Taleb’s necessary and impossible wish-list

April 8, 2009

I hate listicles. But every so often, one comes along which is utter genius, and Nassim Taleb’s list of “Ten principles for a Black Swan-proof world” is one of those cases.

Yves Smith calls it a must read, and one which she is “highly confident will never be implemented”; she’s right on both counts. But in many ways that’s the strength of this piece: it both must be implemented and can’t be implemented at the same time. Which constitutes a massive policy dilemma.

Taleb’s first principle is that “nothing should ever become too big to fail”. But all economies have too-big-to-fail institutions; they always have, and they always will. Looking at the rest of the list, how on earth do you stop the financial sector from awarding its employees bonuses, or creating complex products? Derivatives are, at heart, bilateral contracts: how can you ban two consenting adults from entering in to such a contract?

Taleb’s big idea, these days, is that we of necessity are moving into a world with vastly less debt than we’ve been used to. I’m not entirely clear on what his timeframe for this is. A quote from my (boss’s boss’s) boss, Tom Glocer, seems germane here:

“I’ve met a lot of smart people in my life, and they’re the ones who are eventually always right and they always know where things are going [and] they always underestimate friction in the world and how long it takes to get there.”


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