Nassim Nicholas Taleb invoked the phrase “black swan” in a book by the same name to describe rare, hard-to-predict and highly disruptive events. The near-collapse of the U.S. banking system, which had been unforeseen by banks, regulators, politicians, economists and almost everyone (save a handful, like Taleb himself), is a classic example.
Taleb has built upon his ideas in a follow-up work, “Antifragile: Things that Gain from Disorder.” He argues against the folly of basing decisions upon long-term forecasts and predictions. The modern world is simply too complex, too volatile and has too many moving parts that are interconnected in ill-understood ways for the experts to foresee disastrous developments with any reliability.
Rather than trying to predict the future, Taleb suggests, we should expend our effort building systems — be they businesses, governments, academic research programs, whatever — that thrive in conditions of volatility and unpredictability. Institutions that thrive only in stable conditions he calls “fragile.” Systems that may seem stable — bank finances in the 2000s, U.S. government finances today, come to mind — are stable… until they aren’t. Then they unwind with frightening speed and calamitous results. When major unexpected events occur, fragile institutions shatter.
Institutions that survive volatile conditions, he refers to as “robust.” And institutions that gain from volatility he terms “antifragile.” It is an inelegant word, he concedes, but he cannot find a word in the English language that quite describes what he means. “Resilience” captures part of the meaning. So does “adaptive.” But they aren’t strong enough.
I find Taleb’s work, which is essentially a work of philosophy, both entertaining and difficult to penetrate. I could not put the book down. He weaves his work with fascinating anecdotes and diversions, punctuating them with irascible comments about fragilista pundits from Paul Krugman to Tom Friedman who make grand pronouncements without having any skin in the game. Yet his thinking strays so far outside the conventional ways of thinking it it takes some effort to integrate it into my system of thought.
Taleb focuses more on philosophical issues than systematically applying his insights to current public policy topics. While he does sound the alarm over excessive government indebtedness, he does so only in passing. He leaves it up to readers to explore the implications of his ideas in the sphere of governance.
Nevertheless, I believe that Taleb work can inform our thinking about public policy in Virginia. At the risk of interpreting his ideas through the filter of my own way of looking at the world, I will endeavor over time to introduce some of his ideas into Bacon’s Rebellion.
I would start with the proposition that an important goal of public policy in Virginia should be to render Virginia’s government, economy and social fabric as antifragile as possible so that we not only survive but prosper from volatility and disorder. Among the potential black swans that most concern me — of course, I may be totally wrong, for, after all, long-term forecasting is a fool’s game — is the possibility of a Boomergeddon-like fiscal and monetary collapse of the federal government. My Boomergeddon hypothesis may prove inaccurate, but no thinking person would disagree with my contention that if such a collapse occurred, it would have severe and debilitating consequences, especially for Virginia, whose economy is so tied to federal spending.
Rather than making Virginia more antifragile, the 2013 General Assembly session has made it more fragile. The legislature has just agreed to expand the Medicaid program under the provisions of the Affordable Care Act. Virginia is relying upon the promise of the federal government to pay, after a brief teaser period akin to an Adjustable Rate Mortgage, for 90% of the cost of that expansion into the indefinite future. Of course, the promise is only as good as the finances of the U.S. government are sound.
If the federal government reneges, Virginia can always pull out, can it not? I don’t know. I’ll let others argue the law. But let’s assume for purposes of argument that it can. In that case, my concern is this: Once Virginia’s health care system has adjusted to the expansion of Medicaid and the creation of a federally subsidized health insurance exchange, is there any going back? To what extent will existing insurance practices and institutions have withered away when the Obamacare systems are put into place? If federal support for Medicaid and the insurance exchanges has been withdrawn, where will people go for insurance coverage? Will a market-based insurance system even exist any more outside of large, self-insured, employer-provided health plans? If not, will the commonwealth of Virginia be in a fiscal position to step in and prop up the structure created by the federal government? Or will thousands of Virginians who now have insurance find that the rug has been pulled out from under them with the result that they are worse off than before?
The General Assembly never paused to ponder these questions. Legislators chose instead to cross their fingers and pray that it all somehow works out. But a health care system that relies for funding upon a federal government running trillion-dollar deficits annually and carrying a $16.5 trillion national debt is very, fragile indeed.There are currently no comments highlighted.