3 Things 3-31-25

Wealth Is Knowledge

The title of this post was also the title of an insightful Wall Street Journal article.  Here is a thought-provoking excerpt from it:

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"...I asked the author and economist George Gilder about wealth creation. “Wealth is most essentially knowledge,” Mr. Gilder says. “Let’s face it, the caveman had access to all the materials we have today. Therefore, economic growth is learning, manifested in ‘learning curves’ of collapsing costs driven by markets.” Yet these learning curves get waved away by economists. Mr. Gilder says information, not materials, drives growth: “Crash a car and all its value disappears, though every molecule remains.”

Another paradox is the belief that entrepreneurs like Tesla CEO Elon Musk and Meta CEO Mark Zuckerberg are driven by greed despite capitalism’s charitable characteristics. Rep. Alexandria Ocasio-Cortez of New York, showing her misunderstanding of economics, said in 2020, “No one ever makes a billion dollars. You take a billion dollars.” Have you ever noticed that those who criticize capitalists the most are too lazy to be capitalists?

Mr. Gilder counters, “Capitalism is not chiefly an incentive system, where entrepreneurs act in rote response to rewards and punishments like in a Skinner Box. It’s an information system governed by the unveiling of surprising truths, innovation. If the creativity of entrepreneurs wasn’t a surprise, socialist planning would work.” Karl Marx didn’t—and Bernie Sanders doesn’t—understand productivity! Some recent surprising truths: mRNA, neural networks, Crispr, quantum computing.

These two paradoxes are related, Mr. Gilder says: “You can keep your wealth only if you are willing to give it to others.” Think about that. If you have knowledge and capital, the only way to produce wealth is to invest in things that lower costs to consumers and slide down new learning curves. In effect, by providing something they will find productive—the iPhone, artificial-intelligence software—entrepreneurs expand their customers’ wealth. This is what I call societal wealth. Capitalism isn’t greedy, it is the sincerest form of charity. Sadly, too much capital gets redistributed before it can be invested and provided to others in wealth-enhancing form.

So wealth is knowledge but, Mr. Gilder explains, “the biggest constraint of the processes of learning is time. Time is what remains scarce when all else becomes abundant. The Fed can print money, but it can’t print time…”

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A very interesting take, huh?  I would add to this that our lack of time (or poor use of it) often causes us to take mental shortcuts to understanding.  We default to our political party’s platform, our social group’s ideology, our own prejudices, etc.  And in the process, we get in the way of our own wealth creation.

Thing Two

The Benefits Of Human Advisors

The following was taken from an article written several years ago for the Wall Street Journal by Andrew Loo, a professor at MIT’s Sloan School of Management:

“At a conference last year, I was approached by an audience member after my talk. He thanked me for my observation that it’s unrealistic to expect investors to do nothing in the face of a sharp market-wide selloff, and that pulling out of the market can sometimes be the right thing to do. In fact, this savvy attendee converted all of his equity holdings to cash by the end of October 2008.

He then asked me for some advice: “Is it safe to get back in now?” Seven years after he moved his money into cash, he’s still waiting for just the right time to reinvest; meanwhile, the S&P 500 earned an annualized return of 14% during this period. Investing is an emotional process. Managing these emotions is probably the greatest open challenge of financial technology. Investing is much more complicated than other chores like driving, which is why driverless cars are already more successful than even the best robo advisers.

Despite the enthusiasm of tech-savvy millennials—the generation of investors now in their 20s and 30s who are just as happy interacting with an app as with warm-blooded humans—robo advisers don’t take into account the limits of human cognition; they don’t make allowances for emotional reactions like fear and greed; and they can’t eliminate blind spots. Robo advisers don’t do emotion. When the stock market roils, investors freak out. They need comfort and encouragement…”

As the last few sentences explain, the benefit of having a human advisor that you can talk to, that you can ask questions of, and who can help you keep to your plan when everything in you is telling you to push the panic (sell) button, can be invaluable.  Pass it on.

Thing Three

Just A Thought 

"If you make lists of lofty goals, it can be easy to leave them to accumulate, as happens sometimes, into a mountain of to-do's and notes and half-forgotten plans. Dreaming alone is seductive, even a little sweet, since it lacks the pain of trying. So it feels proper to prize attempts more than dreams. You should have ideals, but you cannot only love an idealized future, you must cultivate a love of effort, too. If you really want something, then the soul must make demands of the body." - Simon Sarris