Variations, Stability, and the Economy

Variations also act as purges. Small forest fires periodically cleanse the system of the most flammable material, so this does not have the opportunity to accumulate. Systematically preventing forest fires from taking place “to be safe” makes the big one much worse. For similar reasons, stability is not good for the economy: firms become very weak during long periods of steady prosperity devoid of setbacks, and hidden vulnerabilities accumulate silently under the surface—so delaying crises is not a very good idea. Likewise, absence of fluctuations in the market causes hidden risks to accumulate with impunity. The longer one goes without a market trauma, the worse the damage when commotion occurs.

Source: Antifragile. Things That Gain from Disorder. (2012) by Nassim Nicholas Taleb.

It’s too bad the powers-that-be don’t learn the lesson above. They think and fear the “crises” will last indefinitely so they have to do something anything to prevent the crises from getting worse. But it does get worse when they interfere with the economy. That’s why the Great Depression wasn’t just a normal depression. The economy will self-correct in its own time. It’s non-linear.

Then there are those leaders who are just control freaks and love regulating the economy to death. Or near death.

The author lists what he calls people who have “skin in the game”: citizens; merchants, businessmen, artisans; entrepreneurs; laboratory and field experimenters; gov’t of city-states; writers. Those who have no skin in the game: Bureaucrats; consultants, sophists; business (my input: if businesses keep their entrepreneurial spirit they would be better off I think); corporate executives (with suit); theoreticians, data miners, observational studies; centralized gov’t; editors.

Mr. Taleb has a suggestion to deter “too big to fail” and prevent employers from taking advantage of the public:

A company that is classified as potentially bailable  out should it fail should not be able to pay anyone more than a corresponding civil servant.

He has a point. If you take money from the government don’t expect there won’t be any conditions or strings attached. If it is a loan and you pay back the loan then the strings should go away. Then that of course that means less power for the gov’t. Because if there are conditions then fewer businesses won’t go to the gov’t for money. Hence, no crony capitalism.

Finally, toward the ending of chapter 24 he has these thoughts:

       But the good news is that I am convinced that a single person with courage can bring down a collective composed of wimps.

       And here, once again, we need to go back into history for the cure. The scriptures were quite aware of the problem of the diffusion of responsibility and made it a sin to follow the crowd in doing evil---as well as to give false testimony in order to conform to the multitude.