Essay 2 of my five-part series: What really drives the economy?

Dear Reader,

Welcome to part two of this five-part email series on the individuals who have been influential in shaping my worldview. I hope you enjoyed the first installment yesterday, where I shared my thoughts on Jeffrey Gundlach’s big bond call. If you missed it, you can access it, here.

Today, I’m sending you my insights into George Gilder—a man who has broadened by mind more than anyone else. The core idea I cover in part two is George’s theory for a new economics.

I’ve long criticized the economics profession for its ambition to be a “hard science” and its use of models. Economists want us to believe that their own models are as reliable as the law of gravity. But the real world is a complex, dynamic, out-of-balance mess that doesn’t fit inside any model.

You may say, this is all well and good, but it’s just economic theory. How does that matter to my investment portfolio? The direct answer is that these models drive the policies of central banks and determine the price of money. And the price of money is fundamental to the prices of all our assets.

That’s why I’m extremely excited about George’s new theory, which focuses on the real drivers of economic growth, entrepreneurs. When you read my insights into George’s ideas, it will forever change how you think about entrepreneurship, the economy, and the policies we should be pursuing.

I have included an excerpt from the George Gilder article, below. When you click to read the full article, you can share your thoughts and feedback at the bottom of that page. I’m looking forward to hearing your feedback on George and his theory for a new economics. I believe this idea can change economics forever.

John Mauldin

The Man Who Is Laying the Foundations
for a New Economics

Using models to determine policy has damaged the economy in many ways, including:

Dysfunctional and counterproductive tax/regulatory/entitlement/trade policies,

Private-sector credit growth encouraged by central bank mismanagement, and

A massive expansion of federal government power and spending

Worse still, these models are all backward looking and measure only that which has already happened. But the economy and its millions of economic actors are forward looking—striving to create and do things which have never happened before. Yet another reason why the models we rely on are incompatible with how the economy functions.

This is why I believe it is time for a new economics. An economics that focuses not on mechanistic models, but on the creations and innovations that have driven economic progress since the beginning of time.

The brave man who has taken on the task of crafting a new economics is my good friend George Gilder.