I have been writing for several weeks that I would write a review of Matt Ridley’s The Rational Optimist. I believe it is the most important book of 2010 if only to shake us out of the rigid pessimism brought on by the events of 2008. I will write one, but there have been many who have made the book a focus of their analysis this year.
For example, last week’s Weekend Journal featured a debate between Ridley and Bill Gates on whether there are reasons for optimism in the welfare of the people of Africa and on climate change. In my opinion, Ridley won.
The Rational Optimist analysis of the nearly inexorable improvement in the human condition spans 2,000 years. Clearly, a big-picture, long-term perspective proves that we have come a long, long way. One of the areas that Ridley addresses in his book is human health. In this video Hans Rosling, Professor of International Health of the Karolinska Institute, demonstrates the improvement in our health and wealth in the past 200 years. (Hat tip: Tigerhawk.blogspot.com)
Ridley is right to say that the reason so few desire to appear as optimists or even realists is that pessimists always sound smarter. Pessimism is good for most analytical careers. In my opinion, pessimists only have to be correct once to appear brilliant. In the world of investing think of A. Gary Shilling and Nouriel Roubini, who have each made an industry out of one correct pessimistic call. It does not matter that they are wrong most of the time.
One correct call can make a career. As the running joke goes: they have predicted ten out of the last two recessions. In Roubini’s case we have yet to see if his call was not unlike a stopped clock, which is correct twice a day. We already know that Shilling, who has been predicting disaster since the Carter administration, is a broken clock. Still, both Roubini and Shilling’s time frame can be measured with a stop watch when a calendar would be more appropriate.
Those who take a realistic view of the world, on the other hand, and occasionally go out on a limb to make a call after a diligent, rational analysis, will appear monumentally dumb when just one of those calls goes wrong. It will not matter that they were right most of the time. Ridley quotes John Stuart Mill in this regard:
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.
He also quotes the economist that I admire most—Friedrich Hayek:
Implicit confidence in the beneficence of progress has come to be regarded as the sign of a shallow mind.
Ridley follows with this:
If, on the other hand, you say a catastrophe is imminent, you may expect a McArthur genius award or even the Nobel Prize.
Ridley shows that it is only when economically unproductive, central-planning elites—government, clergy, military, etc.—make a large percentage of economic decisions that progress in the human condition slows. Elites often “vote” to extract a large percentage of wealth for themselves, which starves the entrepreneurs of the resources necessary for growth and progress.