Recently, Charlie Munger made himself available for an extended Q&A at the University of Michigan Law School. Below is my transcript of the talk. The video can be found here.
BQ - Becky Quick
CM - Charlie Munger
Munger Speech - U of Michigan 2010
Sep 11, 2010
The Consummate Saint (as defined by the Greeks)
In Plato's The Republic (Penguin Classics)
, Glaucon, in an attempt to define morality, describes what he believes to be the consummate moral person...
In my opinion, by these philosophical standards, Jesus was the person being described. Unlike most, Jesus pursued genuine obedience & love (goodness), rather than the image of it. Stripped of this aura (lest he pursue his reputation and honor instead of something higher), he was instead slandered and believed to be a heretical menace. With a 'colossal reputation for immorality' (by association), he faithfully followed this path that was decided for him, as all lambs must, until his ignoble death.
Interestingly enough, the consummate devil is one who is evil at heart, but has all the appearances of being the most righteous/honorable man... (food for thought)
, Glaucon, in an attempt to define morality, describes what he believes to be the consummate moral person...The most honored of men, his glory is hidden by human eyes. Thus, the highest must seem as the lowest, until the day of his death. Thus, 'so that his morality can be tested'....And at his side let us place the just man in his nobleness and simplicity, wishing, as Aeschylus says, to be and not to seem good. There must be no seeming, for if he seem to be just he will be honoured and rewarded, and then we shall not know whether he is just for the sake of justice or for the sake of honours and rewards; therefore, let him be clothed in justice only, and have no other covering; and he must be imagined in a state of life the opposite of the former. Let him be the best of men, and let him be thought the worst; then he will have been put to the proof; and we shall see whether he will be affected by the fear of infamy and its consequences. And let him continue thus to the hour of death; being just and seeming to be unjust... (Book 2 - Challenge to Socrates)
In my opinion, by these philosophical standards, Jesus was the person being described. Unlike most, Jesus pursued genuine obedience & love (goodness), rather than the image of it. Stripped of this aura (lest he pursue his reputation and honor instead of something higher), he was instead slandered and believed to be a heretical menace. With a 'colossal reputation for immorality' (by association), he faithfully followed this path that was decided for him, as all lambs must, until his ignoble death.Interestingly enough, the consummate devil is one who is evil at heart, but has all the appearances of being the most righteous/honorable man... (food for thought)
Sep 10, 2010
Could we have deflation AND inflation??
disclaimer: the following is more logic exercise than economic analysis...
Moot Debate - Misses the Big Picture
Most frequently, the debate around inflation revolves around the all-encompassing metric known as CPI (consumer price index). Today's pundits debate endlessly about the future trajectory of the CPI. However, perhaps speculating what the CPI will be in totality may be missing some important scenarios...
Let us divide goods into two categories and discuss the inflation outlook for each category separately...
The Humble Goods
First, let's talk about the essential commodity goods. Primarily I am thinking of such items as wheat, grain, milk, orange juice, coffee, oil, water, corn, sugar, etc. These are items that most people need to survive, and that are not produced in factories, but must be grown on agricultural land (whether directly or implicity, ie cows eating grass and then producing milk).
My (unsupported) conjecture is that these goods did not suffer the gluttony of overinvestment/overcapacity during the boom-period. Logically speaking, most people with reasonable living standards do not eat significantly more wheat during boom periods than what's needed to keep them alive. Hence, there's little reason to believe that we developed significantly more farms during the boom period than we needed. Furthermore, most people, with the means to, will continue consuming wheat at a stable pace (sustenance). In fact, global population trends suggest that demand for such commodity goods will continue to increase as populations increase (more grain/wheat) and living standards rise (sugar/milk).
Based upon this line of reasoning, it seems plausible to suggest that such essential commodities are unlikely to experience sustained, long-term price declines. What about price inflation? As central banks around the world work to fight deflation (as measured by simple metrics such as CPI), they will likely increase the monetary base, thereby potentially fueling price inflation in these humbler goods.
Other commodities, such as metals, are more ambiguous. The problem is that steel, concrete, etc are tied to the 2nd group of goods/services more so than wheat/grain. Though we may experience price inflation in food, prices of wood may not increase, because we don't necessarily need more wood to build more houses... more detailed discussion below.
Gold/Silver are unique metals though, since they're value is derived not from industrial use...
The Luxury Goods
In my opinion, during the boom-years we either produced too many luxury goods (homes) or overinvested in the capacity to produce such goods (ie factories, workers). The extra money that people had which they did not use to buy more wheat was used to buy LCD TV's, ipods, and a nice meal at Applebees. With the decrease in disposable income, consumers will shun these items as they attempt to rebuild household balance sheets, and prepare to retire significantly later than they had originally hoped/anticipated. These are powerful market forces, and will likely lead to irresistible deflationary pressures.
Moot Debate - Misses the Big Picture
Most frequently, the debate around inflation revolves around the all-encompassing metric known as CPI (consumer price index). Today's pundits debate endlessly about the future trajectory of the CPI. However, perhaps speculating what the CPI will be in totality may be missing some important scenarios...
Let us divide goods into two categories and discuss the inflation outlook for each category separately...
The Humble Goods
First, let's talk about the essential commodity goods. Primarily I am thinking of such items as wheat, grain, milk, orange juice, coffee, oil, water, corn, sugar, etc. These are items that most people need to survive, and that are not produced in factories, but must be grown on agricultural land (whether directly or implicity, ie cows eating grass and then producing milk).
My (unsupported) conjecture is that these goods did not suffer the gluttony of overinvestment/overcapacity during the boom-period. Logically speaking, most people with reasonable living standards do not eat significantly more wheat during boom periods than what's needed to keep them alive. Hence, there's little reason to believe that we developed significantly more farms during the boom period than we needed. Furthermore, most people, with the means to, will continue consuming wheat at a stable pace (sustenance). In fact, global population trends suggest that demand for such commodity goods will continue to increase as populations increase (more grain/wheat) and living standards rise (sugar/milk).Based upon this line of reasoning, it seems plausible to suggest that such essential commodities are unlikely to experience sustained, long-term price declines. What about price inflation? As central banks around the world work to fight deflation (as measured by simple metrics such as CPI), they will likely increase the monetary base, thereby potentially fueling price inflation in these humbler goods.
Other commodities, such as metals, are more ambiguous. The problem is that steel, concrete, etc are tied to the 2nd group of goods/services more so than wheat/grain. Though we may experience price inflation in food, prices of wood may not increase, because we don't necessarily need more wood to build more houses... more detailed discussion below.
Gold/Silver are unique metals though, since they're value is derived not from industrial use...
The Luxury Goods
It's difficult to exactly define what goods (services) fall in which category, so I'll give some more examples of the type of items I am referring to here: TV's, consumer electronics, housing, auto, mall retailers, casual dining restaurants, computers, and all the various sub-industries that feed off/into the aforementioned. In general, anything that people don't need to directly eat (to survive).
In my opinion, during the boom-years we either produced too many luxury goods (homes) or overinvested in the capacity to produce such goods (ie factories, workers). The extra money that people had which they did not use to buy more wheat was used to buy LCD TV's, ipods, and a nice meal at Applebees. With the decrease in disposable income, consumers will shun these items as they attempt to rebuild household balance sheets, and prepare to retire significantly later than they had originally hoped/anticipated. These are powerful market forces, and will likely lead to irresistible deflationary pressures.However, as said before, central banks (and political institutions) need to prevent deflation - economically because of the deathly fear of deflationary spiral, and politically because most export industries (except may Canada, Australia, South Africa, Middle East) rely primarily on luxury goods. They will likely summon a variety of tools to their cause, with the likely outcome of increasing the monetary base. In the aftermath, their policies may very well stop price deflation in these luxury goods, but not without significant price inflation in the humbler goods.
Ramifications
These are too numerous to recount. However, most likely this policy bodes ill for middle-class and lower-class families. With less to spend already due to the recession (depression), they will be devoting a greater portion of their wages to essential goods. With increased price inflation on bread, rice, and water, these families will likely feel further disenfranchised by policy makers, as they find themselves trapped between the proverbial rock and hard place.
In addition, CPI may very well remain flat, or increase moderately for a period. While policy makers cheer the success of their experimentation (make no mistake, that is what it is...), the villagers will be sharpening their pitchforks and pouring kerosene on their torches, as they find themselves struggling more and more just to put food in their mouths...
Though we are few, I am not alone...
Jim Rogers is a big bull for commodities (although he is bullish on metals & industrial commodities too because of China), Michael Burry has also come on record as saying that he is buying 'productive agricultural land with water on site'...
Maybe it's time to buy a tract of land, plant some corn, and learn the banjo...?
Disclaimer - the below graph has cherry-picked data to illustrate my point... I don't believe that the longer-term past is as representative of the near/medium future...
Disclaimer - the below graph has cherry-picked data to illustrate my point... I don't believe that the longer-term past is as representative of the near/medium future...
Sep 8, 2010
Paul Krugman circa 2002
This is an interesting timewarp back to 2002. Then, as now, economists brought to the table 'solutions' to the economic distress the country was facing. Then, as now, Paul Krugman was one of the most clairvoyant, and vocal, voices.
Personally, I think Krugman is incredibly intelligent, and one of the preeminent economists of the current generation. Though I hold tremendous respect for his economic prowess, I don't necessarily share many of his opinions. In this article, Krugman presents his solution of the recession back then...
1) take the medicine, and suffer through the lean years, or
2) create another asset bubble to fuel spending
As we know, the Fed followed Krugman's advice (or agreed with it in practice). In hindsight, Fed policies fueled the housing bubble, which led to roughly 7 subsequent years of gluttony. And now, here we are...
Allow me to propose a heretical idea - Though we can replace a bubble-popped with much hot-air, easy-money, and bubbles-anew, perhaps such a course of action may lead to future discomfort on a grander scale... dare I suggest, it is best not to create replacement asset-bubbles (through government intervention), and to let markets play out as fate/providence/nature desires... perhaps we should grudgingly accept the consequences of capitalism, just as greedily as we embrace the benefits!
Since I'm in a mean mood, check out the OpEd's claim that Greenspan urged Congress to cut taxes to head off the risk of excessive budget surpluses... What the heck does that mean? What is risky about a surplus?? What bizaro-person/institution would consider a surplus risky (implying that a deficit is safe)?
*sigh*
Personally, I think Krugman is incredibly intelligent, and one of the preeminent economists of the current generation. Though I hold tremendous respect for his economic prowess, I don't necessarily share many of his opinions. In this article, Krugman presents his solution of the recession back then...
...the recession of 2001 wasn't a typical postwar slump, brought on when an inflation-fighting Fed raises interest rates and easily ended by a snapback in housing and consumer spending when the Fed brings rates back down again. This was a prewar-style recession, a morning after brought on by irrational exuberance. To fight this recession... Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble.Pretty clairvoyant no? That's exactly what happened. Why do I admire Krugman? He absolutely nails the situation perfectly! Then, as now, the recession is not the 'typical' post-WW2 recession... this is a post-bubble depression that has only two solutions:
1) take the medicine, and suffer through the lean years, or
2) create another asset bubble to fuel spending
As we know, the Fed followed Krugman's advice (or agreed with it in practice). In hindsight, Fed policies fueled the housing bubble, which led to roughly 7 subsequent years of gluttony. And now, here we are...
Allow me to propose a heretical idea - Though we can replace a bubble-popped with much hot-air, easy-money, and bubbles-anew, perhaps such a course of action may lead to future discomfort on a grander scale... dare I suggest, it is best not to create replacement asset-bubbles (through government intervention), and to let markets play out as fate/providence/nature desires... perhaps we should grudgingly accept the consequences of capitalism, just as greedily as we embrace the benefits!
Since I'm in a mean mood, check out the OpEd's claim that Greenspan urged Congress to cut taxes to head off the risk of excessive budget surpluses... What the heck does that mean? What is risky about a surplus?? What bizaro-person/institution would consider a surplus risky (implying that a deficit is safe)?
*sigh*
When I am young, I know not genius... (Tribute to Shakespeare)
Back in high school, English was my least favorite subject. Woe to Shakespeare and Hemingway! Give me the sweet empirical satisfaction of the Pythagoras and Newton! Looking back now, I sometimes regret that my college education in engineering had not been more well-rounded (2 English classes, one of which consisted predominately of movie watching)...
Awhile back, I purchased a book containing the complete works of Shakespeare. It was on sale at a good price... good enough to strike up a fancy for new indulgences in old classics.
I've just finished reading a couple of plays, and I must confess the error of my ways. Shakespeare is a brilliant writer. His mastery of the written tongue is unmatched by any son of woman now alive. His prose and poetry is a delight to the sense and the soul. Though, admittedly, it's quite a rocky read for who didn't major in English such as myself (I probably guess the meaning of half his stuff, then just completely ignore the rest).
His penmanship is surpassed by his story-telling. It is one thing to rhyme like the Riddler, but Shakespeare weaves forth tales which capture the imagination of any reader (if one can suffer through his verbosity). More so than when younger, I can better appreciate the genius of his narratives, considering that many of the dramatic devices which today's readers (and TV watchers) take for granted were probably intellectual descendants of Shakespeare.
However, what far separates Shakespeare from most other prodigious writers is his mastery of the human psyche. His narratives can be appreciated as much now as when first written because his understanding of human nature lends them a timeless element few can replicate (and with such impeccable consistency!) The Bible (and perhaps select other religious/philosophical works) aside, Shakespeare's writings probably strike the reader, more so than any other's, as a terrifyingly accurate portrayal of human desire, folly, and misbehavior.
For all the engineers out there, I think it is worth our while to seek out Mr. Shakespeare as our English tutor... (if for no other virtuous reason than at least to impress the ladies with some poetry that'll make'em melt... sometimes you just need some date-night conversation topics other than aerospace engineering, workforce optimization, digital signal processing, fluids, etc)...
Awhile back, I purchased a book containing the complete works of Shakespeare. It was on sale at a good price... good enough to strike up a fancy for new indulgences in old classics.
I've just finished reading a couple of plays, and I must confess the error of my ways. Shakespeare is a brilliant writer. His mastery of the written tongue is unmatched by any son of woman now alive. His prose and poetry is a delight to the sense and the soul. Though, admittedly, it's quite a rocky read for who didn't major in English such as myself (I probably guess the meaning of half his stuff, then just completely ignore the rest).
His penmanship is surpassed by his story-telling. It is one thing to rhyme like the Riddler, but Shakespeare weaves forth tales which capture the imagination of any reader (if one can suffer through his verbosity). More so than when younger, I can better appreciate the genius of his narratives, considering that many of the dramatic devices which today's readers (and TV watchers) take for granted were probably intellectual descendants of Shakespeare.
However, what far separates Shakespeare from most other prodigious writers is his mastery of the human psyche. His narratives can be appreciated as much now as when first written because his understanding of human nature lends them a timeless element few can replicate (and with such impeccable consistency!) The Bible (and perhaps select other religious/philosophical works) aside, Shakespeare's writings probably strike the reader, more so than any other's, as a terrifyingly accurate portrayal of human desire, folly, and misbehavior.
For all the engineers out there, I think it is worth our while to seek out Mr. Shakespeare as our English tutor... (if for no other virtuous reason than at least to impress the ladies with some poetry that'll make'em melt... sometimes you just need some date-night conversation topics other than aerospace engineering, workforce optimization, digital signal processing, fluids, etc)...
Subscribe to:
Posts (Atom)