MR. DRISCOLL: Even before Barack Obama took office, did we see some early signs of this government overreach from the Democrat Congress during the 2008 financial crisis?
MR. GILDER: Oh, well, we saw it — we’ve seen it throughout the history of economics. We’ve — we’ve seen government overreach. Power tends to be centripetal. You know, it’s concentrated in government bodies, while knowledge is dispersed and in the minds of citizens. And in order to have a productive economy, you have to align the knowledge with the power.
And — but this sounds — this is good news, really, because it means that it’s easy to produce massive economic growth. Removal of government obstacles is all upside. And in my book, I have many examples of how the dismantling of government regulatory bodies — government interference, unleashes tremendous (indiscernible) of growth.
After the Second World War, for example, we cut our government spending sixty-one percent, dismantled all the regulatory apparatus of wartime. We laid off 150,000 government regulators and about a million civilian government employees, and cut tax rates massively by creating the joint tax return and other retrenchments.
And the result predicted by Paul Samuelson, a Keynesian leader of the time, would be a new massive great depression, the worst dislocation in the history of economics, according to Samuelson. Instead, we got a new golden age. We look back on the ’40s — the late ’40s and ’50s as a wonderful economic period, ten years of superb economic growth and progress.
MR. DRISCOLL: And I have to ask you one other question about the 2008 financial crisis. In Knowledge and Power, you quote Austan Goolsbee during that period referring to the insurance firm AIG, and saying that “It’s almost like these guys should have gotten the Nobel Prize for evil.” Funny how it would be far too gauche for an Obama administration figure to call al-Qaeda or another Middle Eastern terrorist group “evil,” but they have no problem using that word to describe a financial firm, don’t they?
MR. GILDER: Yeah. Well, I’d say — you know, the tremendous — the cause of the financial crisis was crony socialism. All these banks were kind of converted into excrescences of government by overreaching government policy designed to promote mortgages, to guarantee deposits, to channel funds to favored recipients and crony businesses, and — the whole financial crisis came from the exercise of government power suppressing the knowledge inherent in free markets and entrepreneurial companies.
But if you guarantee — if there’s a government guarantee, it’s not a capitalist entity and can’t generate knowledge. Knowledge is dependent on events that are viable, that can fail. If they can’t fail, then they can’t succeed, and they actually reduce wealth rather than expand it.
MR. DRISCOLL: There’s a wonderful moment in Knowledge and Power, where you write, “Socialists believe their mission is to seize capital for the masses. But the great secret of capitalism is that, detached from a capitalist, there is no capital.” Could you talk about that, along with the two socialist economists who dominate that chapter, John Maynard Keyenes and Paul Krugman?
MR. GILDER: Yeah. Well, socialism and regulation are essentially the exercise of government power to countervail the pursuit of knowledge by entrepreneurs and private citizens. And the suppression of knowledge is tantamount to the suppression of wealth. And capitalism works because the knowledge of the capitalist is combined with the power to reinvest his profits. And if the profits are taxed away, the knowledge that they symbolize is eclipsed by government power.
And that’s why the New Deal didn’t work, why the Obama stimulus package didn’t work, why socialism always fails, because it divorces the knowledge that isn’t like wealth or an analogy to wealth, but actually constitutes the wealth of an economy.
You know, we have the same material resources that the cave man, the Neanderthals in their caves had the same natural resources that we have today. The difference is the knowledge that’s accumulated.