the issues of how order and equilibrium can be maintained” (pg 85) #Krugman
  23. “None of these economists of equilibrium was comfortable with a dynamic economics” (pg 85) #Growth #Change #Surprise
  24. “Order is not spontaneous, but it is a necessary condition for all the surprises of freedom and opportunity” (pg 87)
  25. “Everyone thinks he knows what information is… information is change in what we know” (pg 101) great quote
  26. “They had no heads. The frenzy was all they had… the urge was all they felt” –Tom Wolfe (pg 104) #behavioral econ
  27. On Austin Goolsbee: “chairman of the President’s council of economic advisors exhibited as little understanding…” (pg 114)
  28. “… much of the profession is empirically bankrupt because it is no longer taught economic history” –Charles Kindleberger (pg 115)
  29. “The successful executive pursues not efficiency but effectiveness” –Peter Drucker (pg 126)
  30. “The goal of financial reform should be to end this divorce between knowledge and power” (pg 132) secular #theme of book
  31. “Unlike an inexorable, Newtonian “great machine”, the economy is not a closed system” (pg 133) don’t tell #Keynesians that
  32. “High entropy regulation destroys the environment that it seeks to enhance” (pg 150) #BigGovernmentIntervention #Fed
  33. “If a science has an adjective, it probably isn’t a science” –Richard Feynman (pg 159), Ivy League “economics” is no science
  34. “Pursue opportunities is the counsel of the capitalist” (pg 161) #bingo
  35. “It has become a virtual casino” –Bob Wilmers (CEO of M&T Bank) (pg 168)
  36. “Paulson/Bernanke in constant conversation with unhealthy institutions; wouldn’t talk to leaders of healthy banks” –Allison (pg 170)
  37. “In my career, the Fed has a 100% error rate in predicting and reacting to important economic turns” –John Allison (pg 175)
  38. “wealth is only valuable if combined with information” (pg 178) #perspective
  39. “America’s leading entrepreneurs, with some exception, display discipline and self control, hard work and austerity” (pg 183)
  40. “Greed is an appetite for unneeded and unearned wealth and power” (pg 184) beauty quote about #politicians
  41. “All progress comes from the creative minority” (pg 192) otherwise why would society glorify their stories?
  42. “Taleb, in all likelihood, deems you a turkey” (pg 197) in Chapter 18, The Black Swans of Investment, criticizing Taleb
  43. “I believe, however, that the fool of randomness is Taleb” (pg 200) #aggressive!
  44. “21st century intellectuals have looked to information theory for a solution” (pg 201) maybe, sort of, but hardly consensus
  45. “Great books, great ideas, and great thinkers” (pg 207) on Mark Skousen’s Freedom Fest annual conference
  46. “No one in your company knows less about your business than your see eff oh” –Peter Drucker (pg 218) CEOs need vision
  47. “Stockman ended up capitulating to his critics” (pg 219) appropriately critical of David Stockman’s “CFO” myopia
  48. “0% interest rate policy of the Federal Reserve diverts the wealth of savers to governments, crony capitalists, etc” (pg 224)
  49. “History tells us that the threat to prosperity is not debt but socialism” (pg 225) great focus pt quote
  50. “Just as the post war recovery of the 1950s confounded Paul Samuelson’s gloomy predictions” (pg 234) #Keynesian failures
  51. “fragmented, the academic sciences are turning to politics, panics, and cartels to preserve their old privileges” (pg 270)
  52. “Most of the courses they took were either self-evident or wrong, ideological, or tautological, twisted, or trivial” (pg 270)
  53. “Now an abstruse and occasionally revealing discipline has emerged called quantum information theory” (pg 271)
  54. “Governed by entropy (measuring freedom of choice), it is a science of human liberty” (pg 271)
  55. “Just as the bureaucrat needs arbitrary power, the capitalist needs capital” (pg 275) #excellent conclusion