The Rational Optimist

Matt Ridley, “The Rational Optimist: How Prosperity Evolves”, Harper Collins, 2010, 359 Pages: Another Must Read Book.

A zoologist by training and a journalist by trade, Ridley presents a compelling and well documented book covering 100,000 years of human history showing that the population explosion is coming to a halt, that energy will not soon run out, that pollution, disease, hunger, war and poverty can all be expected to continue declining if human beings are not impeded from exchanging goods, services and ideas freely. It is one of the central arguments of the book that the special feature of human intelligence is that it is collective, not individual—thanks to the invention of exchange and specialization. When people began to share, swap and barter, he points out, they specialized, which in turn caused technological innovation and ushered in progress: "the ever-expanding possibility generated by a growing division of labor."

"The Rational Optimist" is full of challenges to conventional wisdom. Opposition to genetically modified crops is baseless, Ridley insists, and has delayed the obsolescence of chemical pesticides. He believes that no country that opened its borders to trade has ever ended up poorer. Fossil fuels, Ridley asserts, have saved much of the landscape from the ravages of industrialization. And extreme climate change scenarios are based on "such wild assumptions" and ignore what Ridley thinks are the potential advantages of an increase in temperatures. He predicts that in 2100 people will be four to 18 times as wealthy as they are today.

Ridley recognizes that "collective intelligence" is not always a path to progress. Consider the Great Depression and World War II. He acknowledges that in an interconnected world it may be easier for "predators and parasites" to bring on catastrophe by stopping stem-cell research, erecting tariff barriers, manipulating global financial markets and oppressing women and ethnic minorities. But even if the bad guys prevail, for a time, he concludes that it "will be hard to snuff out the flame of innovation" because human exchange and specialization are evolutionary, bottom-up phenomena.

My notes:

Pg. 1: In other classes of animals, the individual advances from infancy to maturity; and he attains, in the compass of a single life, to all the perfection his nature can reach: but, in the human kind, the species has a progress as well as the individual; they build in every subsequent age on foundations formerly laid.
Other animals do not experience agricultural, urban, commercial, industrial and information revolutions, let alone Renaissances, Reformations, Depressions, Demographic Transitions, civil wars, cold wars, culture wars and credit crunches.

Pg. 4: Big brains and imitation and language are not themselves the explanation of prosperity and progress and poverty. They do not themselves deliver a changing standard of living. Neanderthals had all of these: huge brains, probably complex languages, lots of technology. But they never burst out of their niche. The difference is that something happened between brains in humans; it was a collective phenomenon.

Pg. 9: Experiments have long confirmed that markets in goods and services for immediate consumption—haircuts and hamburgers—work so well that it is hard to design them so they fail to deliver efficiency and innovation; whole markets in assets are so automatically prone to bubbles and crashes that it is hard to design them so they work at all. Speculation, herd exuberance, irrational optimism, rent-seeking and the temptation of fraud drive asset markets to overshoot and plunge—which is why they need careful regulation. Markets in goods and services need less regulation. What made the bubble of the 2000s so much worse than most was government housing and monetary policy, especially in the U.S., which sluiced artificially cheap money towards bad risks as a matter of policy and thus also towards the middleman of the capital markets. The crisis has at least as much political as economic causation.

Pg. 19: Even justice has improved thanks to new technology. To date 234 innocent Americans have been freed as a result of DNA fingerprinting after serving an average of twelve years in prison; seventeen of them were on death row. The first forensic use of DNA was in 1986.

Pg. 23: Healthcare and education are among the few things that cost more in terms of hours worked now than they did in the 1950s.

Pg. 39: In the year 2005, if you were the average consumer you would have spent your after-tax income in roughly the following way:
• 20 percent on a roof over your head
• 18percent on cars, planes, fuel and all other forms of transport
• 16 percent on household stuff: chairs, refrigerators, telephones, electricity, water
• 14 per cent on food, drink, restaurants etc
• 6 percent on health care
• 5 percent on movies, music and all entertainment
• 4 percent on clothing of all kinds
• 2 percent on education
• 1 percent on soap, lip0stick, haircuts, and such like
• 11 percent on life insurance and pensions (i.e., saved to secure future spending)

An English farm laborer in the 1790s spent his wages roughly as follows:
• 75 percent on food
• 10 percent on clothing and bedding
• 6 percent on housing
• 5 percent on heating
• 4 percent on light and soap.

Pg. 43: There is no such thing as unproductive employment, so long as people are prepared to buy the service you are offering. Today, 1 percent works in agriculture and 24 percent in industry, leaving 75 percent to offer movies, restaurant meals, insurance broking and aroma-therapy.

Pg. 58: 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 do barter.

Pg. 82: Self-sufficiency was dead tens of thousands years ago. Even the relatively simple lifestyle of a hunter-gatherer cannot exist without a large population exchanging ideas and skills. The importance of this notion cannot be emphasized too strongly. 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.

Pg. 117: A country’s economic freedom predicts its prosperity better than its mineral wealth, education system or infrastructure do. In a sample of 127 countries, the sixty-three with the higher economic freedom had more than four times the income per capita and nearly twice the growth rate of the countries that did not.

Pg. 140: America’s horse population peaked at twenty-one million animals in 1915; at the time about one-third of all agricultural land was devoted to feeding them.

Pg. 172: Monarchs love monopolies because where they cannot keep them to themselves, they can sell them, grant them to favorites and tax them. Entrepreneurs are rational and if they find that wealth can more easily be stolen than created, then they will steal it: Humanity’s great battle over the last 10,000 years has been the battle against monopoly.

Pg. 182: Because it is a monopoly, government brings inefficiency and stagnation to most things it runs; government agencies pursue the inflation of their budgets rather than the service of their customers; pressure groups form an unholy alliance with agencies to extract more money from taxpayers for their members.

Pg. 193: Malthusian population limitation does not really apply to human beings, because of their habit of exchange and specialization.

Pg. 205: Throughout the world, birth rates are falling. There is no developed country in the world that has a higher birth rate than it had in 1960, and in the less developed world as a whole the birth rate has approximately halved. At the top of the list as a reason for this is falling child mortality. The more babies are likely to die, the more their parents bear.

Pg. 281: It is my proposition that the human race has become a collective problem-solving machine and it solves problems by changing its ways. It does so through invention driven often by the market: scarcity drives up price; that encourages the development of alternatives and of efficiencies.

Pg. 321: When you compare property rights with economic growth throughout the world you find that the first explains an astonishing three quarters of the variation in the second.

Pg. 351: Around 10,000 years ago, the pace of mankind’s progress leapt suddenly ahead thanks to the suddenly greater stability of the climate, which allowed humans to co-opt other species and enable them to evolve into exchange-and-specialize partners, generating services for the Species in exchange for their needs. Now, thanks to farming, each individual had not only other members of the Species working for her but members of other species as well, such as cows and corn. Around 200 years ago, the pace of change quickened again thanks to the Species’ new ability to recruit extinct species to its services as well, through the mining of fossil fuels and the releasing of their energy in ways that generated still more services. By now the Species was the dominant large animal on its planet and was suddenly experiencing rapidly rising living standards because of falling birth rates. The collective intelligence of the Species reached unprecedented levels. By now almost the entire world was connected by a web so that ideas from everywhere could meet and mate.

Pg. 358: There is one note of pessimism. The wrong kind of chiefs, priests and thieves could yet snuff out future prosperity on earth. Already some destroy genetically modified crops, presidents scheme to prevent stem-cell research, prime ministers trample on habeas corpus using the excuse of terrorism, metastasizing bureaucracies interfere with innovation on behalf of reactionary pressure groups, superstitious creationists stop the teaching of good science, air-headed celebrities rail against free trade, mullahs inveigh against the empowerment of women, earnest princes lament the loss of old ways and pious bishops regret the coarsening effects of commerce. So far they are all sufficiently localized in their effects to achieve no more than limited pauses in the happy progress of the species, but could one of them go global?