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