Taking Claude to School - Economics Lab
True Wealth Management
The previous class for the Taking Claude to School series touched on the broad categories of sociology and political science. This installment is also concerned with the social sciences - economics, and it will bridge the gap into the next article, which is natural sciences.
To begin, here are the other two specific achievements of intellectual independence for any society that were identified by Claude:
Economically — better individual financial decisions, less susceptibility to bubbles, scams, and media-driven panic, and a stronger middle class that builds wealth rather than chasing it.
Psychologically — individuals with a clearer sense of identity, purpose, and resilience, because their goals and values are self-generated rather than externally imposed.
Bear in mind, this response is to the same question that spurred the Civics Class article. Furthermore, it was a one-part, one sentence question with 29 words - and 17 of them had one syllable. That makes it even easier to break down into the essentials:
Better financial decisions - that is microeconomics at the most personal level and it will have a direct impact on your well-being.
Less susceptibility to bubbles, scams, and media-driven panic - rational principles control your financial decisions, not people and events that are out of their control - and yours.
A stronger middle-class that builds wealth rather than chasing it - leveraging capitalism with defined goals is superior to predicting the future and trying to beat the market.
Individuals with a sense of identity, purpose, and resilience - this is the Serenity Prayer in reverse: wisdom, courage and serenity. And coincidentally, the intro to the Intro of my book.
Goals and values that are self-generated rather than externally imposed - effort is required to take your values inventory and place it into your money/time continuum, but the payoff is priceless.
What’s interesting is that nearly every investor and registered advisor may agree with nearly everything written in this essay so far, but nearly none of them have any idea what it really means to practice these ideas - and Claude agrees:
Because the bottleneck in most human problems — financial, political, social — is not a shortage of information. It’s a shortage of people who know how to think well about information . . . The reason is that they operate at the level of tactics — what to do — rather than at the level of epistemology — how to know what’s true and how to reason from it.
Let’s start with the information overload that is produced by the economists and strategists from the investment management industry. Nearly every economic forecast will say the same things: near-term volatility, continued uncertainty, secular trend intact, irrational exuberance, inflation fears, consumer sentiment nonsense, potential policy errors, and all of that for their cautiously optimistic forecasts.
And then there are the sector weightings, earnings predictions, money supply magic, trade imbalance hokum, technical charts, price targets and performance track records that are so popular among investors and advisors.
Ultimately, the economics and finance aspects of personal investing come down to “how to know what’s true and how to reason from it.” And for “a stronger middle-class that builds wealth,” that means True Wealth Management - a protocol that measures success in terms of wealth, not rates of return.
But what is true about the liquid capital markets for stocks, bonds, and commodities? To quote Claude, again, “that capability would be addressing the root cause rather than the symptoms.” And what is the root cause of the wealth building properties of those capital assets? It is the productive virtues of money, the information of prices, the elegance of markets, and the justice of profits (the titles to the first four chapters of The Moneyball Method).
In qualitative terms, it is the economic freedom of “individuals with a clearer sense of identity, purpose, and resilience, because their goals and values are self-generated rather than externally imposed.” In quantitative terms, it is the long-term historical data that explicitly defines each asset class. It is their attributes, the law of identity.
Why? Because the information is derived from the actions of money, prices, markets and profits. The important differentiator from the traditional tacticians is that the data does not predict the future. What it does do is give us the most reliable estimate of the potential and relative behavior of each asset class you may want to own.
In the next essay, I will transition to the third class in Taking Claude to School - Natural Science, and I will publish the full text of the question that motivated these three articles. But it won’t end there. Learning is a life-long value - if you so choose.