The Rational Optimist: How Prosperity Evolves – by Matt Ridley.
Date read: 7/29/17. Recommendation: 8/10.
I read this book to combat confirmation bias. I tend to romanticize the past and idealize the simple living we associate with the hunter-gatherer era. As such, I read a lot of books that fall in line with that interest. Ridley makes the argument that we're currently living in the best period of human history (which we are). He credits this to the free exchange of ideas and knowledge, which breeds even more innovation and knowledge. He details the driving factors of dynamic change, bottom-up innovation, and how the specialization of talents has led to mutual gain for everyone involved. It's a dense book but Ridley offers brilliant insight, which should give you a much needed boost of optimism for the future.
See my notes below or Amazon for details and reviews.
My Notes:
This book is about the rapid, continuous and incessant change that human society experiences in a way that no other animal does.
It is not as if human nature changes...Yet to say that life is the same as it was 32,000 years ago would be absurd.
At some point, human intelligence became collective and cumulative in a way that happened to no other animal.
Exchange is to cultural evolution as sex is to biological evolution. By exchanging, human beings discovered 'the division of labour', the specialization of efforts and talents for mutual gain.
The rich have gotten richer, but the poor have done even better. The poor in the developing world grew their consumption twice as fast as the world as a whole between 1980 and 2000. The Chinese are ten times as rich.
The true measure of something's worth is the hours it takes to acquire it.
Healthcare and education are among the few things that cost more in terms of hours worked now than they did in the 1950s.
Study by Richard Easterlin in 1974, which found that although within a country rich people were generally happier than poor people, richer countries did not have happier citizens than poor countries. Trouble is, the 'Easterlin paradox' is wrong. New studies show that rich people are happier and rich countries have happier people and people get happier as they get richer. Easterlin study had samples too small to find significant differences.
*There are some exceptions. Americans current show no trend towards increasing happiness.
Besides, a million years of natural selection shaped human nature to be ambitious to rear successful children, not to settle for contentment: people are programmed to desire, not to appreciate.
Getting richer is not the only or even best way of getting happier. Social and political liberation is far more effective.
Self-sufficiency is therefore not the route to prosperity....If you wish to have even the most minimal improvement in your life – say metal tools, toothpaste or lighting – you are going to get some of your chores done by somebody else.
You may have no chefs, but you can decide on a whim to choose between scores of nearby bistros...Never before this generation has the average person been able to afford to have somebody else prepare his meals.
You employ no tailor, buy you can browse the internet and instantly order from an almost infinite range of excellent, affordable clothes.
You have no carriage, but you can buy a ticket which will summon the services of a skilled pilot of a budget airline to fly you to one of hundreds of destinations.
This is the diagnostic feature of modern life, the very definition of a high standard of living: diverse consumption, simplified production.
The cumulative accretion of knowledge by specialists that allows us each to consume more and more different things by each producing fewer and fewer is, I submit, the central story of humanity.
Barter – the simultaneous exchange of different objects – was itself a human breakthrough, perhaps even the chief thing that led to the ecological dominance and burgeoning material prosperity of the species. Fundamentally, other animals do not barter.
*Primatologist Sarah Brosnan tried to teach two different groups of chimpanzees about barter and found it very problematic...They could not see the point of giving up food they liked for food they liked even more...True barter requires that you give up something you value in exchange for something else you value slightly more.
Why did human beings acquire a taste for barter as other animals did not? Perhaps it has something to do with cooking...swapping different kinds of food.
Without trade, innovation just does not happen. Exchange is to technology as sex is to evolution. It stimulates novelty.
Technological regress in Tasmania. Once connected to Australia, until about 10,000 years ago. Isolation led to losing technologies that their ancestors had once possessed....Isolation–self sufficiency–caused the shriveling of their technology.
Imagine if 4,000 people from your home town were plonked on an island and left in total isolation for ten millennia. How many skills and tools do you think they could preserve?
The success of human beings depends crucially, but precariously, on numbers and connections. A few hundred people cannot sustain a sophisticated technology: trade is a vital part of the story.
Human cultural progress is a collective enterprise and it needs a dense collective brain.
The notion of synergy, of both sides benefiting, just does not seem to come naturally to people. If sympathy is instinctive, synergy is not.
The notion that the market is a necessary evil, which allows people to be wealthy enough to offset its corrosive drawbacks, is wide off the mark...In places where traditional, honor-based feudal societies gave way to commercial, prudence-based economies, the effect is civilizing, not coarsening.
But the idea that the market destroys charity by teaching selfishness is plainly wide of the mark. When the market economy booms so does philanthropy.
Political decisions are by definition monopolistic, disenfranchising and despotically majoritarian; markets are good at supplying minority needs.
The 'long tail' of the distribution – the very many products that are each wanted by very few, rather than vice versa – can be serviced more and more easily.
The coincidence of wealth with toleration has led to the bizarre paradox of a conservative movement that embraces economic change but hates its social consequences and a liberal movement that loves the social consequences but hates the economic source from which they come. 'One side denounced capitalism but gobbled up its fruits; the other cursed the fruits while defending the system that bore them.'
As islands of top-down planning in a bottom-up sea, big companies have less and less of a future (the smaller the scale, the better planning works).
When human beings were all still hunter-gatherers, each needed about a thousand hectares of land to support him or her. Now – thanks to farming, genetics, oil, machinery and trade – each needs little more than a thousand square meters, a tenth of a hectare.
Organic farming is low-yield, whether you like it or not. The reason for this is simple chemistry.
The mechanization of agriculture has enabled, and been enabled by, a flood of people leaving the land to seek their fortune in the city, all free to make for each other things other than food.
Throughout history, empires start as trade areas before they become the playthings of military plunderers from within or without.
In these Bronze Age empires, commerce was the cause, not the symptom of prosperity.
A Bronze Age empire stagnated for much the same reason that a nationalized industry stagnates: monopoly rewards caution and discourages experiment, the income is gradually captured by the interests of the producers at the expense of the interests of the consumers, and so on. The list of innovations achieved by the pharaohs is as thin as as the list of innovations achieved by British Rail or the US Postal Service.
The message from history is so blatantly obvious – that free trade causes mutual prosperity while protectionism causes poverty. There is not a single example of a country opening its borders to trade and ending up poorer.
Cheap imports can destroy jobs at home – though in doing so they always create far more both at home and abroad, by freeing up consumers' cash to buy other goods and services. If Europeans find their shoes made cheaply in Vietnam, then they have more to spend on getting their hair done and there are more nice jobs for Europeans in hair salons and fewer dull ones in shoe factories.
Suppose you had said to my hypothetical family of 1800, eating their gristly stew in front of a log fire, that in two centuries their descendants would need to fetch no logs or water, and carry out not sewage, because water, gas and a magic form of invisible power called electricity would come into their home through pipes and wires.
The more knowledge you generate, the more you can generate. And the engine that is driving prosperity in the modern world is the accelerating generation of useful knowledge.
The dissemination of useful knowledge causes that useful knowledge to breed more useful knowledge.
Eamonn Butler, economist: "Whenever you see the word equilibrium in a textbook, blot it out." It is wrong because it assumes perfect competition, perfect knowledge and perfect rationality, none of which do or can exist.
The possibility of new knowledge makes the steady state impossible. Somewhere somebody will have a new idea and that idea will enable him to invent a new combination of atoms both to create and to exploit imperfections in the market.
There is no equilibrium in nature; there is only constant dynamism. As Heraclitus put it, 'Nothing endures but change.'
Innovation is like a bush fire that burns brightly for a short time, then dies down before flaring up somewhere else...No country remains for long the leader in knowledge creation...Just as it is true that the bush fire breaks out in different parts of the world at different times, so it leaps from technology to technology. Today, just as during the printing revolution of 500 years ago, communications is aflame with increasing returns, but transport is spluttering with diminishing returns.
In the early 1970s, when credit cards were new, politicians of all stripes denounced them as unsound, unsafe and predatory...This nicely captures the paradox of the modern world, that people embrace technological change and hate it at the same time.
The great innovators are still usually outsiders...the R&D budgets at large companies who were once dominant get captured by increasingly defensive and complacent bureaucrats who spend them on low-risk, dull projects and fail to notice gigantic new opportunities, which thereby turn into threats.
One solution is for companies to try to set their employees free to behave like entrepreneurs.
It is the ever-increasing exchange of ideas that causes the ever-increasing rate of innovation in the modern world. Not science, money, patents, government.
Equilibrium and stagnation are not only avoidable in a free-exchanging world; they are impossible.
So long as people who are spending money on trying to find new ideas can profit from them before they pass them on, then increasing returns are possible.
The wonderful thing about knowledge is that it is genuinely limitless. This is the biggest cause for all my optimism.
"I have observed that not the man who hopes when others despair, but the man who despairs when others hope, is admired by a large class of persons as a sage." -John Stuart Mill
The world will not continue as it is. That is the whole point of human progress, the whole message of cultural evolution, the whole import of dynamic change–the whole thrust of this book. The real danger comes from slowing down change.
The pessimists' mistake is extrapolationism: assuming the future is just a bigger version of the past.
Recurring theme throughout human history, skepticism of new technologies and doomsday predications. Every organization/government claims that we're "at a defining moment in history." Apprehension about railroads in 1830s, nuclear doomsday predictions in 1950s, dangers of advances in human genetics and reproductive medicine in 2000s.
The endless modern laments about how texting and emails are shortening the attention span go back to Plato, who deplored writing as a destroyer of memorizing.
Famine is largely history. Where it still occurs – Darfur, Zimbabwe – the fault lies with government policy, not population pressure.
It is not as if Africa needs to invent enterprise: the streets of Africa's cities are teeming with entrepreneurs, adept at doing deals, but they cannot grow their businesses because of blockages in the system. The slums of Nairobi and Lagos are terrible places, but the chief fault lies with governments, which place bureaucratic barriers in the way of entrepreneurs trying to build affordable homes for people...In Cairo it would take seventy-seven bureaucratic procedures involving thirty-one agencies and up to fourteen years to acquire and register a ploy of state-owned land on which to build a house. No wonder nearly five million Egyptians have decided to build illegal dwellings instead.
Whereas it takes a handful of steps to set up a company in America or Europe, in Tanzania it would take 379 days and cost $5,506.
What Tanzania needs to do, as Europe and America did hundreds of years ago, is not to enforce its unaffordable official legal system, but gradually to encourage this bottom-up informal law to broaden and standardize itself.
Using such technologies, Africa can follow the same route to prosperity that the rest of the world is following: to specialize and exchange. Once two individuals find ways to divide labor between them, both are bette roff. The future for Africa lies in trade.
