Choosing the right model of the world

Models by definition are pretty unyielding. They do not care for our hopes or wishes. But that makes things easier in some ways because all you have to do is follow or do what the model stipulates and you will almost always come out ahead or a winner at life. As someone who reads a lot, I am confronted with many plausible-sounding models or perspectives of the world by people who are intelligent and qualified. So I have to know which advice or insights to heed and what to ignore.

But sometimes I have to exercise veto power. This is the case with investing and finance. When there is money at stake, like with investing, you have to get it right. For all practical purposes, the worst thing that can happen for having a wrong or bad political view is someone calling you stupid online. Whereas with finance or econ being wrong means losing money. But recovering losses is harder and more difficult than changing one’s mind about politics.

Over the past decade, a lot of smart people were saying that the stock market was/is overvalued, or that the US economy was a bubble, or a ‘debt crisis’ waiting to happen. I took the opposite stance, buying leveraged tech stocks, with great success.

I was like, “You make good points, but I think you are wrong here. The argument does not hold water because there are the following holes, X,Y,Z.” High interest rates and high inflation did not stop stocks from realizing enormous real gains during the ’80s and ’90s. Sure enough, tech stocks posted real returns in excess of 50% from 2023-2024 despite high inflation and rising interest rates, thanks to huge profits and consumer spending. Does 4% inflation matter when the Nasdaq 100 is up 40% in a year? When Nvidia chips power the world does inflation matter that much as an investor? Not really.

Again, it comes back to whose model of the world and the economy is better. Mine is pretty good and I have yet to see anyone’s surpass it, although Richard Hanania has roughly the same view as mine (or I have of his) of an America-centric/dominated ‘world order’, and also the importance of HBD. Of all of the models of the world, this seems to be the most useful in terms of empirical reality mapping to the model. It explains how Israel keeps getting away with its accidental airstrikes; as long as it has the unconditional backing of the US, any outcry from the always-ineffectual international community is just that–noise.

For example, despite all the attention devoted to it, politics is a surprisingly useless or weak model compared to economics, at least as far as the US is concerned. Outside of the US, politics matters much more. In the US, the economy pulls the strings of the politicians. Ex-US, it’s the other way around.