Rich but bankrupt: Entrepreneurs make us wealthier while government money managers lead us to ruin
Almost everyone has far more wealth due to technological advances than anyone had 30 years ago, yet, their money balance sheets and that of most governments flirt with bankruptcy. How can this be?
Worldwide usage of the smartphone is only 20 years old, and the iPhone is only about 17 years old. Now, more than two-thirds of the world population have smartphones, and 91% have cellphones — a truly amazing rate of product penetration. These technologies have made everyone far richer.
Three decades ago, my travel bag normally had a camera, a calendar, an address book, a travel clock, maps, a notebook, numerous newspapers and magazines, a calculator, and perhaps a book or two. All of those and other items have been replaced by my iPhone, making me, in effect, much richer because of the things that I no longer need to own and carry.
But the truly amazing thing about the iPhone is that it has virtually all of the world’s information in it. Universities used to brag about the size of their libraries, but that selling point is now moot because we all have the biggest library in our hands.
For years, I collected books to have my own reference sources, not realizing I would never look at them again. So I decided to give them away, but no one wanted them — despite the billions of man-hours spent to write and publish them. Their value was destroyed by the iPhone and tablet.
The iPhone has immediate access to almost every movie ever made and every song ever recorded — and access to much of it is free. There are even apps that can measure our physical well-being and give us medical advice from the best doctors in the world.
Look at your smartphone menu and the apps that you have. Now, estimate how much you would have had to pay for each of those items/services if you bought them separately 30 years ago and how many hours you would have needed to work to pay for them. No matter how rich you are, you cannot afford them.
In a wonderful new book, “Life After Capitalism,” George Gilder argues that “wealth is knowledge.” Mr. Gilder is one of those rare people who developed in-depth expertise in several fields and has had the ability to not only understand complex subjects but also to explain them — in his many very reader-friendly books.
Sometimes you luck out in life — most often by getting to know exceptional people who stimulate your own thinking. I first met Mr. Gilder shortly before finishing graduate school, and we have maintained a friendship.
At the time, the feminist movement was in full flower. Mr. Gilder believed it would lead to a decline in marriage, a great rise in children living in single-parent households, and a rise in crime committed by young men not under the control of a mother, wife or girlfriend. He wrote “Sexual Suicide” to make his case, which caused rage among feminists. Four-plus decades later, George has been proved to be all too correct.
Subsequently, he moved his focus to economics, where during the early Reagan administration, he wrote a best-selling masterpiece, “Wealth and Poverty.” The book became the unofficial bible of the Reagan revolution in that Mr. Gilder made the case for “supply-side Reaganomics” more clearly and completely than anyone else.
After that triumph, Mr. Gilder shifted his focus to technology. In 1990, he published “Microcosm.” In this book, he explained, among other things, the physics and fabrication of semiconductors — made simple enough for smart, educated laymen. He tells the story through life histories and interviews with those who made it happen and reveals the steps that led to the digital revolution.
It was Mr. Gilder who first publicized “Moore’s law”: The number of transistors on a chip doubles every two years or so, and the cost is cut in half. This continues to be true after 60 years.
Mr. Gilder is a fierce critic of the U.S. global monetary and financial systems. “The result of this vast, monumentally expensive, wildly speculative global plebiscite on monies is a measuring stick far less reliable than gold.”
He observes that “the system yields an estimate of only the relative values of the currencies in the float. In this microsecond engine of information, there is no anchor, no peg, no grid, no standard, no metric, no parity value.”
To achieve the Gilder ideal, it appears that he is implicitly arguing for a gold standard without gold (which is possible) using gold or any other widely traded metal only as a “unit of account,” but not as a store of value.
Mr. Gilder is also a critic of bitcoin because by having a cap of 21 million units and thus, “pushing all change onto the price, Satoshi made it a volatile speculative asset rather than a reliable measuring stick of value.”
He wrote: “This cap is fatal to Bitcoin. The supply of money must be able to expand as the productive economy expands.”
Mr. Gilder’s thinking has evolved to an “information theory” of economics — where “wealth is knowledge, growth is learning, money is time, and information is surprise.”
• Richard W. Rahn is chairman of the Institute for Global Economic Growth and MCon LLC.