Is Optimism Rational?

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Optimism is out of favor. But then as Matt Ridley points out in The Rational Optimist, optimism has never been IN favor. Even in the fastest-growing booms in human history, "experts" were always sure that doom was imminent. We were going to run out of wood, then of coal, then of whale oil, then of petroleum, then of petroleum again, then of petroleum again. (We were never going to run out of uranium or thorium, but that was fixed by running out of the permits to build nuclear reactors.)

In the 1960s, the world was going to be destroyed by fossil fuels, by running out of fossil fuels, by acid rain, by overpopulation, by pesticides, by famine, and by Global Cooling. But what actually happened was that fuel production went up, population growth rates fell in every nation (except Kazakhstan, thanks a lot you idiot Borat), pesticide use dropped off with the invention of BT crops, food production went up until recently (we still produce more crops every year, but they are drained off to make ethanol and not to feed people), acid rain was overblown, and you know what happened to Global Cooling (it’s still a huge threat as far as anyone knows, one good asteroid or volcano and it’s Fimbulwinter for sure! I mean, ummm, everyone believes in global warming so there won’t be any more Ice Ages, because, ummm… Al Gore, QED. Take no notice of my pack of Malamutes, they’re just show dogs. Really. They mainly guard the snowmobile, anyway.)

Doom: The Big No-Show Of History

Overpopulation

The example of overpopulation is fascinating. Every culture on the planet has cut its birth rate as soon as infant mortality went down and wealth went up. The extra population that was generated in the meantime has allowed an increase in economic specialization and an increase in per capita wage rates (except in the US and a few other banana republics, because our government burden has increased while the Indians, Chinese and Russians reduced theirs).

So the expert predictions of the 1960s were precisely wrong. More population caused more wealth, and more wealth reduced population growth rates. Even reducing infant mortality reduced population growth rates. So the experts changed their views, right? Well, they did change a little… they quit putting dates on their predictions of doom.

Running Out Of Resources

We have run out of many resources. Mammoths, passenger pigeons, bison, Lebanon cedars, guano, and many other "renewable" resources proved to be not so renewable after all. However, we have never run out of any non-renewable resource; we still have iron, coal, oil, gas, copper, silicon, uranium, etc.

Again, this contradicts expert predictions in the 1970s. The Limits To Growth claimed that we were running out of every "non-renewable," but instead we ran out of nothing. How could this happen?

Perhaps whether something is "renewable" or not, depends more on whether it is privately owned and produced than how much the starting quantity is. There were lots of passenger pigeons in 1800 and no uranium at all… Ridley doesn’t even get into the future prospects of He-3 energy and asteroid mining, but he gets the principle across: it’s all about markets and "the catallaxy" as he calls the productive sector of society.

Africa

Of course upper-crust "progressives" (like the Roosevelts, e.g.) are never racists, but it’s obvious to them that those bloody fuzzy-wuzzies will never get anywhere, eh what? Except that it turns out that Botswana is the world’s fastest-growing economy for the last thirty years (oddly enough, they have a strong tradition of individual property rights), and even in the foreign-aid hellholes elsewhere in Africa, capitalism and technology are spreading. Poor farmers are bootlegging true-breeding BT crops and freeing themselves from both bugs and pesticides.

Fishermen use cellphones to find market for their fish, entrepreneurs start informal businesses in spite of impossible regulation and permit systems. African incomes are going up. And with any luck, the collapse of the US economy will free them from the dead hand of aid. As Ridley points out with great insight, it is foreign aid that has strangled African economies.

Global Warming

If the planet actually warms, it will be great. First of all, it means we beat the Ice Ages. Second, it will mean that we kept burning fossil fuel for another century… which means the world will be unimaginably rich and technologically advanced. And third, a warmer world with more CO2 will be more agriculturally productive even in the poorer areas.

That said, Ridley isn’t really over-optimistic about Global Warming…as he points out, the Earth hasn’t actually been warming since 2000 or so.

Sustainability, aka The Dark Ages

The one threat that tempers Ridley’s optimism is "Green" anti-environmentalism. As he points out, the electricity production of the US can be produced by either:

Solar panels the size of Spain, plus a huge storage system, or

Wind farms the size of Kazakhstan, plus a huge storage system, or

Wood-chip burners fueled by forests the size of India and Pakistan, or

Dams with reservoirs 33% bigger than all the continents put together, or

… a few nuclear, gas, and coal power stations that leave the majority of the forest and plain available for wildlife and agriculture. If we phase out the coal burners and replace them with new nuclear plants, even the land that is now strip mined for coal can return to forest.

As he says, "sustainability" is unsustainable, but free markets are not.

One Irrational Apple Spoils The Bin

There is only one bad sentence in The Rational Optimist. Unfortunately it completely destroys his premise of optimism, right on page nine. Being English, Ridley arbitrarily decides that while free markets are great for everything else, they aren’t good for stocks, bonds, real estate or options. All capital assets must be "regulated" to prevent "bubbles." Governments must intervene to institute price controls, or the free market will destroy itself by driving up asset prices. (Oddly, he then spends many pages talking about how badly government regulation has distorted the housing market, the Federal Reserve has distorted the bond market and wasted capital borrowed from China, and corporate welfare has distorted industries… I guess it’s OK to give this book to your nephews as long as you tear out page nine…)

Perhaps someone who reads this review could forward it to the author with the suggestion that just possibly, asset "bubbles" can only exist when governments print excess fiat money. If Mr. Ridley would read Money, Bank Credit, and Economic Cycles, (e.g.), his next book could be a real masterpiece. In fact, tell him I’ll send him my hardback copy if he doesn’t want to read it for free at mises.org.

Or Is Pessimism More Rational?

Bringing up government control of capital markets is of course the perfect segue into pessimism. Let’s take a quick snapshot of the US government’s current efforts "to prevent asset bubbles," which seems mainly to mean "to re-inflate asset bubbles." (Please take notes, Mr. Ridley).

In 2009, the US government spent $3.9 trillion dollars (on the books), and took in $2.1 trillion dollars in taxes. So the deficit is $1.8 trillion — almost as much as the tax revenue. Total spending in 2005 was $2.5 trillion, spending in 2015 will be $4.38 trillion. In other words, within the space of 10 years the federal budget nearly doubles. The current Congressional Budget Office baseline projects the federal government will be spending $5.2 trillion in 2020.

However, "linear projections always lead to ridiculous predictions," as The Limits To Growth demonstrated so well. The parasite government is not going to keep growing faster than the host economy for very much longer; either the economy will kill the parasite or the parasite will kill the economy. Either way the parasite will lose its power over the rest of the world. A hundred kleptocracies would fall without US foreign aid.

It may be rather rough for those of us living in the US for the next couple of decades, but overall the world is going to get richer and smarter in the 21st century, just as it has in every century since the 16th. And if we use The Limits To Growth’s linear extrapolation methods, we see that in 2079 Botswana will have a per capita income of $900,000 per year and be colonizing the main asteroid belt.

Bill Walker [send him mail] is a research technologist. He lives with his wife and four dogs in Grafton NH, where they are active in the Free State Project.

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