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<p></p><p></p><p><font face="Calibri" size="3">Here's a long one, friends… But maybe an important one.</font></p><p><font face="Calibri" size="3">What follows is an excerpt from a markets newsletter I've read for maybe 10 years by a financial expert and best-selling author Named John Mauldin. He describes and then shares an article by a guy named George Gilder, Who seems to have been writing "important" books for at least a few decades. </font></p>
<p><span style="font-family:Calibri;font-size:medium">This article and these ideas seem important because they describe, in economic and information theory terms, exactly what we've been doing in open space. I've long described OS to business people as a "really efficient market for info in organization" But this piece makes a genuine economic case for opening more space. </span><br>
</p><p><span style="font-family:Calibri;font-size:medium">What's more, given Gilder's view as a foundation, it might piont to practical ways of doing open space research and demonstrating value – in terms of something like a surprise quotient or surprise rate. The research might look something czykzentmihalyi's flow studies, but capturing levels or frequencies of surprise rather than flow. </span><br>
</p><p><font face="Calibri" size="3">I rarely read things more than once, but I've read this one three times and I'm still trying to absorb the language and implications.</font></p><p><font face="Calibri" size="3">What do you think? </font></p>
<p><font face="Calibri" size="3">Here's a link to PDF, that might work, if I've mangled the pasting on my phone. </font><a href="http://www.mauldineconomics.com/images/uploads/pdf/2013_09_17_OTB.pdf" target="_blank">http://www.mauldineconomics.com/images/uploads/pdf/2013_09_17_OTB.pdf</a></p>
<p><br></p><p></p><p><span style="font-family:Calibri;font-size:12pt">--</span></p><p><span style="font-family:Calibri;font-size:12pt">John Mauldin | September 17, 2013</span><br></p><p></p>
<p><span style="font-size:11.000000pt;font-family:'Calibri'">In today's </span><span style="font-size:11.000000pt;font-family:'Calibri';font-style:italic">Outside the Box</span><span style="font-size:11.000000pt;font-family:'Calibri'">, my good friend George Gilder, the well-known techno-utopian, attempts with
some success to turn economics on its ear. "The economy is not chiefly an incentive system," he asserts, "it
is an information system." And information, truly understood, is about the introduction of novelty, or
"surprise," into a system. In the case of the economy, it's about invention and entrepreneurship. The new
information that is injected gets converted into knowledge; and thus, says George, it is accumulated
knowledge, rather than money or material, that constitutes true wealth.
</span></p>
<p><span style="font-size:11.000000pt;font-family:'Calibri'">And thus the economy is driven not so much by powerful people and institutions wielding the levers of the
economic machine as it is by the ever-increasing power of information and knowledge. Economists and the
governments they work for often appear to prefer a deterministic, no-surprises (and too-big-to-fail)
economy, but that way lies economic stagnation. If determinism worked, socialism would have thrived.
</span></p>
<p><span style="font-size:11.000000pt;font-family:'Calibri'">Knowledge is centrifugal: it's dispersed in people's heads, and that has never been more true than in the
Age of the Internet. And it is this universal distribution of knowledge which feeds back to the economy
through the creative insights and entrepreneurial efforts of people worldwide that constitutes our chief
hope for economic growth in the era opening up before us, where the limits of monetary manipulation and
material extraction are becoming painfully apparent.
</span></p>
<p><span style="font-size:11.000000pt;font-family:'Calibri'">Here is a telling sentence from George:
</span></p>
<p><span style="font-size:11.000000pt;font-family:'Calibri'">Whether fueled by debt or seized by taxation, government spending in economic “stimulus”
packages necessarily substitutes state power for knowledge and thus destroys information and
slows economic growth.
</span></p>
<p><span style="font-size:11.000000pt;font-family:'Calibri'">The writing is on the wall: either we reinvent ourselves and our global economy, or the noise that is
obviously building in the system will overwhelm the creation and transmission of knowledge, and the great
human quest for the democratization of wealth will fail. But, as George says, "[C]apitalism is not a system of
equilibrium; it is an engine of disruption and invention.... A capitalist economy can be transformed as rapidly
as human minds and knowledge can change." So we do have plenty of grounds for hope...</span></p>
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</div><p></p><p><span style="font-size:16.000000pt;font-family:'TimesNewRomanPSMT'"><br></span></p><p><span style="font-size:16.000000pt;font-family:'TimesNewRomanPSMT'">The Need for a New Economics
</span></p>
<p><span style="font-size:11.000000pt;font-family:'TimesNewRomanPSMT'">By George Gilder
</span></p>
<p><span style="font-size:11.000000pt;font-family:'TimesNewRomanPSMT'">Why is it that so many Americans seem to believe that government spending, fueled by debt or taxes, can
drive economic growth and wealth creation? Why do they believe that low interest rates, enforced by the
Federal Reserve, can somehow spur business and investment? Why do they imagine that money and
consumer demand impel the economy forward?
</span></p>
<p><span style="font-size:11.000000pt;font-family:'TimesNewRomanPSMT'">The reasons, I believe, are rooted in an economic confusion between knowledge and power. Many
economists believe that growth is impelled by the exercise of power, represented by money creation and by
government spending and guarantees. By manipulating the so-called “levers of the economic machine,”
government power can enlarge demand, inducing businesses to invest and consumers to spend. This process
is seen to generate the demand that fuels economic growth.
</span></p>
<p><span style="font-size:11.000000pt;font-family:'TimesNewRomanPSMT'">These images of the economy of power are part of the very creation story of economics in an era of new
machines and sources of energy. The first economic models were explicitly based on the dynamics of the
steam engine then impelling the industrial revolution. Isaac Newton’s physical “system of the world” became
Adam Smith’s “great machine” of the economy, an equilibrium engine transforming coal and steam into
economic growth and progress.
</span></p>
<p><span style="font-size:11.000000pt;font-family:'TimesNewRomanPSMT'">Exploring technology investments over recent decades, however, I found myself preoccupied less with
sources of power than with webs of knowledge in a field of study called Information Theory. On one level
this theory was merely a science of networks and computers. Its implications, however, would change our
deepest concepts of the nature of wealth. It would show that wealth is not money or power or demand. It is
essentially the accumulation of knowledge.
</span></p>
<p><span style="font-size:11.000000pt;font-family:'TimesNewRomanPSMT'">Information theory effectively began with Kurt Godel’s demonstration in 1930 that all logical systems,
including mathematics, are intrinsically incomplete and depend on axioms that they cannot prove. This
epochal finding is often obscured by elaborate explanations of the intricate mathematics he used to prove it.
But as John Von Neumann in his audience was first to recognize, Godel’s proof put an end to the idea of the </span><span style="font-family:TimesNewRomanPSMT;font-size:11pt">universe, or the economy, as a mechanism. Godel’s proof, as he himself understood, implied the existence of
autonomous creation.</span></p>
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<p><span style="font-size:11.000000pt;font-family:'TimesNewRomanPSMT'">Godel’s proof led directly to the invention by Alan Turing of a universal generic computer, a so-called Turing
machine. By this abstract conception, which became the foundation for all computer science, Turing showed
that no mechanistic computer system could be complete and consistent. Turing concluded that all logical
systems were intrinsically </span><span style="font-size:11.000000pt;font-family:'TimesNewRomanPS';font-style:italic">oracular</span><span style="font-size:11.000000pt;font-family:'TimesNewRomanPSMT'">.
</span></p>
<p><span style="font-size:11.000000pt;font-family:'TimesNewRomanPSMT'">Computers could not be Smithian “great machines” or Newtonian “systems of the world.” They inexorably
relied upon human programmers or </span><span style="font-size:11.000000pt;font-family:'TimesNewRomanPS';font-style:italic">oracles </span><span style="font-size:11.000000pt;font-family:'TimesNewRomanPSMT'">and could not transcend their creators. As Turing wrote, he could
not specify what these oracles would do. All he could say was that “they could not be machines.” In a
computer, they are programmers. In an economy, they are entrepreneurs.
</span></p>
<p><span style="font-size:11.000000pt;font-family:'TimesNewRomanPSMT'">In 1948 a rambunctiously creative engineer, Claude Shannon, from Bell Labs and MIT, translated Godel’s
and Turing’s findings into a set of technical concepts for gauging the capacity of communications channels to
bear information.
</span></p>
<p><span style="font-size:11.000000pt;font-family:'TimesNewRomanPSMT'">Shannon resolved that all information is most essentially </span><span style="font-size:11.000000pt;font-family:'TimesNewRomanPS';font-style:italic">surprise</span><span style="font-size:11.000000pt;font-family:'TimesNewRomanPSMT'">. Unless messages are unexpected they do
not convey new information. An orderly and predictable mechanism, such as a Newtonian system of the
world or Smithian great machine, embodies or generates no new information.
</span></p>
<p><span style="font-size:11.000000pt;font-family:'TimesNewRomanPSMT'">Studying information theory for decades in my exploration of technology, I finally found the resolution to the
enigmas that currently afflict most economic thought. A capitalist economy is chiefly an information system,
not a mechanistic incentive system. Wealth is the accumulation of knowledge. As Thomas Sowell declared in
1971: All economic transactions are exchanges of differential knowledge, which is dispersed in human minds
around the globe. Knowledge is processed information, which is gauged by its news or surprise.
</span></p>
<p><span style="font-size:11.000000pt;font-family:'TimesNewRomanPSMT'">Surprise is also a measure of freedom and criterion of creativity. It is gauged by the freedom of choice of the
sender of a message, which Shannon termed “entropy.” The more numerous the possible messages that can
be sent, the more uncertainty at the other end about what message was sent and thus the more information
there is in the actual message when it is received.
</span></p>
<p><span style="font-size:11.000000pt;font-family:'TimesNewRomanPSMT'">In </span><span style="font-size:11.000000pt;font-family:'TimesNewRomanPS';font-style:italic">Knowledge and Power</span><span style="font-size:11.000000pt;font-family:'TimesNewRomanPSMT'">, I sum up information theory as the treatment of human communications or
creations as transmissions down a channel, whether a wire or the world, in the presence of the power of noise,
with the outcome measured by its “news” or surprise, defined as entropy and consummated as knowledge.
</span></p>
<p><span style="font-size:11.000000pt;font-family:'TimesNewRomanPSMT'">Since these communications or creations can be business plans or experiments, information theory supplies
the foundation for an economics driven not by equilibrium and order but by surprises of enterprise that yield
knowledge and wealth.
</span></p>
<p><span style="font-size:11.000000pt;font-family:'TimesNewRomanPSMT'">Information theory requires that such a process be experimental and its results be falsifiable. The businesses
conducting entrepreneurial experiments must be allowed to fail or go bankrupt. Otherwise there is no yield of
knowledge and thus no production of wealth. Wealth does not consist in material capital that can be
appropriated by the greedy or the government but in learning processes and knowledge creations that can
only thrive in freedom.</span></p><p><span style="font-family:TimesNewRomanPSMT;font-size:11pt">After all, the Neanderthal in his cave had all the material resources and physical appetites that we have today.
The difference between our own wealth and Stone Age poverty is not an efflorescence of self-interest but the
progress of learning, accomplished by entrepreneurs conducting falsifiable experiments of enterprise.</span><br></p>
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<p><span style="font-size:11.000000pt;font-family:'TimesNewRomanPSMT'">The enabling theory of telecommunications and the internet, information theory offered me a path to a new
economics that could place the surprising creations of entrepreneurs and innovators at the very center of the
system rather than patching them in from the outside as “exogenous” inputs. It also showed that knowledge is
not merely a source of wealth; it is wealth.
</span></p>
<p><span style="font-size:11.000000pt;font-family:'TimesNewRomanPSMT'">Summing up the new economics of information are ten key insights:
</span></p>
<ol style="list-style-type:none">
<li>
<p><span style="font-size:11.000000pt;font-family:'TimesNewRomanPSMT'">1) The economy is not chiefly an incentive system. It is an information system.
</span></p>
</li>
<li>
<p><span style="font-size:11.000000pt;font-family:'TimesNewRomanPSMT'">2) Information is the opposite of order or equilibrium. Capitalist economies are not equilibrium systems </span><span style="font-family:TimesNewRomanPSMT;font-size:11pt">but dynamic domains of entrepreneurial experiment yielding practical and falsifiable knowledge.</span></p>
</li>
<li>
<p><span style="font-size:11.000000pt;font-family:'TimesNewRomanPSMT'">3) Material is conserved, as physics declares. Only knowledge accumulates. All economic wealth and </span><span style="font-family:TimesNewRomanPSMT;font-size:11pt">progress is based on the expansion of knowledge.</span></p>
</li>
<li>
<p><span style="font-size:11.000000pt;font-family:'TimesNewRomanPSMT'">4) Knowledge is centrifugal, dispersed in people’s heads. Economic advance depends on a similar </span><span style="font-family:TimesNewRomanPSMT;font-size:11pt">dispersal of the power of capital, overcoming the centripetal forces of government.</span></p>
</li>
<li>
<p><span style="font-size:11.000000pt;font-family:'TimesNewRomanPSMT'">5) Creativity, the source of new knowledge, always comes as a surprise to us. If it didn’t, socialism </span><span style="font-family:TimesNewRomanPSMT;font-size:11pt">would work. Mimicking physics, economists seek determinism and thus erroneously banish surprise.</span></p>
</li>
<li>
<p><span style="font-size:11.000000pt;font-family:'TimesNewRomanPSMT'">6) Interference between the conduit and the contents of a communications system is called noise. Noise </span><span style="font-size:11pt;font-family:TimesNewRomanPSMT">makes it impossible to differentiate the signal from the channel and thus reduces the transmission of </span><span style="font-family:TimesNewRomanPSMT;font-size:11pt">information and the growth of knowledge.</span></p>
</li>
<li>
<p><span style="font-size:11.000000pt;font-family:'TimesNewRomanPSMT'">7) To bear high entropy (surprising) creations takes a low entropy carrier (no surprises) whether the </span><span style="font-family:TimesNewRomanPSMT;font-size:11pt">electromagnetic spectrum, guaranteed by the speed of light, or property rights and the rule of law </span><span style="font-family:TimesNewRomanPSMT;font-size:11pt">enforced by constitutional government.</span></p>
</li>
<li>
<p><span style="font-size:11.000000pt;font-family:'TimesNewRomanPSMT'">8) Money should be a low entropy carrier for creative ventures. A volatile market of gyrating currencies </span><span style="font-family:TimesNewRomanPSMT;font-size:11pt">and grasping governments shrinks the horizons of the economy and reduces it to high frequency </span><span style="font-family:TimesNewRomanPSMT;font-size:11pt">trading and arbitrage in a hypertrophy of finance.</span></p>
</li>
<li>
<p><span style="font-size:11.000000pt;font-family:'TimesNewRomanPSMT'">9) Wall Street wants volatility for rapid trading, with the downsides protected by government. Main </span><span style="font-family:TimesNewRomanPSMT;font-size:11pt">Street and Silicon Valley want monetary stability so they can make long term commitments with the </span><span style="font-family:TimesNewRomanPSMT;font-size:11pt">upsides protected by law.</span></p>
</li>
<li>
<p><span style="font-size:11.000000pt;font-family:'TimesNewRomanPSMT'">10) GDP growth is fraudulent when it is mostly government spending valued retrospectively at cost and </span><span style="font-family:TimesNewRomanPSMT;font-size:11pt">thus shielded from the knowledgeable judgments of consumers oriented toward the future. Whether
fueled by debt or seized by taxation, government spending in economic “stimulus” packages
necessarily substitutes state power for knowledge and thus destroys information and slows economic
growth.</span></p>
</li>
<li>
<p><span style="font-size:11.000000pt;font-family:'TimesNewRomanPSMT'">11) Analogous to average temperature in thermodynamics, the real interest rate represents the average
returns expected across an economy. Analogous to entropy, profit or loss represent the surprising or
unexpected outcomes. Manipulated interest rates obfuscate the signals of real entrepreneurial
opportunity and drive the economy toward meaningless trading and arbitrage.
</span></p>
</li>
<li>
<p><span style="font-size:11.000000pt;font-family:'TimesNewRomanPSMT'">12) Knowledge is the aim of enterprise and the source of wealth. It transcends the motivations of its own
pursuit. Separate the knowledge from the power to apply it and the economy fails.
</span></p>
</li>
</ol>
<p><span style="font-size:11.000000pt;font-family:'TimesNewRomanPSMT'">The information theory of capitalism answers many questions that afflict established economics. No business
guaranteed by the government is capitalist. Guarantees destroy knowledge and wealth by eliminating the
precondition of falsifiability. Unless entrepreneurial ideas can fail or businesses go bankrupt, they cannot </span><span style="font-family:TimesNewRomanPSMT;font-size:11pt">succeed in creating new knowledge and wealth. Epitomized by heavily subsidized and guaranteed leviathans,
such as Goldman Sachs, Archer Daniels Midland, Harvard and Fanny Mae, the crisis of economics today is
crony statism.</span></p>
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<p><span style="font-size:11.000000pt;font-family:'TimesNewRomanPSMT'">The message of a knowledge economy is optimistic. As Jude Wanniski wrote, “Growth comes not from
dollars in people’s pockets but from ideas in their heads.” Capitalism is a noosphere, a domain of mind. A
capitalist economy can be transformed as rapidly as human minds and knowledge can change.
</span></p>
<p><span style="font-size:11.000000pt;font-family:'TimesNewRomanPSMT'">As experience after World War II when US government spending dropped 61 percent in two years, in Chile
in the 1970s when the number of state companies dropped from over 500 to under 25, in Israel and New
Zealand in the 1980s when their economies were massively privatized almost over-night, and in Eastern
Europe and China in the 1990s, and even in Sweden and Canada in recent years, economic conditions can
change overnight when power is dispersed and the surprises of human creativity are released.
</span></p>
<p><span style="font-size:11.000000pt;font-family:'TimesNewRomanPSMT'">Perhaps the most powerful demonstration that wealth is essentially knowledge came in the rapid post world
war II revival of the German and Japanese economies. Nearly devoid of material resources, these countries
had undergone the nearly complete destruction of their physical plant and equipment. As revealed by decades
of experience with unsuccessful ministrations of foreign aid, the mere transfer of financial and political power
is impotent to create wealth without the knowledge and creativity of entrepreneurs.
</span></p>
<p><span style="font-size:11.000000pt;font-family:'TimesNewRomanPSMT'">Information Theory is a foundation for revitalizing all the arts and sciences, from physics and biology to
mathematics and philosophy. All are transformed by a recognition that information is not order but disorder.
The universe is not a great machine that is inexorably grinding down all human pretenses of uniqueness and
free will. It is a domain of creativity in the image of a creator.
</span></p>
<p><span style="font-size:11.000000pt;font-family:'TimesNewRomanPSMT'">In the same way, capitalism is not a system of equilibrium; it is an engine of disruption and invention. All
economic growth and human civilization stem from the surprises of creativity and the growth of knowledge
in a domain of constitutional order.
</span></p>
<p><span style="font-size:11.000000pt;font-family:'TimesNewRomanPSMT'">The great mathematician Gregory Chaitin, inventor of algorithmic information theory, explains that to
capture the surprising information in any social, economic, or biological science requires a new mathematics
of creativity imported from the world of computers. He writes: “Life is plastic, creative! How can we build
this out of static, eternal, perfect mathematics? We shall use post-modern math, the mathematics that comes
after Godel, 1931, and Turing, 1936, open not closed math, the math of creativity...”
</span></p>
<p><span style="font-size:11.000000pt;font-family:'TimesNewRomanPSMT'">Entropy is a measure of surprise, disorder, randomness, noise, disequilibrium, and complexity. It is a measure
of freedom of choice. Its economic fruits are creativity and profit. Its opposites are predictability, order, low
complexity, determinism, equilibrium, and tyranny.
</span></p>
<p><span style="font-size:11.000000pt;font-family:'TimesNewRomanPSMT'">Predictability and order are </span><span style="font-size:11.000000pt;font-family:'TimesNewRomanPS';font-style:italic">not </span><span style="font-size:11.000000pt;font-family:'TimesNewRomanPSMT'">spontaneous and cannot be left to an invisible hand. It takes a low-entropy
carrier (no surprises) to bear high-entropy information (full of surprisal). In capitalism, the predictable
carriers are the rule of law, the maintenance of order, the defense of property rights, the reliability and
restraint of regulation, the transparency of accounts, the stability of money, the discipline and futurity of
family life, and a level of taxation commensurate with a modest and predictable role of government. These
low entropy carriers bear all our bounties of surprising wealth and progress. </span></p>
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<br><br>-- <br>Michael Herman<br>MichaelHerman.com<br>(312) 280-7838 <p>Sent from my iPhone<br></p>