An Alternative for a Black Swan-proof World

Nassim Nicolas Taleb provides 10 rules that if followed will reduce or even completely eliminate the risk of Black Swans in the economy. Check out the full detail of these rules in his article. Here’s the list of rules he proposes:

1. What is fragile should break early while it is still small.
2. No socialisation of losses and privatisation of gains.
3. People who were driving a school bus blindfolded (and crashed it) should never be given a new bus.
4. Do not let someone making an “incentive” bonus manage a nuclear plant – or your financial risks.
5. Counter-balance complexity with simplicity.
6. Do not give children sticks of dynamite, even if they come with a warning.
7. Only Ponzi schemes should depend on confidence. Governments should never need to “restore confidence”.
8. Do not give an addict more drugs if he has withdrawal pains.
9. Citizens should not depend on financial assets or fallible “expert” advice for their retirement.
10. Make an omelette with the broken eggs.

His is an interesting list because it makes you think: could these rules be further simplified? I believe they can. Taleb makes the assumption so many other make: we need institutions. There’s no justification for this desire other than habit: we’re so used to having institutions that we can’t even imagine a world where institutional forms of organization are much less dominant.

By letting go of the need to have institutions I can rewrite Taleb’s 10 rules as 5 rules:

1. What is fragile should break early while it is still small. Don’t use institutions.
2. No socialisation of losses and privatisation of gains.
3. People who were driving a school bus blindfolded (and crashed it) should never be given a new bus.
4. Do not let someone making an “incentive” bonus manage a nuclear plant – or your financial risks.
5. Counter-balance complexity with simplicity.
6. Do not give children sticks of dynamite, even if they come with a warning.
7. Only Ponzi schemes should depend on confidence. Governments should never need to “restore confidence”.
8. Do not give an addict more drugs if he has withdrawal pains.
9. Citizens should not depend on financial assets or fallible “expert” advice for their retirement.
10. Make an omelette with the broken eggs.

Taleb’s rules 1, 2, 3, 4, 8 and 9 are a direct result of the institutional model. Institutions are great devises to let a few conspire against many. In other words: institutions depend on opacity from the outside to function. In collaborative models every participant is part of the working system and while abuse by a few is still possible it becomes much easier to detect and adapt the system based on lessons learned.

Institutions in the form of collaboration are given their charter by the state. This is no accident since the state itself is an institution. The state enforces the institutional model in its laws upon those that want to run their own business. This is a fatal flaw in our society and one that cannot disappear unless our current model of society disappears.

For this reason Taleb’s 10 rules or my 5 rules will never be adopted in our current model of society. The state is uniquely concerned with self-preservation. Our culture is uniquely concerned with control. Without a collapse nothing will change and everything that’s bad today will become worse tomorrow. The good news is that the current state of erosion appears to be so advanced that collapse is imminent.