Fragility and Scale

by Jeffrey Polet on March 26, 2013 · 2 comments <span>Print this article</span> Print this article

in Short

There is an interesting interview over at Reason with Nassim Taleb, author of Black Swan, a book which presciently described the economic disorder preceding the financial collapse. I haven’t read the book, but there are some pretty arresting observations in the interview. Taleb argues that systems become too fragile if failure is not an integral part of them. Anti-fragility encourages disorder and a certain amount of failure because it allows systems to become stronger and more adaptive. A “too big too fail” banking policy essentially means that if a part fails, the whole system must come down with it.

To cite the great Yogi Berra, a good antifragile system is a system in which all mistakes are good mistakes. And the bad system is one, again to paraphrase Yogi Berra, where you tend to make the wrong mistakes. Let’s compare the banking system to, say, transportation. Every plane crash makes the next plane crash less likely and our transportation safer. Now, with the banking system, [a failure] leads to increased probability of failure of an entire system. That’s a bad system.

The overinflation of certain parts of a system occurs because of distorted goals for the system itself. A system committed to personal liberty will always emphasize that people are responsible for their actions, particularly if those actions are ill-considered. A more powerful system will insulate people against such consequences, but at the cost of their liberty.  For Taleb, all this relates to arguments for decentralization, for centralization distorts the otherwise socially-useful purposes of discrete organisms. Its attentiveness to liberty will help attenuate the free-rider problem (a problem so pervasive in our system it’s not even talked about):

What fragilizes an overall system? Three things: One, centralization. Decentralization spreads mistakes, makes smaller mistakes. Decentralization is where we converge with libertarians. A second one is low debt. The third is skin in the game.

Debt and centralization reinforce each other, and this reinforcement is driven by the defining purpose of centralized governments: war-making. The problem, he says, is one of size:

To make big mistakes and to be wiped out; this is the island effect at work. What we have had in this country is the progressive rise of central government. Particularly, deficits are the work of central government. [Scottish philosopher David] Hume figured it out. He said: Small states and city-states, they love commerce. And large governments love war. And that’s what justifies large government—war. There is no justification for large government other than war. And they’re not good at it.

It is increasingly evident that the key problems of our politics relate to problems of scale. Unfortunately, power acts in such a way as to distort such considerations. Its consolidating impulse requires that questions of size and scale – the bedrock questions of political theory going back to Plato and Aristotle – get disregarded altogether.



{ 2 comments… read them below or add one }

avatar Jack Shifflett March 26, 2013 at 5:47 pm

Mr. Polet: as a believer in “human scale,” I don’t disagree in principle with criticisms of Big Government, centralized power, and “too big to fail” institutions, nor do I contest the established fact that “war is the health of the state.” But I’m wary of the recently popularized insistence on “skin in the game”; whenever I’ve seen or heard that phrase, it’s been used as code for “the poor don’t pay enough taxes” or “there’s too many freeloaders in this country, damn it”. That may not be what you or Nassim Taleb mean, but even so, I’d like to point out that everyone in a society has skin in the game, whether by dint of paying taxes, owning property, having children (“hostages to fortune”), having friends and family, or simply by dint of each individual’s own life, liberty, and pursuit of happiness. We equate “skin in the game” with “a financial stake” at our peril, as we do whenever we reduce social or ethical concerns to economic ones.

avatar lliamander March 27, 2013 at 12:51 am

I understand your concern. I think that, at least in this context, Mr. Polet and Mr. Taleb are referring to the other end of the power/wealth spectrum, like the CEOs of the “Too Big Too Fail” banks, who not only avoided suffering during the 2008 bust but actually profited significantly from it.

But to be honest, I think the criticism against the “freeloaders” at the lower end of the economic spectrum is just as legitimate. To take a new spin on an old phrase: at either end of the social/economic spectrum is a class (or subclass) whose lifestyle depends upon thwarting the common good. Not to say that there aren’t individuals in the working/middle classes who are that way; it’s just that (in my experience) such behavior is only systematic in the highest and lowest classes.

What’s important though, is that we don’t demonize these negative contributors. We ought to undermine their way of life, but with the goal of moving them to more productive ones. However, the risk in dealing with these negative contributors is that we might marginalize those who, on the upper economic end, actually do contribute more (“good and faithful servants”) or those who, on the lower economic end, actually do require community support (the “orphans and widows” of modern society). The evidence suggests that our political system does not possess precise enough instruments to actually make that distinction.

With regard to the original post, I would just like to mention that Mr. Taleb is a kindred spirit to engineers. We have a quote (I think coined by Scott Adams) which is roughly paraphrased as “an infallible system is one that, when it fails, it fails in a spectacular and unrecoverable fashion”.

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