Antifragile: Things That Gain from Disorder (76 page)

Nero: “Signore Ingeniere Tony, some of these tie-wearers are very rich, even richer than you.”

Tony: “Nero, you sucker. Don’t be fooled by money. These are just numbers. Being self-owned is a state of mind.”

There is a phenomenon called the
treadmill effect,
similar to what we saw with neomania: you need to make more and more to stay in the same place. Greed is antifragile—though not its victims.

Back to the sucker problem in believing that wealth makes people more independent. We need no more evidence for it than what is taking place now: recall that we have never been richer in the history of mankind. And we have never been more in debt (for the ancients, someone in debt was not free, he was in bondage). So much for “economic growth.”

At the local level, it looks like we get socialized in a certain milieu, hence exposed to a treadmill. You do better, move to Greenwich, Connecticut, then become a pauper next to a twenty-million-dollar mansion and million-dollar birthday parties. And you become more and more dependent on your job, particularly as your neighbors get big tax-sponsored Wall Street bonuses.

This class of persons is like Tantalus, who was subjected to an eternal punishment: he stood in a pool of water underneath a fruit tree and whenever he tried to grab the fruit it moved away and whenever he tried to drink, the water receded.

And such a permanently tantalized class is a modern condition. The Romans circumvented these social treadmill effects: much of social life took place between a patron and his less fortunate clients who benefited from his largesse and ate at his table—and relied on his assistance in times of trouble. There was no welfare at the time, and no church to distribute or recommend charity: everything was private (Seneca’s book
De beneficiis
I mentioned earlier was exactly about which obligations one had in such situations). There was little exposure to the other wealthy biggies, just as mafia dons don’t socialize with other mafia dons but with their constituents. To a large extent, that’s how my grandfather and great-grandfather lived, as they were local landowners and politicians; power was accompanied by a coterie of dependents. Provincial landowners were required to maintain an occasional “open house,” with an open table for people to come help themselves to the fruits of the wealth. Court life, on the other hand, leads to corruption—the nobleman comes from the provinces, where he is now brought down to size; he faces more flamboyant, wittier persons and feels pressure to prop up his self-esteem. People who would have lost their status in the cities conserve it in the provinces.

You cannot possibly trust someone on a treadmill.

It is a fact that one can rapidly, after a phase of indoctrination, become enslaved to a profession, to the point of having one’s opinions on any subject become self-serving, hence unreliable for the collective. This is the bone the Greeks had to pick with professionals.

One of my first jobs was for a Wall Street firm. After I’d been employed for a few months, the managing director called us up and told us that we needed to contribute to a few politicians’ campaigns, with a “recommended” payment of a certain proportion of our income. These politicians were said to be “good.” By “good” was meant good for their business of investment banking, as these politicians would help with legislation that would protect their business. Had I done that, I would no longer have been eligible ethically to voice a political opinion “for the sake of the public.”

In a story well argued throughout the centuries, Demades the Athenian condemned a man who traded in funeral goods on the grounds that he could only derive profits by the death of the great many people. Montaigne,
rephrasing the argument made by Seneca in his
De beneficiis,
argued that we would then be obligated to condemn every single professional. According to him, the merchant only thrives by the debauchery of youth, the farmer by the dearness of grain, the architect by the ruin of buildings, lawyers and officers of justice by the suits and contentions of men. A physician takes no pleasure in the health of even his friends, a soldier does not wish for the peace of his country, etc. And, even worse, should we go into people’s inner and private thoughts and motivations, we would see that their wishes and hopes are almost invariably at someone else’s expense.

But Montaigne and Seneca were a bit too indulgent toward self-interest and missed something quite central. They clearly got the point that economic life does not necessarily depend on altruistic motives, and that the aggregate works differently from the individual. Remarkably, Seneca was born about eighteen centuries before Adam Smith, and Montaigne about three, so we should be quite impressed with their thinking while retaining a certain abhorrence of the fundamental dishonesty of men. We have known since Adam Smith that the collective does not require the benevolence of individuals, as self-interest can be the driver of growth. But all this does not make people less unreliable
in their personal opinions
about the collective. For they are involving the skin of others, so to speak.

What Montaigne and Seneca missed, in addition to the notion of skin in the game, was that one can draw the line with public affairs. They missed the agency problem—although the problem was known heuristically (Hammurabi, golden rules), it was not part of their consciousness.

The point isn’t that making a living in a profession is inherently bad; rather, it’s that such a person becomes automatically suspect when dealing with public affairs, matters that involve others. The definition of the
free man,
according to Aristotle, is one who is free with his opinions—as a side effect of being free with his time.

Freedom in this sense is only a matter of sincerity in political opinions.

The Greeks saw the world in three professions. The
banausikai technai
, the artisans; the craft of war,
polemike techne;
and that of farming,
georgia
. The last two professions, war and farming, were worthy of a gentleman—mainly because they were not self-serving and were free of conflicts of interest with the collective. But the Athenians despised the
banausoi,
the artisans who worked for a living in dark rooms making
objects—generally sitting down. For Xenophon, such crafts degraded the craftsmen’s bodily strength, softened his spirit, and left him no time for his friends and city. The illiberal arts confine one to the workshop and narrow one’s interests
to his own welfare;
the crafts of war and farming give one a wider scope so that he can attend to his friends and city. To Xenophon, farming is the mother and nurse of the other
technai
. (The ancients did not have corporations; if Xenophon were alive today he would transfer his distrust from artisans to corporate employees.)

There are Arabic and Hebrew sayings,
Yad el hurr mizan / Yad ben horin moznayim
—“the hand of the free is a scale.” It is just that the definition of the free is not well understood: he is free who owns his own opinion.

For Metternich, humanity started at the rank of baron; for Aristotle, as well as, though in a separate form, the English up until the twentieth century, it started at the rank of idle freeman, unpreoccupied with work. It never meant
not
working; it just meant not deriving your personal and emotional identity from your work, and viewing work as something optional, more like a hobby. In a way your profession does not identify you so much as other attributes, here your birth (but it could be something else). This is the
f*** you money
that allowed Thales of Miletus to gauge his own sincerity. For the Spartans, it was all about courage. For Fat Tony, humanity started at the level of “self-ownership.”

Now self-ownership for our horizontal friend was vastly more democratic than for his thinking predecessors. It simply meant being the owner of your opinion. And it has nothing to do with wealth, birth, intelligence, looks, shoe size, rather with personal courage.

In other words, for Fat Tony, it was a very, very specific definition of a free person: someone who cannot be squeezed into doing something he would otherwise never do.

Consider this leap in sophistication from Athens to Brooklyn: if for the Greeks, only he who is free with his time is free with his opinion, for our horizontal friend and advisor, only he who has courage is free with his opinion.
Sissies are born, not made. They stay sissies no matter how much independence you give them, no matter how rich they get.

Another facet of the difference between abstract modernistic nation-states and local government. In an antique city-state, or a modern municipality, shame is the penalty for the violation of ethics—making things more symmetric. Banishment and exile, or, worse, ostracism were severe
penalties—people did not move around voluntarily and considered up-rooting a horrible calamity. In larger organisms like the mega holy nation-state, with a smaller role for face-to-face encounters, and social roots, shame ceases to fulfill its duty of disciplinarian. We need to reestablish it.

And aside from shame, there is friendship, socialization in a certain milieu, being part of a group of people that have diverging interests from the collective. Cleon, the hero of the Peloponnesian War, advocated the public renouncement of friends upon taking up public affairs—he paid for it with some revilement by historians.

A simple solution, but quite drastic: anyone who goes into public service should not be allowed to
subsequently
earn more from any commercial activity than the income of the highest paid civil servant. It is like a voluntary cap (it would prevent people from using public office as a credential-building temporary accommodation, then going to Wall Street to earn several million dollars). This would get priestly people into office.

Just as Cleon was reviled, in the modern world, there seems to be an inverse agency problem for those who do the right thing: you pay for your service to the public with smear campaigns and harassment. The activist and advocate Ralph Nader suffered numerous smear campaigns as the auto industry went after him.

I felt ashamed not having exposed the following scam for a long time. (As I said,
if you see fraud
…) Let us call it the Alan Blinder problem.

The story is as follows. At Davos, during a private coffee conversation that I thought aimed at saving the world from, among other things, moral hazard and agency problems, I was interrupted by Alan Blinder, a former vice chairman of the Federal Reserve Bank of the United States, who tried to sell me a peculiar investment product that aims at legally hoodwinking taxpayers. It allowed the high net worth investor to get around the regulations limiting deposit insurance (at the time, $100,000) and benefit from coverage for near-unlimited amounts. The investor would deposit funds in any amount and Prof. Blinder’s company would break it up into smaller accounts and invest in banks, thus escaping the limit; it would look like a single account but would be insured in full. In
other words, it would allow the super-rich to scam taxpayers by getting free government-sponsored insurance. Yes,
scam
taxpayers. Legally. With the help of former civil servants who have an insider edge.

I blurted out: “Isn’t this unethical?” I was then told in response “It is perfectly legal,” adding the even more incriminating “we have plenty of former regulators on the staff,” (a) implying that what was legal was ethical and (b) asserting that former regulators have an edge over citizens.

It took a long time, a couple of years, before I reacted to the event and did my public
J’accuse
. Alan Blinder is certainly not the worst violator of my sense of ethics; he probably irritated me because of the prominence of his previous public position, while the Davos conversation was meant to save the world from evil (I was presenting to him my idea of how bankers take risks at the expense of taxpayers). But what we have here is a model of how people use public office to, at some point, legally profit from the public.

Tell me if you understand the problem in its full simplicity: former regulators and public officials who were employed by the citizens to represent their best interests can use the expertise and contacts acquired on the job to benefit from glitches in the system upon joining private employment—law firms, etc.

Think about it a bit further: the more complex the regulation, the more bureaucratic the network, the more a regulator who knows the loops and glitches would benefit from it later, as his regulator edge would be a convex function of his differential knowledge. This is a franchise, an asymmetry one has at the expense of others. (Note that this franchise is spread across the economy; the car company Toyota hired former U.S. regulators and used their “expertise” to handle investigations of its car defects.)

Now stage two—things get worse. Blinder and the dean of Columbia University Business School wrote an op-ed opposing the government’s raising the insurance limit on individuals. The article argued that the public should not have the unlimited insurance that Blinder’s clients benefit from.

A few remarks.

First, the more complicated the regulation, the more prone to arbitrages by insiders. This is another argument in favor of heuristics. Twenty-three hundred pages of regulation—something I can replace
with Hammurabi’s rule—will be a gold mine for former regulators. The incentive of a regulator is to have complex regulation. Again, the insiders are the enemies of the
less-is-more
rule.

Second, the difference between the letter and the spirit of regulation is harder to detect in a complex system. The point is technical, but complex environments with nonlinearities are easier to game than linear ones with a small number of variables. The same applies to the gap between the legal and the ethical.