Нассим Талеб - The Black Swan. The Impact of the Highly Improbable

In sum, the long tail is a by-product of Extremistan that makes it somewhat less unfair: the world is made no less unfair for the little guy, but it now becomes extremely unfair for the big man. Nobody is truly established. The little guy is very subversive.

Naïve Globalization

We are gliding into disorder, but not necessarily bad disorder. This implies that we will see more periods of calm and stability, with most problems concentrated into a small number of Black Swans.

Consider the nature of past wars. The twentieth century was not the deadliest (in percentage of the total population), but it brought something new: the beginning of the Extremistan warfare—a small probability of a conflict degenerating into total decimation of the human race, a conflict from which nobody is safe anywhere.

A similar effect is taking place in economic life. I spoke about globalization in Chapter 3; it is here, but it is not all for the good: it creates interlocking fragility, while reducing volatility and giving the appearance of stability. In other words it creates devastating Black Swans. We have never lived before under the threat of a global collapse. Financial institutions have been merging into a smaller number of very large banks. Almost all banks are now interrelated. So the financial ecology is swelling into gigantic, incestuous, bureaucratic banks (often Gaussianized in their risk measurement)—when one falls, they all fall. *The increased concentration among banks seems to have the effect of making financial crisis less likely, but when they happen they are more global in scale and hit us very hard. We have moved from a diversified ecology of small banks, with varied lending policies, to a more homogeneous framework of firms that all resemble one another. True, we now have fewer failures, but when they occur … I shiver at the thought. I rephrase here: we will have fewer but more severe crises. The rarer the event, the less we know about its odds. It means that we know less and less about the possibility of a crisis.

And we have some idea how such a crisis would happen. A network is an assemblage of elements called nodes that are somehow connected to one another by a link; the world’s airports constitute a network, as does the World Wide Web, as do social connections and electricity grids. There is a branch of research called “network theory” that studies the organization of such networks and the links between their nodes, with such researchers as Duncan Watts, Steven Strogatz, Albert-Laszlo Barabasi, and many more. They all understand Extremistan mathematics and the inadequacy of the Gaussian bell curve. They have uncovered the following property of networks: there is a concentration among a few nodes that serve as central connections. Networks have a natural tendency to organize themselves around an extremely concentrated architecture: a few nodes are extremely connected; others barely so. The distribution of these connections has a scalable structure of the kind we will discuss in Chapters 15 and 16. Concentration of this kind is not limited to the Internet; it appears in social life (a small number of people are connected to others), in electricity grids, in communications networks. This seems to make networks more robust: random insults to most parts of the network will not be consequential since they are likely to hit a poorly connected spot. But it also makes networks more vulnerable to Black Swans. Just consider what would happen if there is a problem with a major node. The electricity blackout experienced in the northeastern United States during August 2003, with its consequential mayhem, is a perfect example of what could take place if one of the big banks went under today.

But banks are in a far worse situation than the Internet. The financial industry has no significant long tail! We would be far better off if there were a different ecology, in which financial institutions went bust on occasion and were rapidly replaced by new ones, thus mirroring the diversity of Internet businesses and the resilience of the Internet economy. Or if there were a long tail of government officials and civil servants coming to reinvigorate bureaucracies.

REVERSALS AWAY FROM EXTREMISTAN

There is, inevitably, a mounting tension between our society, full of concentration, and our classical idea of aurea mediocritas, the golden mean, so it is conceivable that efforts may be made to reverse such concentration. We live in a society of one person, one vote, where progressive taxes have been enacted precisely to weaken the winners. Indeed, the rules of society can be easily rewritten by those at the bottom of the pyramid to prevent concentration from hurting them. But it does not require voting to do so—religion could soften the problem. Consider that before Christianity, in many societies the powerful had many wives, thus preventing those at the bottom from accessing wombs, a condition that is not too different from the reproductive exclusivity of alpha males in many species. But Christianity reversed this, thanks to the one man–one woman rule. Later, Islam came to limit the number of wives to four. Judaism, which had been polygenic, became monogamous in the Middle Ages. One can say that such a strategy has been successful—the institution of tightly monogamous marriage (with no official concubine, as in the Greco-Roman days), even when practiced the “French way,” provides social stability since there is no pool of angry, sexually deprived men at the bottom fomenting a revolution just so they can have the chance to mate.

But I find the emphasis on economic inequality, at the expense of other types of inequality, extremely bothersome. Fairness is not exclusively an economic matter; it becomes less and less so when we are satisfying our basic material needs. It is pecking order that matters! The superstars will always be there. The Soviets may have flattened the economic structure, but they encouraged their own brand of übermensch. What is poorly understood, or denied (owing to its unsettling implications), is the absence of a role for the average in intellectual production. The disproportionate share of the very few in intellectual influence is even more unsettling than the unequal distribution of wealth—unsettling because, unlike the income gap, no social policy can eliminate it. Communism could conceal or compress income discrepancies, but it could not eliminate the superstar system in intellectual life.

It has even been shown, by Michael Marmot of the Whitehall Studies, that those at the top of the pecking order live longer, even when adjusting for disease. Marmot’s impressive project shows how social rank alone can affect longevity. It was calculated that actors who win an Oscar tend to live on average about five years longer than their peers who don’t. People live longer in societies that have flatter social gradients. Winners kill their peers as those in a steep social gradient live shorter lives, regardless of their economic condition.

I do not know how to remedy this (except through religious beliefs). Is insurance against your peers’ demoralizing success possible? Should the Nobel Prize be banned? Granted the Nobel medal in economics has not been good for society or knowledge, but even those rewarded for real contributions in medicine and physics too rapidly displace others from our consciousness, and steal longevity away from them. Extremistan is here to stay, so we have to live with it, and find the tricks that make it more palatable.

* These scalable laws were already discussed in the scriptures: “For onto everyone that hath shall be given, and he shall have abundance; but from him that hath not shall be taken away even that which he hath.” Matthew (Matthew 25:29, King James Version).

* Much of the perception of the importance of precocity in the career of researchers can be owed to the misunderstanding of the perverse role of this effect, especially when reinforced by bias. Enough counterexamples, even in fields like mathematics meant to be purely a “young man’s game,” illustrate the age fallacy: simply, it is necessary to be successful early, and even very early at that.