The Great Moderation

How Moderation and Entropy Define Things

I want to share a concept called 'The Great Moderation'. The basic idea is this: As you grow older and your experience begins to match reality, you tweak your expectations and goals; you 'moderate'.

Think back to the time when you had glorious, lofty goals: You knew exactly how to change the world and you had strong opinions on economy and politics. Compare those times to today: You are (probably) more appreciative of the world's inner workings, how economic indicators are nuanced, how politics is subtle, and how social issues are interconnected. In other words, your worldview has more elements of grey as compared to black / white, years ago.

This "Great Moderation" usually happens in the transitory phase between teenage years and early twenties, as your ideas about success, life, and relationships evolve and develop nuance. Point being, you moderate your views and ideas after experiencing some reality.

Another example. You make your to-do list and you flood it with all tasks; you're confident that you'll be able to finish them all. But as you grow older, you realize the power (and necessity) of essentialism, and begin to appreciate how time is short.

'The Great Moderation' need not be an abstract thing you identify and use to tweak your "mental models". It's a trait that runs deep in the things we engage with. The thumb rule I use is to apply a (sort of) 'moderated discount' to an exaggerated claim, to account for a delta of moderation.

Point being, everything around us -- people, things, ideas -- has to undergo moderation, at some point, of some kind, in some way. Those who work hard moderate down by undergoing self-care; expensive things moderate down through technology and economies of scale; strong ideas moderate down by developing nuance and complexity.

Moderation is not a bug; it's a feature. Markets correct, valuations correct, bubbles burst, the pendulum swings back. Similarly, entropy is a feature, not a bug; usually, entropy dominates and we end up in a runaway spiral of things. But every now and then, moderation and entropy conflict, and moderation has a slight edge over entropy, which leads to correction and a restoration of equilibrium.

A few examples:

  • Entropy: Quantitative Easing; Moderation: Inflation
  • Entropy: Asset Prices Rise; Moderation: Bubble
  • Entropy: Cultural Polarization; Moderation: Protests
  • Entropy: Fads; Moderation: Newer Fads

I find this concept interesting and useful, primarily because it grounds me to reality. It helps correct my expectations, set realistic goals, and be in a state of flow. I remember reading this quote, that goes: Eternity is an awfully long time, especially when you're near the end... I think the same goes for moderation. The quote can read as follows: Moderation happens after an awfully long time, especially when entropy has taken everything apart.

Until next time,