Welcome back to the 1st Law Newsletter - Friday Edition.

In this email:

• How society is structured

• Ideas about optimism and pessimism

• Quote: You ain't got the answers Sway!

The Four Layer Structure of Social Systems

This list is one breakdown/ point of view on the way that our society is setup.

1. Financial Layer: This includes how money flows and agreements around money. This is the top layer of society and often the first one to fail.

2. Economic Layer: This includes physical infrastructure, jobs, skills and resources available to the population.

3. Socio-Political Layer: The effectiveness, legitimacy, and trust that people have in social institutions, including schools and government.

4. Cultural Layer: How much people share values and consider each other as part of the same 'group'. This is the bottom/ root layer of society.

Generally, any crisis impacts a society in the top down order - first financial, then economic, then political, then finally the cultural layer. For example, in North America, the great depression burned down the financial layer, then the economy took a huge hit and this caused the ruling government to be voted out, however the cultural layer (luckily) remained largely intact. If, on the other hand, this crisis penetrated all the way down to the cultural layer, you would have a situation like Germany in the great depression. The situation got so bad for them that not only the financial, economic and socio-political layers were destroyed, but the cultural layer as well, and Germans started killing Germans, leading to the Holocaust.

The layers at the top are the least important and would be least detrimental to life if they failed. The cultural layer must be preserved at all costs because while a financial crisis might be unpleasant, a cultural crisis can lead to civil war, death and chaos.

Idea from Jordan Hall on YouTube. Very interesting channel for topics like this.

Pessimism Outweighs Optimism

Being an optimist is believing that the majority of people are going to wake up and do more good in the world than bad. That we will continually drive progress, whether its personally or globally, economically or technologically, etc... It means believing wholeheartedly in humanity.

However, when talking to people (especially people we don't know well), optimism often sounds like someone trying to sell you something, while pessimism sounds like someone trying to help you. Pessimism sounds smarter. This is an idea I got from the book The Philosophy of Money by Morgan Housel.

For example, if someone told you a stock is going to go up 1000% in the next 3 months, you would probably be skeptical and think they were trying to con you and dismiss what they were saying. If, on the other hand, they told you how a stock you own is going to go down, you would probably stop what you were doing and listen to their argument. Humans tend to seek safety and to avoid loss over taking risks to seek potential gain.

"I have observed that not the man who hopes, when others despair, but the man who despairs when others hope, is admired by a large class of persons as a sage." - John Stuart Mill

This also applies to investing as losses can greatly outweigh gains. A stock that goes down 20% needs to gain 25% to recover to where it was. A stock that goes down 50% now needs to go up 100% to recover its original value. This makes it more important to avoid losses than it is to chase gains and makes being a pessimist enticing as an investor.

Being an optimist pays in the long run, but you need to be able to withstand "the short sting of pessimism" to reap the rewards from the "powerful pull of optimism" (phrases from The Philosophy of Money).

Quote I Want To Share

This reminds me of why Socrates was the wisest man of his time. He understood that he only knew that he knew nothing. He did not walk around pretending he was a wise man, in fact he asked more questions than anyone else.

This also reminds me of a story of a guy who paid to have lunch with Warren Buffett. Of course, he prepared lots of questions and was excited to learn something from Warren. However, during lunch, he barely had time to ask him anything because Warren kept asking him questions!

Bonus poem relating to this topic as well:

Thanks for reading!

Lucas