đ Taleb - III (12/100)
Antifragile India, society & the beginning of the end for Banks!
Hey everyone,
The past week went by rather quickly. I experienced a state of flow a couple of times and things were just sensational on the work front.
Anyway, last week we talked about how individuals can be antifragile. This week we take things up a notch. If this is the first time youâve come across this post, I would recommend reading Part - I and Part - II for context.
Letâs talk about:
The kind of society that Taleb wants to build
Suggestions for India
Antifragile vs Fragile systems
Talebâs version of an antifragile society
Taleb wants to build a society that can sustain forecast errors. We have a society that is obsessed with eliminating small risks at the expense of larger risks.
Forecast error is the difference between the actual or real and the predicted or forecast value.
Seems nice and simple but hereâs the twist.
Forecast errors seem deceptively easy to understand. Most people who work with forecasting think that they understand the forecast error much better than they actually do. There are unknowns and blindspots in forecasting which makes it so hard to predict the outliers.
Itâs easy for the weather department to predict the chances of rain but itâs way harder to predict the chances of a cyclone.
Depending on the forecast makes things comfortable. Comfort is the enemy of antifragility.
For a society to be antifragile, Taleb recommends:
đ Less government debt
Debt creates inflation that the governments canât control later. Debt can only be judged when the govts pay it back. But that doesnât seem to be the case with increasing fiscal deficits across the world.
đż Decentralization
Small is beautiful. More specifically, decentralized decision-making means less systemic risk. If the power is not concentrated in the centre but distributed across states, weâll make way more mistakes but theyâll be smaller in magnitude impacting a smaller population. Something we in India have been steadily moving away from in the last few years.
It doesnât matter if you're with or against the current govt. â the number of mistakes made by the govt has shaken the country to its roots.
The most stable country in the history of mankind, and probably the most boring, by the way, is Switzerland. Itâs not even a city-state environment; itâs a municipal state. Most decisions are made at the local level, which allows for distributed errors that donât adversely affect the wider system. Meanwhile, people want a united Europe, more alignment, and look at the problems. The solution is right in the middle of Europe â Switzerland. Itâs not united! It doesnât have a Brussels! It doesnât need one.
Taleb has a negative approach to democracy, he thinks it should be primarily a mechanism by which people can remove a bad leader.
â„ Elimination of Moral hazard
In economics, moral hazard occurs when an entity has an incentive to increase its exposure to risk because it does not bear the full costs of that risk.
Taleb explains this with a beautiful example.
Hawks in the White House should not be making decisions about bombs in Iraq when they will remain in their air-conditioned houses with their 2.2 children whatever the result.
What Taleb suggests instead:
Hammurabi Law â If the owner of a building is killed by a collapse of his/her building, the architect of the building should be put to death too.
Why do bank officials/bureaucrats/public servants not punished for their mistakes?
Doctors face severe legal consequences for error, a deep understanding of complex systems, and centuries of accrued ethical standards.
Talebâs suggestions for India
Forget the macroeconomic indicators. Just work on the structure. You work on a structure by teaching people how to take risks, instead of teaching people how to become good salary earners. You should force people to become entrepreneurs. You are doing very well in the IT sector, increasingly well, but nevertheless, it is not sufficient for the rest of India. You need to do that in every sector.
So you have to have a risk culture and you have to build it by encouraging entrepreneurship and by making it respectable to fail. People do not need your money. They are entrepreneurs. What they need is your respect. Once you give them respect, they will find the money. Actually, you do not need a lot of money.
In a place where we celebrate actors, politicians, and cricketers â we need to build a culture where we celebrate entrepreneurs. I feel we are amidst a transformation where the younger folks in the country are looking up to entrepreneurs as their idols. This will take some time and effort but we might just get there.
Antifragile vs Fragile Systems
Taleb constantly uses the term stressors in his work. How small stressors make us stronger. Putting your body through stress during workouts helps you increase bone density and oxygen in your brain and eventually your immunity.
The comparison between the Airline industry and the Banking industry was absolutely fascinating.
With every airplane crash that has occurred, the likeliness of the next crash has reduced drastically. We value peopleâs lives and that has made flying a lot safer over the years. This is an antifragile system.
Now, we compare this to the financial industry.
Every bank crash has led to an increase in the likelihood of the next bank crashing. We bail out a bank with public money and before the bail outâs complete, the next bank is ready to go under. We have seen instances of numerous banks here in India - PMC, Yes Bank, PNB. Banks are fragile.
And Iâm stoked how startups are slowly disrupting the financial industry with skin in the game â they put their money where the mouths are. If they fail the public, there isnât going to be a bailout for them, making them much likely to succeed in the long term.
Until next week.
- Vaibhav
Read:
Two truths and a take by the brilliant Alex Danco
My favorite posts include Secrets about People and The Michael Scott Theory of Social Class
Watch:
Zima Blue, Episode 14 - Love Death + Robots on Netflix