"Several Common Sense" by Li Lu
Mr. Munger once said that common sense is the scarcest form of cognition. Going against common sense will incur a cost. The so-called common sense is usually proven by these costs. Therefore, discussions on common sense are always valuable. Here, I will talk about several common sense principles and also listen to everyone's opinions.
Modernization is the result of the combination of a market economy and modern technology. However, there is a cause-and-effect relationship between them. The market economy is the cause, and modern technology is the result. Without a modern market economy, modern technology would not emerge. In non-market economic systems, technology cannot be effectively transformed into productivity, and therefore cannot generate sustainable, leading-edge technology. However, a developed market economy will definitely produce leading technology.
Except for national defense, all advanced technologies today are initially created by private enterprises in a market economy environment. This applies to the United States, the West, and China. There are no successful cases of government-led advanced technological innovation if it disrupts the market mechanism.
Human nature is inherently selfish. Human morality is actually a description of broader and long-term self-interest. If institutional design and policy measures cannot stimulate people's self-interest and form positive incentive mechanisms, they will not be sustainable. This applies to both economic and political activities.
Regarding corruption. Corruption is essentially a form of power rent-seeking. As long as there is power, there will always be corruption throughout human history and under all systems, and it will continue to exist in the future. Corruption can only be controlled, not completely eliminated. Excessive corruption harms society, and excessive anti-corruption efforts also harm society. Just and systematic control is more sustainable than arbitrary control, and has fewer negative consequences.
Power is the influence of one group of people over another group's behavior. Its total amount is fixed and related to the population size. Power is essentially a zero-sum game. When government power is too great, it inevitably leads to diminished power among the people, and an oppressive government inevitably leads to a struggling populace, both historically and in the present, at home and abroad.
A market economy essentially means that the government delegates power to the private sector in the economy. In a market economy, all important decisions can only be made by private individuals. The role of the government is to serve and maintain the rules, not to direct the market economy. There are no successful cases of a government-directed market economy. The vitality of the private economy and market economy often depends on whether the government's power in economic activities is sufficiently limited.
The selection of talents in a market economy is determined by free competition and cannot be predicted. A society that can tolerate different personalities and values of talents is more likely to succeed in a market economy, and vice versa.
People inherently pursue equality. Mechanisms that pursue equal results will create the greatest inequality, while mechanisms that pursue equal opportunities will approximate equal results the most.
People's need for security far exceeds their pursuit of wealth. With the premise of having achieved basic needs, without personal security guarantees, the pursuit of wealth will greatly diminish.
Market economy behavior is related to expectations. In a market economy, when the vast majority of people begin to hold negative expectations for any reason, economic activity will decline, and the decline itself will reinforce negative expectations, thereby accelerating the decline. The opposite is also true.
A market economy is formed by spontaneous demand, independent supply, and free competition. Demand is the main cause, while supply is the means and the result. The actual total amount of a market economy is actually determined by the total real demand, not by supply.
An increase in real demand can boost supply. Decreasing real demand, boosting supply not only cannot solve the problem, but also creates more related problems.
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The above article is a post by Li Lu on his WeChat Moments. Li Lu is an investment master and also the fund manager designated by Munger. He has a long-term positive outlook on China and is a master of value investment.
Some reflections on common sense are also helpful for our investment, so I am sharing this.
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