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Exercise your ability to break things down: On maintaining wisdom

2020-04-29

I feel like due to the coronavirus there are an increasing number of false (unconvincing) ideas and opinions out there these days.

When practicing strategic thinking and logical thinking, the first step is to grasp facts and logic. If you are confronting the facts your opinion and statements become real and convincing.

To grasp the facts, you must look into them in detail by breaking them down into elements. René Descartes said, “Divide each difficulty into as many parts as is feasible and necessary to resolve it.” Those who do not exercise the ability to divide things into parts are not engaged in the intellectual activity, so to speak, of understanding things. A sommelier can keep talking about wines for an entire day, but those who are not into wines can only differentiate red from white (or rosé, perhaps). He or she may say, “All alcohols are the same.” What differentiates a layperson from a professional is the amount of structured knowledge about the topic, and that is determined by the extent to which it is embodied. In other words, to what level of detail the idea is broken down into and analyzed.

So, people are joining the conversation about “after-corona” and sharing their overall view on the topic (this itself is important for the society).

The other day I heard someone arguing, “The increase rate of global market cap has been overwhelming GDP growth these past couple of years. In the past, GDP, which is a real value, was closely linked with market value, but in the current economy, market value comes first and real value follows it. That is why the Japanese economy must also transform to a market- and innovation-driven economy.” Considering the trend around GAFA (the Big 4 Tech companies), what this person points out seems valid, but determining whether his statement or logic is valid or not is a different story that requires a more detailed examination of the overall facts.

If we look into the change of market value and GDP from 1985 to 2017, global GDP increased from 12.8 trillion USD to 81 trillion USD while aggregated market price increased from 4.6 trillion USD to 79 trillion USD, so market price indeed increased more than GDP did. However, time series data shows that the total market value has grown in accordance with the GDP growth, so it is hard to say whether or not the market value precedes real value now. In addition, the US and Asian markets are two different economies, so we need to look into each market to find the answer to this. The famous American investor Mr. Warren Buffett thinks that in developed countries where the economy is healthy and sound, the increase of market stock value is proportional to national GDP growth. He thus proposed the Buffett indicator (i.e. total market capitalization divided by nominal GDP multiplied by 100). As is evident in this indicator, he doesn’t think that the market generates the real economy.

The above relationship between GDP and market value is just an example of how it is useless to simply accept what intellectuals would argue. A few weeks ago when the oil price turned negative, a commentator made a remark: “The oil futures price turned negative and interest rates remain zero, meaning that the cost of raw material (crude oil) is zero and capital investment (interest rate) is also zero. Which means that production is zero. In other words, there is no production activity, meaning that the economy is frozen.” It didn’t make any sense.

The history professor Mr. Yuval Noah Harari responded to an NHK interview, “It is important to stick to scientific methods to avoid skepticism.” As this alarming pandemic dominates our lives, we may be in a state of panic. Panic prevents good judgment and agitates childish behavior.

Was vernünftig ist, wird wirklich, und das Wirkliche wird vernünftig.

(What is reasonable is actual; and what is actual is reasonable.)

Georg Wilhelm Friedrich Hegel, Elements of the Philosophy of Right (Grundlinien der Philosophie des Rechts)

Hegel(source:Wikipedia)

Extreme abstraction and generalization should be avoided. Instead, a good grasp of facts and logic will help good judgment. Let’s exercise this fundamental way of thinking.

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