Exhausting Creative Potential

George Gilder writes Unleash the Mind in National Review.  It is from his soon to be released update of his classic Wealth and Poverty.

It is not the enlargement of incentives and rewards that generates growth and progress, profits and capital gains for the entrepreneur and revenues for the government, but the combination of new knowledge with the power to test and extend it. Volatile and shifting ideas, not heavy and entrenched establishments, constitute the source of wealth. There is no bureaucratic net or tax web that can catch the fleeting thoughts of Eric Schmidt of Google, Jules Urbach of Otoy, or Chris Cooper of Seldon Technologies.

The key issue in economics is not aligning incentives with some putative public good but aligning power with knowledge. Business investments bring both a financial and an epistemic yield. Capitalism catalytically joins the two. Capitalist economies grow because they award wealth to its creators, who have already proven that they can increase it. Their proof was always the service of others rather than themselves.

HKO

Gilder notes the non material aspect of wealth and capitalism.  There is also the non material aspect of taxes and government induced friction costs.  The damage to economic growth from these friction costs is not just the dollar amount and not even just the huge amount of time that is wasted on non creative compliance.  The net effect is an exhaustion of creative potential that benefits everyone.potential