(Page 3 of 5)
Taleb: Exactly. When you’re a banker and you have the upside but no downside, what are you going to do? Create the maximum number of loans that don’t blow up often, and collect your bonuses.
You’re paying for his downside. This, to me, is not capitalism. It is a misunderstanding of basic rules. Skin in the game started with Hammurabi, led later on to eye-for-eye, and led to the Golden Rule.
reason: You talk about decentralization. One of the most fascinating things in the global economy in the last 50 years—you could argue over the past 1,000 years—is that in many ways it’s becoming more and more decentralized. Certain types of knowledge are more decentralized than ever before. Economies compete in a way that they didn’t before; countries can no longer force investors to keep their money in a particular currency, in a particular geographic location. Even as we’re facing a global crisis, is globalization generally a good thing?
Taleb: It is if you know how to handle it—if you let firms fail.
There is something called the island effect. In nature, an island will have a higher number of species per square meter than a continent; it’s actually proportional to the square of the area. We’ve lost the island effect. Now you have Google dominating the whole planet. It’s not a problem. The thing is that if we stop letting these firms fail when they become ill, they can get large enough to dominate government. Now, computer firms I’m not worried about.
reason: Why aren’t you worried about computer firms?
Taleb: Because it’s a competitive environment. Google is a product of a competitive environment.
reason: So we can see the end of Google on the horizon.
Taleb: We can see the end of Google, and it doesn’t make a difference. It makes no difference for you and I. If Google fails tomorrow, there will be something else, don’t worry. The government won’t save them. And I don’t think they’ll fail, for that reason: They know the government won’t save them. But you can have some centralization/concentration. That’s not the problem.
The problem we have had in almost all Western countries is that nominally they say they are decentralizing, but effectively they’ve [given] more and more power to the central government. You want decisions to be spread out. Government debt is a result of centralization, and typically the cause of more centralization. It’s a very bad circle.
reason: I suspect one of the reasons you are as popular as you are is that in the United States it’s rare for an intellectual, particularly one who is good at math, to also have any sense that history has something to teach us. You decided at an early age you were interested in becoming a philosopher. Talk about that and how that linked into the work you’re doing.
Taleb: I wanted to be a philosopher from the beginning, but there was civil war in Lebanon. I left. I came back from France and I realized I had too many books to read. And I loved reading but I hated to be given books to read because if you’re bored with it you lose the option. I like the optionality of switching to finding your own path rather than being in a straitjacket of university.
Then I realized that I had better study something more technical. I continued two lives, one technical and one nontechnical. The technical led to options trading. And the option trading led to a doctorate related to probability theory applied to options, and in some obscure stuff.
reason: What is your goal as a public figure?
Taleb: I don’t want to be a public figure. After Black Swan, for the first six months, nine months, one year, I was thinking it was nice to go to Davos. And then I didn’t like it, so I came back home and became a private figure.