The Pandemic and a Fragile World

One of the things the pandemic has shown us is the fragility of our modern economy and the international supply chains that it relies on. These supply chains are easily disrupted by natural disasters, wars, and as we're finding out, pandemics. 

The New Yorker profiles Nassim Nicholas Taleb, a statistician, former options trader, and author, who is probably best known for his book, The Black Swan. However, although it's been called such, the pandemic isn't a black swan event; such a pandemic was entirely predictable and was predicted many times. 

I hadn't really thought much about our modern reliance on optimization and how it affects supply chains until reading Vernor Vinge's, A Deepness on the Sky, a couple of decades ago. In this novel, an interstellar trader visits a world that by most standards would be called a paradise. But it relied on a highly optimized system for food production. A hundred and fifty years later, when the trader returned, the planet had reverted to savagery because of a series of unanticipated catastrophes. That got me thinking. 

We've seen examples of problems caused by super-optimized supply chains before the pandemic hit. A cyberattack on the Maersk shipping company disrupted commerce across the world. A fire at a resin-producing factory knocked out 90 percent of the world's production of resin used to make vinyl records. Now our reliance on Chinese factories is causing shortages of everything from drugs to smartphones. 

Taleb has some recommendations for reorganizing our economy to make it more resilient.

We should discourage the concentration of power in big corporations, “including a severe restriction of lobbying,” Taleb told me. “When one per cent of the people have fifty per cent of the income, that is a fat tail.” Companies shouldn’t be able to make money from monopoly power, “from rent-seeking”—using that power not to build something but to extract an ever-larger part of the surplus. There should be an expansion of the powers of state and even county governments, where there is “bottom-up” control and accountability. This could incubate new businesses and foster new education methods that emphasize “action learning and apprenticeship” over purely academic certification. He thinks that “we should have a national Entrepreneurship Day.”

But Taleb doesn’t believe that the government should abandon citizens buffeted by events they can’t possibly anticipate or control. (He dedicated his book “Skin in the Game,” published in 2018, to Ron Paul and Ralph Nader.) “The state,” he told me, “should not smooth out your life, like a Lebanese mother, but should be there for intervention in negative times, like a rich Lebanese uncle.” Right now, for example, the government should, indeed, be sending out checks to unemployed and gig workers. (“You don’t bail out companies, you bail out individuals.”) He would also consider a guaranteed basic income, much as Andrew Yang, whom he admires, has advocated. Crucially, the government should be an insurer of health care, though Taleb prefers not a centrally run Medicare-for-all system but one such as Canada’s, which is controlled by the provinces. And, like responsible supply-chain managers, the federal government should create buffers against public-health disasters: “If it can spend trillions stockpiling nuclear weapons, it ought to spend tens of billions stockpiling ventilators and testing kits.”

At the same time, Taleb adamantly opposes the state taking on staggering debt. He thinks, rather, that the rich should be taxed as disproportionately as necessary, “though as locally as possible.” The key is “to build on the good days,” when the economy is growing, and reduce the debt, which he calls “intergenerational dispossession.” The government should then encourage an eclectic array of management norms: drawing up political borders, even down to the level of towns, which can, in an epidemiological emergency, be closed; having banks and corporations hold larger cash reserves, so that they can be more independent of market volatility; and making sure that manufacturing, transportation, information, and health-care systems have redundant storage and processing components. (“That’s why nature gave us two kidneys.”) Taleb is especially keen to inhibit “moral hazard,” such as that of bankers who get rich by betting, and losing, other people’s money. “In the Hammurabi Code, if a house falls in and kills you, the architect is put to death,” he told me. Correspondingly, any company or bank that gets a bailout should expect its executives to be fired, and its shareholders diluted. “If the state helps you, then taxpayers own you.”