Defend Against Black Swans
I think this could be compressed into five principles, but Nassim Nicholas Taleb over at Financial Times has presented “Ten principles for a Black Swan-proof world.” For those that don’t know, Taleb coined the term black swan event to discuss unpredicted and abnormal events.1 I couldn’t agree with him more. Making institutions larger simply increases the risk to society at large and increasing the opportunity for black swan event to be catastrophic. And our country has become plagued by behemoths. I mean, why can Aptera build an affordable aerodynamic electric car, while GM, Ford and Chrysler struggle with cars that get 30 miles per gallon? I think the benefits of scale can become outweighed by an inability to innovate and maneuver. As many pundits have been saying, we’ve taken the worst aspects of socialism and capitalism and combined them to create a bizarre corporate welfare state. It could get worse though, is the amazing thing. William Greider argues just that point in a column at the Washington Post. I was disturbed in particular by this paragraph:
“A new regulatory regime that puts the secretive central bank in charge of everything would sanctify the policy of “too big to fail” that Fed officials have long followed but never honestly acknowledged. It would also revive the Wall Street club, albeit smaller than before, with which the Fed has been so cozy. If the largest bank holding companies are given privileged proximity to the source of government protection, then everyone in finance and commerce will want to become a bank holding company, too. We are already seeing this happening as former investment houses like Goldman Sachs and non-bank financial firms decide to join the system. Why not General Electric and Microsoft? Where does this end? What does it mean for smaller enterprises that lack the scale and influence?”
The idea of a corporate state like the kind Greider is driving at is damn frightening. Regulation might bandage the wound today and in the near future, but the real problem is a market structure that persistently creates oligopolies. It stifles innovation and drives prices up. We need corporate reform.
For nearly 1500 years, it was an accepted idea that black swans did not exist. Black swans were “rediscovered” in Australia during the 18th century; hence the term black swan now indicates an unusual or hard to predict occurrence. ↩