I will want to write my own post on George Gilder’s brilliant Knowledge and Power but I have just run across this review by Arnold Kling who is favourably mentioned in the book. Kling is not all that enamoured with the book, as seen in this passage:
Gilder would argue that redistribution is baked into the methodology of economic models that downplay agency and instead treat economic outcomes as random. For example, finance professors will describe the effort to “beat the market” when investing in stocks as a sort of coin-flipping tournament. Start with a very large number of players, have them each flip a coin five times, and see which flippers get the most heads. Some players will get heads five times in a row, making it appear that they are very skilled coin-flippers. By analogy, if we start with a large number of stock market investors, a few of them will outperform the market several years in a row. These sorts of models imply that wealth accumulation results from a combination of risk taking and luck. Instead, Gilder insists that it results from better knowledge, which has been used to create products and services that promote human flourishing. (He would make an exception, of course, for knowledge that only exploits government-created noise.)
In Gilder’s view, entrepreneurs create information where none existed before. Rather than sustain the equilibrium, their role is to disturb it.
On this issue, I have mixed views. On the one hand, when it comes to business success, I agree with Gilder. Even though luck plays some role, skill matters much more, because there are so many little choices that must be made wisely in order for an enterprise to succeed. The more skilled business team usually will win, just as in tennis the more skilled player usually will win. On the other hand, with financial speculation, skill and luck are more difficult to separate. To me, financial speculation is more like a multiple-choice question on a test. One can easily make a good choice for a bad reason, or vice-versa.
There is much to quarrel with in Gilder’s book. For one, his political and social conservatism will put off many readers. Also, in his attempts to sharpen the contrast between his views and those of other thinkers, he often paints a caricature of the individual he is criticizing. For example, his depiction of Burton Malkiel, the American economist best known for his support of the efficient market hypothesis, as an adherent of technical analysis was completely unfair.
Funny business this. His political and social conservatism hardly put off this reader since, to tell the truth, I didn’t even notice it. As far as I can see, there was little ideology as such, only a drawing of the implications of the basic premises that his arguments were built upon.