The Rational Optimist: How Prosperity Evolves

Published on July 14, 2010

Few individuals who start a business could be called pessimists.  After all, starting a business involves a great deal of risk and requires the founder to believe that sufficient returns will be achieved over time to justify the capital investment.  The same is true for investors in common stock, although the form of ownership is more indirect.  Investors are looking for positive real returns over time.  As Aesop’s The Hawk and the Nightingale reminds us, a bird in the hand is worth two in the bush.

Skeptics sometimes equate optimism with naiveté, and this is often a valid criticism for sunny optimists who are gullible enough to believe in any business plan or farfetched concept.  Optimism must be tempered with a heavy dose of realism, and supported by historical fact and intelligent projections  of the future.  This is Matt Ridley’s primary focus in The Rational Optimist:  How Prosperity Evolves. In a work that may be best described as a fusion of Adam Smith’s invisible hand and Charles Darwin’s natural selection, Mr. Ridley has presented a fascinating argument, at least for those not wed to predetermined ideologies.

Economic History of Mankind

Mr. Ridley’s background in science is familiar to those who have read Genome, his 1999 bestselling book that made genetic science accessible to a wide audience.  This background is put to good use in the first several chapters of The Rational Optimist as the reader is taken through a brief history of mankind from an economic perspective.  The central thesis is that humans began to experience sustained economic advances once individuals began to engage in trade.  By specializing in the production of goods in which an individual has a comparative advantage and trading for other goods, society in the aggregate is richer and has a far higher standard of living. None of this is exactly new information, but it is important in terms of making the case for open trade later in the book.  Rather than being repetitive and dull, the examples used are compelling.

Fossil Fuels Liberate Mankind After 1800

The book delves into more controversial areas in later chapters where Mr. Ridley begins to focus on the industrial revolution and the liberation of mankind through the discovery of fossil fuels.  However, rather than being controversial, it seems rather obvious that fossil fuels represented a blessing for mankind and made possible economic advances that could never have been contemplated in earlier ages when only renewable resources were used.

Mr. Ridley takes exception to those who would idealize life prior to the industrial revolution, and for good reason.  Without fossil fuels, individuals were much more reliant on renewable natural resources, but also on human resources that in many cases were enslaved to make life easier for society’s elite.  The labor intensive practices common before the industrial revolution were slowly banished as mechanized transportation and farming equipment allowed fewer people to work in agriculture and made possible increased migration to cities.

Cities represent a physical manifestation of the “network effect” that many today reserve for electronic communities.  Mr. Ridley likes to refer to the concept of ideas “having sex” when writing about human advances, and indeed cities represented an opportunity for individuals to trade not only in goods and services but also in ideas and technology.  The rapid rise of cities in the 19th and 20th century was only possible due to improved agricultural efficiencies that allowed individuals to move to urban areas where they would specialize in something other than growing crops while trading for their food.

Climate Change

There is no issue that attracts more pessimistic thinking today than climate change.  As a result, this issue is discussed in quite a bit of detail in the book and is most likely the  main source of controversy regarding the overall thesis. Based on some of the criticism of the book that has appeared online, there seems to be an impression that Mr. Ridley denies the science of climate change.  This does not appear to be true based on the content of the book.  While he reveals a great deal of skepticism regarding the effects of climate change on the environment and the economy, Mr. Ridley does not directly say that the science is entirely wrong or even that nothing should be done regarding the issue. In fact, he seems to favor a heavy carbon tax (coupled with an offsetting cut in payroll taxes) as a mechanism to encourage the private sector to develop alternative energy.

While it is not possible to go into great detail regarding climate change in this article, the main point Mr. Ridley makes is that society must intelligently weigh both the costs and the benefits of a changing climate when deciding on appropriate policy.  The book argues that there is a certain conceit in believing that the only sustainable climate is the one that humans have known for the past several hundred years.  Indeed, the climate has undergone massive changes in the past and will continue to do so in the future regardless of human activity.  Mr. Ridley believes that humans will be best positioned to adapt to the inevitable changes in climate by having as many economic resources as possible.  In other words, the richer society will be in the future, the better people will be able to adapt to changes in the climate, whether caused by human activity or other factors.

The book may appear to present a controversial thesis regarding climate change, but the facts regarding past variation in climate are irrefutable.  Human beings did not cause any of the climate variation prior to the widespread use of fossil fuels.  However, this does not necessarily mean that action is not warranted if the economic costs of prevention are lower than the present value of the cost of eventual adaptation.  In many ways, this is unknowable, but Mr. Ridley takes exception to some studies that he believes inflate the cost of adaptation by using artificially low discount rates.

Nuclear Armageddon

Perhaps the least satisfactory part of the book is related to the author’s rather brief examination of the nuclear threat to mankind.  Far more than climate change, nuclear war either between nations or by terrorist groups, presents mankind with problems that could make the future far worse than the past.  Mr. Ridley believes that things are getting better in terms of controlling proliferation, but this is difficult to take seriously given the advances made by rogue states such as Iran and North Korea in recent years.  Unlike other areas of the book, the treatment of nuclear risks has more of a “cross your fingers and hope for the best” element and is not likely to make pessimists on the issue less fretful.

Something to Irritate Everyone

Those who have rigid ideologies are less likely to enjoy this book because Mr. Ridley makes enough statements to annoy those both on the left and the right.  Clearly, the book’s thesis regarding the blessing of fossil fuels and the need to consider the benefits of climate change along with the costs will infuriate environmentalists and others who are pessimistic regarding this issue.  However, the prospect of a carbon tax along with Mr. Ridley’s dim view of those who challenge evolution and new technologies like stem cell research will not please many on the right.

But perhaps this was the author’s intent.  It is likely that he knew that few individuals wedded to the orthodox views regarding the covered subjects will be open to his arguments so the target audience seems to be those who are prepared to rationally assess the evidence prior to forming an opinion.  At a time when what passes for political debate is often just a shrill shouting match, Mr. Ridley’s approach of focusing his efforts on those who are actually open to reason has a great deal of merit.

The Rational Optimist: How Prosperity Evolves
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