The problem with stability

 

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Nassim Taleb, the Oracle of The Black Swan, is an insufferable, egotistical, meandering blowhard. His writing is self-indulgent, self-satisfied and petty. He holds grudges. He picks fights. He calls names. He can be infuriating to read. Unfortunately, he is also unquestionably intelligent, courageous, and right more often than he is wrong. And for all his quirks and flaws—and they are many—he is likely to remain, with the publication of his new book, among the most influential popular economic thinkers of our time.

Taleb, who grew up in Lebanon and used to work on Wall Street, published his first non-technical book, Fooled by Randomness, in 2001. But it was his follow up, The Black Swan (2007), that turned him into a household name. In that book, Taleb argued that a small number of massive, rare and difficult-to-predict events (black swans) have dominated history, for both good and bad. Taleb preached that the banking industry, still riding a massive high at that point, was particularly vulnerable to negative black swans. And when the financial crisis struck the next year, he appeared painfully right.

In Antifragile, his first book since The Black Swan, Taleb builds and expands on the core ideas from that work. In a world where risk is unavoidable and the most significant shocks unpredictable, Taleb believes that only those systems that can “thrive and grow when exposed to volatility, randomness, disorder, and stressors” should be lauded. They are, in his terminology, the opposite of fragile: in other words, “antifragile.”

Taleb is essentially arguing against stability, against the idea you can calculate and avoid risk or failure. As he sees it, all great advances—in art, business, society or science—come from people with “skin in the game,” those willing to absorb small losses for the chance to work toward larger goals.

For those people—the antifragile—Taleb believes exposure to failure is a benefit. Defeats contain lessons in how to succeed in larger ways and avoid significant crashes from negative events. In this category are entrepreneurs (especially those in Silicon Valley), artisans, and thinkers and tinkerers not beholden to any large corporation, university or government.

On the opposite side of Taleb’s ledger are the fragile, those institutions, professions or systems that avoid small failures at any cost and in the process make themselves vulnerable to unpredictable shocks. Large public corporations are fragile, Taleb believes, as is the New York banking industry, universities and centralized governments.

To illustrate the difference between the two, Taleb employs the example of identical twin brothers in middle age, both working in London, England. One, John, has been working as a clerk in the HR department of a large bank for 25 years. The other, George, drives a cab.

John’s income is perfectly predictable. He cashes the same cheque every month. He pays down his mortgage. He takes a holiday on schedule. His life and finances are what one would call traditionally stable.

George on the other hand has good weeks and bad. He can earn hundreds of dollars one day and the next barely cover his costs. His income in the short term is highly variable. But average it over the year, and he makes about the same as his brother.

In George’s line of work, small shocks are expected. A regular client could move. A street in his district could close. But because he works for himself and his income is spread among many clients, it would be hard for any single event to topple him.

John, on the other hand, is largely immune from small errors. If he has a bad week at work, he gets the same reward as he would in the best stretch of his career. But with all his income and status tied up in one source, he is highly vulnerable to a single large shock: getting laid off or fired.

For Taleb, John is fragile. George is antifragile. One can use small losses to adjust and avoid calamity. The other, while immune to small shocks, is forever at risk of a disaster.

What is true for John and George on the small scale, Taleb believes, is equally true for the larger economy, and even politics and foreign affairs. Systems that appear stable, he contends, or that have stability imposed on them from above, are in fact highly vulnerable. Those that look chaotic, full of redundancies and prone to small failures, are in reality robust.

For Taleb, there is no greater crime than to try to create stability in systems that are inherently not, to try, in other words, to turn Georges into Johns. “Take rotten governments like the one in Egypt before the riots of 2011, supported by the United States for four decades in order to “avoid chaos,” he writes. “Without the United States, the country would have had its revolution, a regional breakup, some turmoil, then perhaps—by now—some stability.” Instead, Egypt, and the region as a whole, suffered under decades of misrule and are now dealing with the fallout from a blow-up that was larger, costlier and more chaotic than it had to be.

For Taleb, that same overarching theory can be applied to scientific research, central banking, even what we eat. Ultimately, Antifragile is less a business book than it is Taleb’s attempt at a grand theory of everything, a sprawling, ruminative dissection of all aspects of life, seen through the lens of fragility, risk and volatility. Split into seven “books” and more than 20 chapters, Antifragile is often illuminating, occasionally eye-roll inducing and, for a stretch in the middle, fantastically boring. When he’s in his world, finance, business, even politics, Taleb can be wonderful. When he veers off into bodybuilding (you’re doing it wrong) or medicine, he comes off as a smug know-it-all who doesn’t actually know that much.

Taleb writes like a gregarious, hyper-intelligent dinner guest talks: he starts strong, builds steam, then wanders off into weird directions after too many glasses of wine. Still, when he’s on, he can be fantastically on, and there are enough of those moments in Antifragile to make it, if not The Black Swan 2, then at least a worthy successor.

Richard Warnica is a staff writer at Canadian Business and expert on organizational chaos.

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  1. Pingback: Knowledge is Power: Autos, Barter, Country Risk Edition

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