The Rational Optimist - Matt Ridley

Review & Rating: 9/10

This is a book I’d buy for any friend who wants to improve on the current state of the world. Particularly for the cynics and pessimists who’ve turned into environmentalists or naysayers of capitalism. Not because it will change their mind but in the hopes that they may be able to hold two opposing views instead of the one-sided fear-mongering view touted by pessimistic pundits.

In the simplest sense, I’d consider this a history book looking at the progress of humankind through our invention and adoption of various technologies. I appreciated the first principles lens to which Ridley explained various states of humanity and with his own opinions on the pragmatic approach to solving and/or living with them.

What can I say? It’s a book that draws me further into the importance of studying history. It’s a book that makes me think differently and try (at least try even if I don’t succeed) to look at things through different lenses and angles. It’s a book that makes me admire how one writes well and it’s a book that incentivizes me to stick with optimism. Pessimism is what surrounds most of modern media. Pessimists can look like geniuses when the inevitable bust follows a boom and quietly hide when the boom continues since no one will care about them. Yet optimists will be ridiculed during the bad times as people will be angry and will need scapegoats to channel their anger. It’s an uncomfortable position to be in. Society is set up not to incentivize the optimist but when looks at history, one can’t help but be optimistic towards the future. It seems to a moral and rational approach.

Book Notes:

A meme is a unit of cultural imitation. It was coined by Richard Dawkins in 1976. It’s not some new age internet thing. Ha! Now I will lord it all over my friends.

UN estimates the last 50 yrs reduced more poverty than the previous 500. Progress. Just because it is more easily visible (i.e. internet), doesn’t mean it’s gotten worse. It was way worse, we just didn’t know.

We are making improvements. People always find a way for incremental improvements.

“Today a parked car emits less pollution travelling at full speed than a parked car did in 1970 from leaks."

Pessimists like to use past events and/or the simplistic notions of the past to sound clever with their nihilistic mumbo jumbo but it’s really lazy ignorance for the progress made to elevate lives today. An average person in 21st century Canada has more than, things are much more affordable, opportunities more bountiful, life expectancy greater and suffering lower than the upper class in 14th century Europe.

I think most people would agree that Amazon has vastly improved the average person’s quality of life. Bezos should be a billionaire for that. I ahem no qualms:

“Once the rise in the position of the lower classes gathers speed, catering to the rich ceased to be the main source of great gain and gives place to efforts directed towards the needs of the masses. Those forces which at first make inequality self-accentuating thus later tend to diminish it.” - Friedrich Hayek

Light has gotten cheaper. Electricity is practically a universally available good for most now. An hour of work would’ve bought 10mins of reading light in 1800 versus 300 days in 2000s.

Less time spent getting light means more time spent somewhere else. Though, healthcare and education in the U.S. is more expensive than it was in the 1950s. Quite an oddity given most of the wealthiest capitalists got there by making things cheaper for others (Carnegie cut steel price by 75%, Rockefeller cut oil price by 80%).

Reminds of the Costco, Amazon playbook of cheaper, faster and more options.

The measure of prosperity is time.

“…prosperity is: the increase in the amount of goods or services you can earn with the same amount of work.”

Rich people are happier than poor people. Rich countries have happier people than poor countries. Ergo, immigration.

Ambition as a basic instinct:

“…people are programmed to desire, not to appreciate.”

Ruut Veenhoven found more individualized countries had more citizens who enjoyed life. Wouldn’t that apply to any organization like companies as well?

The concept of debt is part of humanity. Such is the case for pensions where one’s pensions will be funded by the taxes from their children’s future income. A perpetuating of a society that borrows against the future capabilities of the coming generation.

Windfall (i.e. resource rich countries…think the oil nations like Iraq, Russia, Venezuela…I’d say Canada fits here too) nations live off what they were luckily given. They end up being run by rent-seekers and see low economic growth compared to countries that have no resources and are forced to trade (i.e. Netherlands, Hong Kong, Singapore, South Korea, Japan, Taiwan).

Ridley makes an argument for specialization and how prosperous countries go further down this path and vice versa. A society where one makes one thing but consumers lots. A diversity of consumption and simplification of production being the idea for a prospering nation. The other side reflecting a nation that requires (not by choice) it’s citizens to be self-sufficient (truly, in the sense of making their own clothes and transportation) is one stuck in poverty. A society requiring self-sufficiency as a default being one where there is no efficiency of skilled labour and any form of a proper market for trade. Back to the concept of trade creating wealth.

Trade is often unequal but it benefits both sides. A win-win to what each side values. A $5 loaf of bread will be a profit for the baker but given the value of my time to not learn such a skill and go through the labour, it’s worth it for me as well. A trade is the giving up of something you value for something you value more.

As hunter gatherer tribes evolved, they moved from slow-moving small animals (tortoises) to fast moving small mammals like rabbits. These mammals were also rapid breeders and this let to faster growth in human population in tandem. Eventually, human colonies became large enough to pack hunt large mammals like mammoths. Yet, the larger mammals couldn’t breed as fast so they eventually became extinct in areas heavily colonized by humans. Hunters, being male, killing large prey as part of courtship is also seen as a contribution to the decline of these large mammals too.

David Ricardo introduced Ricardo’s law in 1817. The proposition of comparative advantage where if Country A produces X with 100 ppl and Y with 120 ppl while Country B produces X for 80 ppl and Y with 90 ppl, Country A should specialize in producing X and trade that for the Y produced by Country B since Country B is comparatively better than A in producing Y than X. This became an official economic doctrine in the 19th century but tribal people have been executing on this much earlier, showing how the codifying of empirical experiences happens at the end when it’s accepted as obvious by all.

Ideas result from mating and mixing. Making the case that globalization, leading to specialization of labour, leads to further mixing and mating, which would make innovation possible, hence the creation of technology. Going another way, nationalistic policies that isolate and focus on self-sufficiency will kill the formation of any new technology (i.e. xenophobia will halt any economic development from happening).

Culture has a bias towards imitating prestigious individuals.

Wouldn’t a belief in power laws and network effects make larger populations leading to faster development obvious?:

“..population growth leading to diminishing returns is fiction; the induced increase in productivity is scientific fact.” - Julian Simon

“Money is not metal. It is trust inscribed.” - Niall Ferguson

Americans with their politics:

“…the more cooperative a species is within groups, the more hostility there is between groups."

Oxytocin is a physiological signature of empathy and it can induce emotional attachment to others. Apparently, the brain releases this hormone through touch, massage, and financial acts of generosity. I imagine compliments might do this too.

Paul Zak, a neuro-economist, found trusting countries to also be wealthy (Norway with 65% trust between people) versus mistrusting countries also being poor (Peru with 5% trust). Higher trust in society is also seen to increase income annually. There is no doubt that a trusting society will lead to better results. Who’d want to do anything in a place where you are just expecting to be screwed over? The question is how does a society build a system that elitists trust?

As mentioned with the concept of trade, prosperity can only be born in a society where both parties win from the trade. This is also good business practice where one side isn’t a sad captive in a zero-sum trade. Prosperity can only exist for non-zero-sum transactions.

A view of macroeconomics in a nutshell:

“Like biological evolution, the market is a bottom-up world with nobody in charge. As the Australian economist Peter Saunders argues, ‘Nobody planned the global capitalist system, nobody runs it, and nobody really comprehends it. This particularly offers intellectuals, for capitalism renders them redundant. It gets on perfectly well without them.'”

“..nothing is more favourable to the rise of politeness and learning, than a number of neighbouring and independent states, connected together by commerce and policy.” - David Hume

Violence is random so it makes the news. Kindness is commonplace so it doesn’t. Think of news as showing the rarest of things. Consumers then think it’s commonplace because all they see is the rare violence.

The fear of innovation taking away jobs is unfounded. Creative destruction is the mark of progress and as it kills new industries, it creates new ones. As innovation makes goods cheaper, people don’t save it but find ways to spend it on something else. Per Ridley, about 15% of jobs are destroyed very year and 15% are created. It appears dire when industries crumble but new ones are formed. Doesn’t mean the ones who lost the jobs are the ones getting the news ones but that’s dependent on their ability to evolve. Everything, eventually, needs to evolve or die.

Creativity and compassion thrive in places where commerce thrives. Capitalism is the solution to most problems.

A mental model for organizations that enforce political correctness, lynching of one another, etc...:

“Good rules reward exchange and specialization; bad rules reward confiscation and politicking.”

“Human history is driven by a coevolution of rules and tools. The increasing specialization of the human species, and the enlarging habit of exchange, are the root cause of innovation in both.”

The more wealthy someone is, the more he acquires from specialists.

What if the bedazzling of women in expensive jewelry were a way of wealthy men to display their societal position? The literal use of the term ‘trophy wife’? It could also lead to the popularity of harems among the wealthy with polygamy allowing poor women to share in the wealth of the few rich men while the gap increased for the poor men of society.

Did not know of the story where Moses orders his followers to massacre all the men of the Midianites and tells his followers to also kill all non-virgin women and rape the virgins for themselves. Religion seems more and more to be stories that justify the desires and beliefs of the powerful of that time. Quite similar to how the Catholic Church would teach psalms that tell its followers to stop seeking knowledge and just quietly obey the authority of the church.

Entrepreneurs and capitalists versus the government and state funds.

“Each empire was the product of trading wealth and was itself the eventual cause of that wealth’s destruction. Merchants and craftsmen make prosperity; chiefs, priests and thieves fritter it away.”

Nationalism halts innovation. Trade is about the unfettered interaction of individuals and it must go through a natural path of organic evolution. Capitalism is rather efficient in that it will innovate on the needs and opportunities that arise from various states of trade. Once government gets involved, plans and tries to impose their rule it halts development. Look at any industry that was nationalized or is still nationalized.

The Mauryan empire of India was an economic powerhouse that surpassed similar empires of Rome and China that existed during similar times. It reached the height of economic development in 250 BC under Asoka where promoting trade and building infrastructure to support it helped the private corporations prosper. It eventually declined under the Guptas who introduced the caste system.

“…strong governments are, by definition, monopolies and monopolies always grow complacent, stagnant and self-serving.”

The case for fragmentation leading to accelerated innovation and economic prosperity is seen from the “Five Dynasties and Ten Kingdoms” period in China after the end of the Tang Dynasty in 907. It’s estimated the GDP of the nation was higher during this period than it was in 1950 under a more unified gov’t.

Repeatedly, fragmented gov’t + local autonomy = progress.

Independent city states were able to survive the Black Death thanks to the local autonomy and fragmented gov’t. A great reference is how Milan was one of the few cities that enforced quarantines per Weatherford’s book on Genghis Khan.

It’s folly for people to call on gov’t to take charge of more part of the economic engine. History tells us the less involved gov’t is, the better.

The current state of Western gov’ts resembles the poor incentives of the Ming gov’t:

“Ming [dynasty] officials had high social status and low salaries, a combination that inevitably bred corruption and rent-seeking. Like all bureaucrats they instinctively mistrusted innovation as a threat to their positions and spent more and more of their energy on looking after their own interests rather than the goals they were put there to pursue."

Ease of mobility spurs progress. Columbus went from Portugal to Spain, Sforzas lured engineers to Milan, Gutenberg went from Mainz to Strasbourg, Louis XI brought Italian silk makers to Lyon, etc… It makes one wonder about the long term viability of protective countries/economies. Though I think self-reliance and vertical integration may be mutual exclusive to protective/closed-borders.

Another lesson from history:

“...free trade causes mutual prosperity while protectionism causes poverty."

Stagnation followed economies that closed borders and/or saw their free trade collapse. Japan in the 1930s went to imperialism as trade collapsed, Latin America stagnated after closing borders post WW2, Nehru’s India closed borders and stagnated, every protectionist nation like Cuba and China during the Cold War era stagnated. The free trade export-focused nations like Singapore, Hong Kong, South Korea and Taiwan prospered the other way.

The error is in applying Western ideological standards to other countries:

“Nike’s sweatshops in Vietnam, for example, pay wages three times as high as local state owned factories and have far better facilities. That drives up wages and standards.”

“Many of my contemporaries in the developed world regard subsistence farming as soulful and organic, but it is a poverty trap and an environmental disaster.” - Stewart Brand

The urbanization and compounding growth of cities is essential for long-term prosperity of the human race. It’s better for the environment that we do so. Basic scale economies in a city are far more efficient than suburban communities. Cities will have much greater crimes but even greater opportunities. Cities have always had higher death rates than birth rates.

“Thoreau was wrong, Living in the country is not the right way to care for the Earth. The best thing that we can do for the planet is build more skyscrapers.” - Edward Glaeser

The constant famines, plagues and wars that decimated the population in Europe may have resulted in the continent becoming a society that built its economy on the back of non-human power (i.e. not slaves like most civilizations). The constraint of minimal labour forced the continent to become more capital intensive. Just like the Black Death may have contributed to the renaissance with the rise in income leading to more time for thinking and creating, the lack of people but need to get back to levels of prosperity may have resulted in greater rates of innovation.

The opposite would be Japan in the 1700-1800s where population boom resulted in cheaper labour but scarce land. Leading to the nation becoming more self-sufficient on the back of a large population that would do anything to live for low income. This atrophied technology as there was no need for it.

Funny how less people = more expensive labour = greater innovation

A fast growing economy that sees the boom in its population emigrate may save itself from the stagnation Japan experienced. Such seems to be the case in Germany in 1800s and this might be what I’m seeing with South Korea and China as more emigrate out of the country while they industrialize. This is seen as a brain drain but a certain amount of this seems necessary to stop the overcrowding within the growing nation. The U.S.’s blockage of emigration in the 1950s from Asia (i.e. the Yellow Peril) may have contributed to the long stagnation of China and India as they developed a large population of ‘agrarian poor’ as they were forced down the road of self-sufficiency.

In the 1970s, the West wanted to tackle the population problem in Asia by promoting sterilization. With support from McNamara’s World Bank, India coerced 8m men to get vasectomies and many Chinese women were forcibly sterilized. With the global effort to control population, the growth rates have faltered. Moving from a high mortality and high fertility world to one of low mortality and low fertility. Since children don’t die so young, family sizes may stay small going forward.

There is also a high correlation with female education and low birth rate:

“Probably by far the best policy for reducing population is to encourage female education.”

“Human beings are a species that stops its own population expansions once the division of labour reaches the point at which individuals are all trading goods and services with each other, rather than trying to be self-sufficient. The more interdependent and well-off we all become, the more population will stabilize well within the resources of the planet.”

Ridley argues economic growth is only sustainable through the use of non-renewable resources. He cites how every boom of economic growth hit a bust when a renewable resource ran out (i.e. timber, cropland, pasture, labour, water) as some could be self-replenishing but took too long:

“Some things are finite but vast; some things are infinitely renewable, but very limited.”

Land rich + low population doesn’t always lead to technological innovation as America resorted to expand production by killing the labour market altogether by using slaves who worked for no wage. Whereas Europe seemed to be moving towards industrialization by the 1600s, America moved to slavery in the 1800s like the old empires did.

An average person consumes 2,500 watts of energy and 85% is generated via fossil fuels:

“Next time you lament human dependence on fossil fuels, pause to imagine that for every family of four you see in the street, there should be 600 unpaid slaves back home, living in abject poverty."

The U.S.’s 300m consumes about 10k watts each. To make it all renewable, one would need solar panels the size of Spain or wind farms the size of Kazakhstan or hydro dams with catchments a third larger than all the continents put together. Renewables will take up a lot of land. Urbanization and mega cities will have to become a necessity and organic farmland will need to be culled for this to happen.

One wind farm in California kills 24 golden eagles a year. If an oil plant did that, it would be in court.

The process to convert bio-fuels releases 17-420x more CO2 than annual greenhouse gas reductions from displacing fossil fuels. The tractors to grow crops release nitrous oxide which is 300x the warming potential than CO2 from cars. One would reduce more CO2 by replanting a forest into farmland than trying to replace car fuels.

Remember that energy efficiency has only increased energy consumption. More efficient light bulbs mean people will use more lights and keep them on longer

Jevons paradox:

“It is wholly a confusion of ideas to suppose that the economical use of fuel is equivalent to a diminished consumption. The very contrary is the truth. As a rule, new modes of economy will lead to an increase of consumption.”

Individual efficiency increases overall consumption.

Progress depends on energy. Energy is the leverage we’ve used in various forms. One form was labour in mass quantities through slavery. Animals replaced humans. Dead animals (fossil fuels) replaced the live ones. No matter what, something will always need to be leveraged to keep the human race going.

Outside of science (i.e. physics, chemistry), equilibrium cannot exist. Equilibrium assumes perfect competition, perfect knowledge and perfect rationality. That is not possible. To assume so is to assume the economy/market is something one can plan. That’s not the case. Look at nature. Biology should show you that the only constant is change.

“Prosperity and success led to the emergence of predators and parasites in various forms and guises who eventually slaughtered the geese that laid the golden eggs.” - Joel Mokyr

The more people vocally mock something, the more it will be part of our lives it seems. Such was the case for credit cards:

“..the paradox of the modern world, that people embrace technological change and hate it at the same time.”

Throughout history, scientific discovery seems to succeed the invention of practical applications from doers.

Look at Watt, Newcomen, Trevithick and Stephenson’s invention of the steam engine. They did not use scientific theory and it seems more so that was of thermodynamics came after studying what these men invented.

The job of scientists are to explain empirical findings after folks have build something after constant iterating and tinkering. Telephones, search engines, etc… weren’t the work of scientists:

“Lime juice was preventing scurvy centuries before the discovery of vitamin C. Food was being preserved by canning long before anybody had any germ theory to explain why it helped.”

Innovations usually come from outsiders. An environment can supercharge this by marrying talent and capital like silicon valley did. The area doesn’t breed entrepreneurs, they rather flock to the place.

The companies that innovate and sustain their growth focus on internal creative destruction. They try to make their own products obsolete. The approach of killing their most loved ideas per Munger.

I imagine that greater the regulations imposed by gov’ts the greater the decline of innovation. Britain was the only country with music copyright laws in the 18th century yet they produced no composers. Mozart didn’t flock over there to protect his music and no other composer did either.

Look for companies where govt’s don’t try to intervene in economic development:

“A large study by the OECD concluded that government spending on R&D has no observable effect on economic growth, despite what governments fondly believe. Indeed it ‘crowds out resources that could be alternatively used by the private sector, including private R&D.’ This rather astonishing conclusion has been almost completely ignored by governments.”

Paul Romer’s 'new growth theory':

“…a world where perpetual innovation brings brief bursts of profit through temporary monopoly to whoever can commandeer demand for new products or services, and long bursts of growth to everybody else who eventually gets to share the spilled-over idea.”

The appeal of pessimism in a world where optimism is defaulted as naive and idealistic:

“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

IBM’s Watson said the world market for computers was 5 in 1943. Digital Equipment Corp’s Olson said no one would want a computer in their homes in 1977. Pessimists always say the world is doomed IF the world continues on its current path. But the world never continued on a set preset path. Every turn of history has been a long tail event no one would’ve predicted and the world went through one of the few absolute truths of constant evolution where the only constant is change. The world pessimists squeal over is only possible if people stop changing.

Whenever you want a quick refresher on how awful people are at forecasting, then read Chapter 9 again. It just shows you how stupid pessimism looks when extrapolating the future as a steady state absolute from the present.

A few thoughts from the great leaders of the 20th century on eugenics…regardless of which side of history they were on, they preached measures that the 21st century looks back on with utter shock for those who actually exercised it (i.e. Hitler):

“The multiplication of the feeble-minded is a very terrible danger to the race.” - Winston Churchill

“I wish very much that the wrong people could be prevented entirely from breeding; and when the evil nature of these people is sufficiently flagrant, this should be done. Criminals should be sterilized and feeble-minded persons forbidden to leave offspring behind them.” - Theodore Roosevelt.

The default psychology of people is to be optimistic in their own lives. People think they will live longer, stay in relationships longer, travel more, etc.. than people of the past. Yet they are socially pessimistic and fault the collective as bringing everyone to ruin (everyone excluding themselves, obviously).

Biologically, 20% of people have the serotonin transporter gene that makes them more likely to be optimistic. This doesn’t mean that 80% are pessimistic, just that they lack the genetic wiring to be more optimistic. The DRD4 gene that accounts for 20% of financial risk taking in men is also commoner in countries where people are descended from immigrants. Once again, countries will do better by opening borders.

A devoid of news is a good day since news only sheds light on the rare negatives. All people seem to like to do is scare others. Fear is the mindkiller yet that’s what sells. Does that mean most people are unconsciously hoping to kill their minds because they’ve chosen to willingly become a non participant of the world?

You will encounter more carcinogenic chemicals in a single cup of coffee than in a year’s exposure to pesticide residue in food. Cabbage naturally has 49 kinds of pesticides in it. This doesn’t mean coffee is dangerous. Rather, your body is supposed to be able to filter out natural chemicals in low doses. It’s like how shots and vaccines work to strengthen the body.

Remember that non of the non-renewable resources have run out yet. People have said we would’ve run out by now for a long time. Heck, the MacArthur genius Paul Ehrlich said in the 1960s that the world would face inevitable mass death where the world population would call to 2b with mass cancer and starvation with people all getting poorer by the 1980s. Big miss.

The case for bottom-up culture. Though, a leadership that protects an environment incentivizing that still seems crucial:

“Good institutions cannot usually be imposed from above: that way they are oxymorons. They must evolve from below.”

The counterintuitive fact is that as the climate gets warmer, economic prosperity increases. All countries obtained economic prosperity through energy consumption (i.e. more CO2 emissions). To get poor countries out of poverty, using fossil fuels is a necessity. Developed countries with bountiful of wealth can sure play around with renewables but to not allow developing countries to do what these developed countries once did is hypocrisy at minimum:

“If there is a 99% chance that the world’s poor can grow much richer for a century while still emitting carbon dioxide, then who am I to deny them that chance? After all, the richer they get the less weather dependent their economies will be and the more affordable they will find adaptation to climate change.”

A warmer planet will reduce water shortages. The warmer it is, the greater the evaporation from the ocean and greater the rainfall. The Holocene period had na ice-free summer in the Arctic Ocean. World moved along just fine from then.

The four horsemen of the human apocalypse are hunger, dirty water, indoor smoke and malaria as they kill 7, 3, 3 and 2 people per minute respectively. Let’s address that before yelling about climate change that completely ignores the economic data whilst making ridiculous doomsday projections.

Given the economic constraint of renewables like wind and solar, nuclear is a clear winner. It doesn’t need a lot of space (i.e. solar/wind) and it gets safer with time. I see fusion technology as our best source of energy in the future.

Human evolution occurs through the ‘invisible hand’ of individual transaction that leads to a world of creative niches. It’s not a product of top down planning:

“The more habits it acquired, the more niches it could occupy and the more individuals it could support. The more individuals it could support, the more habits it could acquire. The more habits it acquired, the more niches it could create.”

“Not inventing, and not adopting new ideas, can itself be both dangerous and immoral.”

The imperative of companies to follow biology:

“The big firms that survive will do so by turning themselves into bottom-up revolvers.”

“It is precisely because so much human betterment has been shown to be possible in recent centuries that the continuing imperfection of the world places a moral duty on humanity to allow economic evolution to continue.”

When you see natural disasters, look at how many lives were saved thanks to the modern prosperity we live in. We would’ve lost more lives a few hundred years ago when the world was less prosperous. Disasters are unavoidable but we can be in as prosperous a state as possible to handle it and minimize its damage.

“…prosperity buys survival.”