Nassim Nicholas Taleb is one of those rare thinkers who has the priceless ability to express complex ideas in ways that are immediately accessible and concrete. I’m going to shamelessly quote and derive from a very recent article he’s written in the Financial Times. It’s so good I’m going to take each one of the ten ideas he expresses and in turn try to link each one to underlying themes we see debated here over and over.
1. What is fragile should break early while it is still small. Nothing should ever become too big to fail. Evolution in economic life helps those with the maximum amount of hidden risks and hence the most fragile become the biggest.
Taleb argues that random, high impact events occur more often than we imagine. Most of the time we expect the world to behave with a comfortable Gaussian range of behaviours, the mean being most common, and by the time we get several standard deviations out, the probabilities of extreme events becomes vanishingly rare. In fact the world is not like that.
Seven years of good times, is one day replaced by seven years of famine. No matter how large and successful an enterprise was, no matter how comfortably and well you lived in the good times, if the famine causes the business to collapse, or you and your family to die… the good times mean nothing.
Business failure in a corner dairy, or a local contractor’s ditch digging company is hurtful for the individuals involved, but does not damage society as a whole. People pick themselves up and life goes on. But when an entire financial system goes belly up, all at once…there is no ‘picking yourself up again’, because everyone else is in the same gutter with you.
Capitalism as we have known it fails on these counts:
1. It has allowed excessive concentration of wealth into fewer hands, inevitably resulting in the evolution of entities ‘too big to fail’.
2. It hides tranparent evaluation of real risks behind walls of ‘commercial confidentiality’, disinformation and lies which rewards cheaters and liars with a grossly disproportionate advantage. Entities built on this advantage may grow rapidly, but their inevitable collapse is even more spectacular.
3. Systemic failure becomes catastrophic because capitalism imposes an economic mono-culture on the entire globe ensnaring almost everyone in it’s grip. Local silos of prosperity and independence have been swept away by globalised, mass market business, creating a dependency model much like a addict becomes hooked on P.
4. Far from encouraging innovation and diversity that is adaptive in the face of radical change, capitalism acts to protect the established markets and the largest, most powerful players within them. Although some change is permitted around the margins, the core action in any market does not change unless and until the big dominating cartels allow it.
What will change this? What form of regulation or law change is necessary to break this system? The end of the legal fiction that coporations are ‘natural persons’? The end of ‘intellectual property’? Nationalisation of all credit creation?