In this intriguingly contrarian rework of the Thomas Friedman “hot and flat” motif, Gregg Easterbrook asserts that venture capitalists are no better than lottery players when it comes to choosing new technology companies. He reports that leading stock analysts outperform broad market-index funds only one-third of the time. He adds that the preeminent financial pundits break into two groups — pessimists like Robert Shiller and Nouriel Roubini, who are right during downturns, and optimists like Abby Joseph Cohen of Goldman Sachs, who are right during upturns. (There are no up-and-down visionaries like Steve Forbes or Ken Fisher visible anywhere on his horizon.)
Easterbrook, a writer for The Atlantic and The New Republic, winningly acknowledges that “wonderful economists” such as leftist luminaries Lester Thurow of MIT and the late John Kenneth Galbraith (surely “wonderful writers” would be more accurate) were wrong about almost everything: Japanese industrial policy, the Soviet economy, the U.S. economy, the role of large corporations in innovation, the future of markets, pollution, socialism, you name it. Even Nobel-laureate economists, says Easterbrook, get almost no predictions right at all, beyond microeconomic minutiae, such as Paul Krugman’s prize-winning mathematical gobbledygook showing that countries geographically close to one another are more likely to trade. Collectively the experts utterly failed to predict any of the major turning points in the U.S. and global economies over the last five decades.
In a stirring conclusion, Easterbrook asserts: “If it hadn’t been shown a hundred times before, the financial-world events of the last two years proved that even the most powerful officials have little clue what the economy is about to do, and only a mild, limited ability to influence economic events once they commence. . . . Yet the international economy . . . was not brought down by the Cold War, or the two 1970s oil shocks, or the savings and loan debacle, or currency gyrations in Asia, or September 11. Most likely [today] it will rebound with a glittering Sonic Boom,” his metaphor for creative destruction that wreaks both splendid progress and widespread anxiety.
“Many companies, institutions, or sports teams,” he writes, “have a single person in charge, and that person is in a position to make a catastrophic error that brings [them] down. . . . We know from the sad chronicles of history that placing one single person in unchecked charge of a nation nearly guarantees a catastrophic result.” Market economics provides “a new model of social interactions, in which no one is in charge, yet things go well” — because, as he explains, capitalism is not the dog-eat-dog Darwinian struggle of leftist mythology but essentially a cooperative system in which all players want others to succeed and provide markets for their own output. As a result, the system works without expert guidance from above. “Experts won’t like [the triumph of this system],” says Easterbrook, “because their predictions will fare even more poorly than now. [But] overall, the world might be better off.”
This down-with-the-experts riff is bracing stuff, raffishly dismissing pompous punditry left and right. Yet Easterbrook is no doctrinaire skeptic. In apparent contrast to all the other purveyors of defective expertise he mentions, one group commands his complete faith: the mostly government-paid authors of the consensus on climate change. So reliable are these folk that Easterbrook would have the world measure and mete out, cap and trade, every emission of carbon dioxide. Over the next 40 years, Easterbrook believes, we must invest an additional $45 trillion in response to the claim that the very carbon dioxide emissions that we breathe out (and plants turn into carbohydrates and oxygen that sustain our carbon-based bodies) are a threat to the planet.
It didn’t have to end in this biochemical bathos. In A Moment on the Earth, his excellent 1995 book on environmental progress in free economies, Easterbrook himself boldly debunked the alarmist argument for human-caused global warming. At the time I began to believe that he might become a real critic of the green religion. But by 2006 Easterbrook gave in. Renouncing every glint of his previous skepticism, he produced a fatuous paper called “Case Closed: The Debate about Global Warming Is Over,” in which he meekly succumbed to the political experts’ “near-unanimous acceptance of the evidence of an artificial greenhouse effect.”
#page#Although otherwise-sensible people left and right allow themselves to be bowled over on this issue by devious zealots with doctorates, the fact is that there was a consensus only among leftist scientists in the government. In my circles of Ph.D.s in technology companies and in tenured academic positions, global-warming theory was already evoking rage and indignation from leading experts around the world, who pointed out that the so-called medieval climate optimum featured centuries of temperatures several degrees higher than today’s. What would become a throng of some 31,000 scientists — including Fred Seitz, former president of Rockefeller University, and Fred Singer, the designer of the very satellite systems that collect the data — were already rushing to sign Caltech chemist Arthur Robinson’s petition against the global warmers. Nothing of significance has happened since the 1980s and 1990s except that — entirely contrary to the warmers’ sundry computer models — the increases in CO2 have produced no further warming at all for more than a decade.
Apparently unbeknownst to Easterbrook, though, a multibillion-dollar surge of politically impelled government money reoriented opportunistic scientists around the globe toward the pursuit of a new rationale for global government and socialism. I have come to believe that nearly all government science is politically twisted and unreliable. After filling out all the forms and toadying to all the bureaucratic toads necessary to obtain a grant, there is all too often little energy left to perform the research — and no inclination, if it affronts the source of the funds.
It would be gratifying if I could conclude this review by describing Easterbrook’s climate blunder as an aberration with little effect on the good sense of his overall argument. But I cannot. In principle, Easterbrook is pungent and right about free markets; but in practice he comes out as reliably leftist as any Democratic senator. For all our author’s vaunted skepticism toward financial punditry, he is in fact as much a pushover for any fashionable enthusiasm of the Left as the even glibber and more Panglossian Friedman in the similarly free-market but environmentally totalitarian Hot, Flat, and Crowded.
Without its market-crippling contradictions, Sonic Boom would be a cogent and even sometimes original contribution to free-market literature. But the contradictions finally overwhelm the very real insights. “You can’t stop global change,” he boldly asserts, except “climate change.” Experts are always wrong except about the long-term weather. Venture capitalists cannot select companies any better than a lottery, yet companies that have been backed by venture capitalists account for 10 percent of jobs and 20 percent of GDP. Private markets are always more efficient than public mandates, except for health care, women’s rights, education, pollution, and banking.
Easterbrook finally epitomizes what Thomas Sowell depicts as “the unconstrained vision,” which is pervasive on the American Left. We can have it all — stable families plus sexual freedom; vast new mandated spending and regulation of health care and energy plus less debt and freer markets and more entrepreneurship. Like most liberals, Easterbrook has no sense of the facts of life and its limits. In the end the recommendations of Sonic Boom would harvest all the anxiety that he predicts, but few of the benefits.
– Mr. Gilder is a founder of the Discovery Institute, a venture capitalist, and the author of 15 books, including The Israel Test.