I’ve posted before on this blog about The Black Swan: The Impact of the Highly Improbable, Nassim Nicholas Taleb’s powerful book, written before the big downturn, which some say (he wouldn’t) predicted it.
With a beautifully written mix of history, stories, studies, and logic, Taleb shows how the big events are completely unpredictable. And that we kid ourselves, afterwards, trying to rationalize that they would have been, if we’d only figured out the signs. We want things to be logical, and, therefore, we could have predicted them. But we couldn’t have. That’s his point.
We define swans as white. Then we see a black swan. It cracks our world view.
In the book, Taleb talks about turkey logic. For 999 days of its life the turkey sees overwhelming evidence that the farmer is its best friend. Farmer feeds it, cares for it. And then, on the thousandth day, the axe. We’re like that.
So I was interested when I saw Taleb’s byline on this story in the Financial Times: Ten principles for a Black Swan-proof world. The title itself is ironic. There is no such thing as a black swan-proof world. Still, here’s his list (although just the list, with explanations cut to shreds; you should read the source):
- What is fragile should break early while it is still small.
- No socialization of losses nor privatization of gains.
- People who were driving a school bus blindfolded (and crashed it) should never be given a new bus.
- Do not let someone making an “incentive” bonus manage a nuclear plant – or your financial risks .
- Counter-balance complexity with simplicity. Complexity from globalisation and highly networked economic life needs to be countered by simplicity in financial products. Capitalism cannot avoid fads and bubbles: equity bubbles (as in 2000) have proved to be mild; debt bubbles are vicious.
- Do not give children sticks of dynamite, even if they come with a warning.
- Only Ponzi schemes should depend on confidence. Governments should never need to “restore confidence”.
- Do not give an addict more drugs if he has withdrawal pains.
- Citizens should not depend on financial assets or fallible “expert” advice for their retirement.
- Make an omelette with the broken eggs. Let us move voluntarily into Capitalism 2.0 by helping what needs to be broken break on its own, converting debt into equity, marginalising the economics and business school establishments, shutting down the “Nobel” in economics, banning leveraged buy-outs, putting bankers where they belong, clawing back the bonuses of those who got us here, and teaching people to navigate a world with fewer certainties.
Again, that’s at: Ten principles for a Black Swan-proof world.