donderdag 16 december 2010

Review of Ridley's "The rational optimist"

In “The rational optimist”, Matt Ridley argues that, contrary to widespread perception, the human condition is improving through time, and at an accelerating rate.
Matt Ridley, a PhD in zoology turned journalist and businessman (he acted as non-executive chairman of the UK bank Northern Rock from 2004 to 2007), thus joins the ranks of luminaries such as Julian Simon and Bjorn Lomborg in claiming that the claims of the Cassandra’s of our time are both factually wrong and logically flawed.
The argument of the book rests on two pillars.
First of all, there are the factual arguments. Ridley argues that you can take almost indicator of human well-being, and that you will find that, through time and in most places, these indicators have evolved for the better: food availability, income, life expectancy, child mortality, violence, air quality, water quality, etc…
Second, Ridley suggests an overarching theory of why things got better and why, in his view, they will get even better in the future: of all species, mankind is the only one with a propensity to exchange (Ridley  explains at length why he thinks this is different from the “propensity to reciprocity” that has been discussed in behavioral economics). Exchange leads to specialization according to comparative advantage and, as Ricardo already pointed out more than two centuries ago, this leads to a higher productivity and thus to higher overall welfare. However, Ridley goes on to argue that human exchange is not limited to an exchange of goods, but also includes the exchange of ideas, which are the main source of productivity improvements over time. Mankind progresses because “ideas have sex”: the Internet, for instance, was spawned by the intercourse of the telephone and the computer. Ridley’s optimism about the future is based essentially upon the assumption that ideas will continue to have sex with each other, and lead to a productive off-spring.
A book whose avowed purpose is to row against the tide is bound to prove controversial. Before writing this review, I have briefly looked at some of the discussions on the Internet, and, as expected, there is some heated debate going on out there. As a rationalist who is not naturally inclined to optimism, I will contribute my bit here.
Before proceeding with an assessment of the contents of the book, let me first say some words on the form. Even though “The rational optimist” is not a scientific essay, it does take issue with the work of scientists and aims at influencing the public debate. If an author want this type of work to be taken seriously, rigorous referencing is absolutely required. To be honest, the referencing in this book is dreadful, and would not be accepted in an essay by an undergraduate student. First of all, even though the book contains more or less 60 pages of notes of references, several of the boldest claims of the author are actually not referenced at all! For instance, nice to hear that sperm counts are not falling, but where does the information come from? As these claims can hardly be considered to be common knowledge, one wonders why the references have been omitted. Second, although the author cites extensively from peer reviewed scientific papers, some of the (again) boldest claims come from very partisan secondary sources. I think this seriously undermines the credibility of the book. It is only  in my own field of expertise that I can assess the credibility of the claims made without verifying the original source – for other subjects, I would like to see a reference to a sources with sufficient credibility (to be honest, all the references that I did check out turned out be correct, but, again this doesn’t say anything about the veracity of the claims that have not been referenced).
A related problem is that, as far as I can judge, the author has been very selective in his references. For instance, Ridley argues that, when incomes rise, environmental quality first declines and subsequently improves: the economists amongst us call this hypothesis the “environmental Kuznets curve”. Ridley then cites one relatively old paper on the subject and creates the impression that the issue is settled. Actually, it is not: there is still a very heated debate amongst environmental economists whether or not this hypothesis is correct. One wonders if this selective referencing is a deliberate strategy or is simply the by-product of trying to cover too many fields in a short book.
Now, what about the substance?
To begin on a positive note, there are two points that I have very much enjoyed about this book.
First of all, as already indicated above, Ridley succeeds very well in explaining some essential insights from economics: the benefits from the division of labour and free trade, why the production of knowledge is fundamentally different from the production of material goods, why autarky is a very bad idea, why the failure of real-world markets does not automatically imply that governments will be able to improve upon them…  Despite the biases in the literature he quotes, I think Ridley got most issues right.
Second, he provides some detailed refutations of very concrete doom scenario’s that are fashionable in some circles. In the process, he provides several hilarious examples of past predictions of eminent collapse that have been disproved by time (to put it mildly). Everyone who thinks the end is near should look up the predictions made by the Club of Rome on the exhaustion of natural resources or by Paul Ehrlich on demographics (or on cancer prevalence).
However, on the whole, the book is disappointing, precisely because it suffers from exactly the same faults as the pessimists it wants to refute:  it gathers all the evidence that confirm its thesis, ignores largely evidence pointing to the contrary, and then jumps to conclusions.
Let me be more concrete. On the whole, I agree with Ridley that, contrary to conventional wisdom, things have indeed gotten much, much better over the last two centuries for most of mankind. I also think that those who pretend to the contrary either do not know the facts or use benchmarks against which reality will always be disappointing. However, Ridley does not really consider the questions whether these improvements are (to use a work I am not very fond of) “sustainable”.
Ridley seems to assume that, just because all past predictions of doom have turned out to be wrong, predictions of doom are inevitably wrong.  It would have been much more instructive if Ridley had carefully reviewed the assumptions and data underlying these predictions and explained why they have led to erroneous predictions (in the passing, he may have discussed Jared Diamond’s examples of past civilisations that have collapsed under environmental pressures). For instance, the predictions of the “Limit to growth” models may have been spectacularly wrong, but their most important flaw was that they did not leave any room for consumers or firms  to respond to changes in market prices. As argued by economist William Nordhaus, the fact that the authors of these models had grossly underestimated available stocks of non-renewable resources is of completely secondary importance.
Because Ridley emphasizes the faults in the work of other authors, he tends to overlook some important gaps in his own thinking. For instance, Ridley argues that, without fossil fuels, agriculture would never have been able to feed six billion people. As I am not an agronomist, I do not feel well placed to challenge the natural science underlying his calculation and, as I have found no obvious faults in Ridley’s arithmetic, I  am willing to accept this point. However, this does not reassure me at all. As Ridley acknowledges, for all practical purposes, fossil fuels are non-renewable. This means that, at a certain stage, humanity will have to switch back to sources of energy that Ridley has demonstrated not to be able to sustain six billion people. Of course, one could argue (and Ridley does argue) that we will find substitutes by the time we run out of fossil fuels. However, I find it odd that Ridley is so confident in this deus ex machina, after having spent several pages explaining why renewable energy is not an acceptable alternative to fossil fuels at all. This brings us to the fundamental problem with Ridley’s analysis: his willingness to just assume that innovation will continue at an accelerating rate.
Paradoxically, Ridley actually shows that there are a lot of mechanisms that can kill innovation. While I agree with him that the most important culprits in this field are despotic governments and religions, I think he underestimates the capacity of private monopolies to stifle innovation as well. In general, a book that puts such a high emphasis on the role innovation plays in human progress, should have put much more effort in a discussion of the social institutions that make innovation possible (or that can hamper it). As there are many more ways to get things completely wrong than to get them even more or less right, I would not be sanguine about future prospects for innovation, especially if this is the only path to a “sustainable” future.
This lack of serious analysis of institutions is another serious flaw in the book. Things have not only improved thanks to innovation – in some cases, government intervention has really changed things for the better. For instance, the decrease in the emission of sulphur oxides and nitrogen oxides in the past decades have led to a spectacular increase in our air quality, and to substantial health benefits (which have been estimated using rigorous statistical analysis). This decrease has taken place at a very reasonable macro-economic cost, mainly thanks to…innovation. Does this substantiate Ridley? No, for the very simple reason that industry would never have bothered to look for ways to reduce its emissions in an innovative ways, had these reductions not been imposed by government regulations. Optimism alone would not have solved the problem.
Let me conclude. Sir Karl Popper has claimed that optimism is a moral duty. I beg to differ. It is our moral duty to be neither cynical nor complacent, but to use our intellectual resources to make the best possible assessment of the threats and opportunities we face, and to look for solutions. Optimism is an act of faith – a rationalist would not consider faith to be a good basis for action. 

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