EKIP– Expert Club for Economics and Politics A Different Opinion
"Skin in the Game," the new book by famed financier-turned-philosopher Nassim Taleb, is the most important book published in recent years (probably since his last book, "Antifragility," which was published in 2012). Taleb is one of the few thinkers in the history of mankind whose writings can and should be read by anyone—be they a wealthy investor, a famous philosopher, or a dishwasher. The themes and concepts he explores in his books are so fundamental to human existence that they affect absolutely everyone.
"Skin in the Game" is no exception. In this article, I will try to explain as simply as possible the fundamental concepts that Taleb presents and justifies in his new book and, I hope, I will be able to convince you to read it. Not because Taleb pays me for it, because the book is really worth it. The most basic concept in "Skin in the Game", to which the entire book is dedicated, is..."skin in the game", which would literally be translated into Bulgarian as "skin in the game". Taleb has been constantly talking for years about how important it is to have "skin in the game". What does this mean?
The meaning of "skin in the game"
Having "skin in the game" simply means taking responsibility for your actions. The consequences of your decisions should be borne by yourself, not passed on to others. People who have "skin in the game" are people who risk some part of their well-being in order to achieve the goals of their actions. For Taleb, any kind of complex system, be it economic, political, or any other type, that does not follow this principle is "fragile." And here the importance of having "skin in the game" logically connects with another fundamental concept for Taleb's philosophy - "antifragility", which he examines in depth in his previous book.
The most striking illustration of the importance of having skin in the game and the disastrous consequences of not having one are the type of American interventionist public intellectuals and geopolitical "experts" who constantly call for more US military interventions in countries around the world, but especially in the Middle East. For Taleb, the disastrous consequences of US interventions in the Middle East over the past two decades are a direct consequence of this very fact. The interventionists have no "skin in the game" - they will not bear the consequences of US military actions. Those who will bear them are the people who live in the Middle East and, of course, the US military.
Interventionists themselves suffer no material consequences even when their ideas, when put into practice, have catastrophic consequences. And so the errors in their thinking are never corrected and continue to be made. The presence of "skin in the game" of the participants in a system ensures that it corrects itself when its participants make mistakes. For example, the free market operates on the basis of such a mechanism.
The role of "skin in the game" in a market economy
In the free market, every entrepreneur is responsible for the consequences of his business decisions. If he makes a mistake in these decisions - he bears the losses that follow from it, he risks losing his business and, accordingly, risks losing his livelihood. Thus, those market agents who make mistakes are eliminated and through the mechanism of profit and loss, the market system prevents the enrichment of people who make wrong economic decisions and, accordingly, prevents the spread of economically wrong actions. This is how the market system maintains its "anti-fragility", i.e. retains resistance against risky events.
However, if this mechanism is not allowed to work naturally and market players have no "skin in the game", the opposite happens. Taleb gives the example of the financial and banking system, where when large banks make catastrophic mistakes, the state bails them out with taxpayer money. This is exactly what happened during the last financial crisis almost 10 years ago. A number of large banks in the US made catastrophic mistakes that should have led to their bankruptcy, but with the exception of one, all were bailed out by the US government. This encourages banks to make mistakes because it shows them that these mistakes have no negative consequences for them, quite the opposite. They can continue to make them because others will bear the losses - taxpayers.
The importance of "skin in the game" is fundamental in all areas of our lives and is a very useful tool for assessing whether it is a good idea to trust someone or not. For example, when a financial "guru" gives investment advice, the first question you need to find an answer to is whether this "guru" himself follows the advice in question. That is, whether he has put money into the investment he recommends. If not, this is an immediate red flag that this advice of his is most likely not worth it, if he is not ready to stand behind it with his money. For Taleb, it is not what you say that matters, but what you do. Like the representatives of the Austrian school of economics, he emphasizes the importance of "demonstrated preferences" rather than "stated preferences". Because actions always reveal more than words.
The importance of symmetry in human relationships
Let us now turn our attention to the second fundamental concept of Taleb's new book (which, of course, is inextricably linked to the first) - the dualism between symmetry and asymmetry in ethics, law and in general all aspects of human relationships. And in this case, Taleb relies not so much on detailed definitions as on illustrative examples of what "symmetry" means. He gives an example with a very famous law of the Babylonian ruler Hammurabi, according to which if the house that a builder has built collapses and kills the inhabitant, the builder must be executed. It sounds cruel, but this law imposes complete symmetry of the consequences of mistakes for everyone (and especially for those who are responsible for them) and thus ensures that every builder has "skin in the game". This is the main function and meaning of Taleb's "symmetry".
In the context of ethics, following the principle of symmetry, Taleb redefines the standard "golden rule" in his formulation of the "silver rule." As you may be familiar with, the golden rule in ethics is "treat others as you would like to be treated. " The silver rule, which Taleb prefers, is "do not treat others as you would not like to be treated." That is, from a recommendation to take a certain type of action, Taleb reformulates the rule as a recommendation AGAINST taking a certain type of action. In his opinion, this formulation is much more sustainable. Why?
Simply put, because it is much clearer what we should NOT do than what we should do. The actions we consider morally reprehensible in most cases are far clearer to all of us, even on an instinctive level, than the actions we consider morally advisable. This is also one of the reasons why laws (or at least better ones) always prohibit, not prescribe.
Some similarities with libertarianism
As some of you may have guessed, the distinction between the "silver rule" and the "golden rule" is very similar to the distinction between "positive" and "negative" rights in political and social theory. Taleb's silver rule is actually very similar to the fundamental logic of libertarian legal theory, which is based on a virtually identical idea of reciprocity. Every person has a natural right not to have his property and life threatened - this is the fundamental principle of libertarianism expressed in a single line. The similarities with Taleb's "silver rule" are obvious.
Taleb has always been close to the ideas of many thinkers from the libertarian and classical liberal schools (most obviously to Hayek, to whom Taleb himself has expressed a bias), but in "Skin in the Game" this closeness reaches its most explicit levels. It is no coincidence that Taleb dedicates his book to Ron Paul, perhaps the most famous libertarian in the world, calling him "a Roman among Greeks." There is even a separate section in the book where Taleb talks specifically about libertarians and what distinguishes them (in a positive light) from other political groups.
The practical illustrations and applications of "skin in the game"
The meaning of the concepts of "skin in the game" and "symmetry-asymmetry" is explained at a fundamental level in the very first chapter of the book. From there, Taleb begins to deduce the logical consequences of the presence or absence of "skin in the game" and "symmetry" in human relationships, giving specific examples of this. It is these concrete practical illustrations of the principles that Taleb talks about that are the most valuable and original parts of his new book.
The most interesting example of the potential consequences of asymmetry in human relations is contained in Chapter 2, entitled "The Most Intolerant Wins." In it, Taleb explains why extremely intolerant minorities manage to impose their cultural and social norms on the entire society, despite being an extremely small part of it.
Simply put, because they are much more radical or even "extreme" in their attitude on certain issues, i.e., they are much more inclined to fight for the establishment of their cultural norms on the relevant issue. At the same time, the rest of the population, for one reason or another, is not so interested in the specific issue and is therefore not so inclined to fight to impose their norms in the relevant area, although, being the vast majority, they could achieve it much more easily.
Taleb vs. Piketty and the Quack Economists
Another very important part of the book, and perhaps the most technically loaded with statistical and economic concepts, is Taleb's criticism of the theories of the famous French economist Thomas Piketty on inequality. Taleb does not spare himself in verbal attacks on Piketty - for him, he belongs to that lowest type of economists who are nothing more than charlatans or, at best, complete ignoramuses.
Piketty looks at how much of a society's wealth is held by what proportion of the population. If a very large proportion of the wealth is held by a very small proportion of the population, for him this means that there is a high degree of inequality. For Taleb, however, what is far more important is the probability, i.e. the opportunity, of each member of society to move up or down the ladder of wealth and income.
For Taleb, how much of the population owns what share of the wealth is irrelevant to the question of social equality. What is relevant is how likely it is for a person to move up or down the income and wealth ladder, and how often different people in a given society move up and down that ladder over the course of their lives. The more often this happens, the higher the level of free competition among members of society, and the more equal everyone is in terms of their opportunities to get rich or, conversely, to get poorer.
Taleb's critique of Piketty is too in-depth for me to describe in a few paragraphs here, so it's best to pick up the book and read it for yourself. In fact, "Skin in the Game" is worth buying just for its critique of Piketty, which is devastating to the French economist's arguments and the first of its kind I've encountered.
Conclusion: Read the book!
As I said at the beginning, Taleb's new book is, for me, the most important one published in the last few years. Not so much because of any fundamental originality of the reasoning presented in it (although there is certainly such), but because of the originality in the reformulation and further development of fundamental principles and concepts for philosophy and economics that Taleb achieves.
The concepts of "skin in the game" and "symmetry" are not entirely original - at least hints of similar ideas have been found in other authors long before Taleb. But the specific formulation, their extremely clear definition, illustration and corresponding integration into the social issues of the 21st century - therein lies the originality and greatest achievement of "Skin in the Game".
And these are not just abstract political-economic concepts. No, in his typical style, Taleb derives from them practical rules for the existence of each of us and manages to demonstrate with enviable clarity why it is extremely important that the principles he sets out and justifies be followed not only at the macro level in the political and economic system as a whole (by politicians and the like), but also at the micro level - in the everyday life of each of us.
