Zywicki and Taleb’s Antifragile

December 15th, 2013

Todd Zywicki has a review of Taleb’s book Antifragile. I agree with most of what Todd wrote, including several critical sections. I really enjoyed Black Swan but thought Antifragile was a letdown. Though, Todd does a good job at applying Taleb’s theory to financial markets, arguing that we should strive to build antifragile regulatory regimes, rather than the uberfragile systems we have in Dodd Frank.

So how might Taleb’s insights on antifragility be used to improve, among other things, government policy-making? In particular, what about the recurring disasters of the banking system and the apparent inability of policy-makers to do anything about it? Indeed, few believe that Congress’s 2400 pages of legislation in Dodd-Frank and the hundreds of regulations implementing it will prevent the “next” financial crisis, but will merely affect its shape. Is there a better way?

Although Taleb mentions financial regulation a few times in the book, he doesn’t develop a model of what antifragile financial regulation might look like. His one proposal (not developed at all) is that banks that are considered too big to fail would be permitted to pay their managers no more than a senior government civil servant. But his insights suggest that when it comes to financial regulation, we should reorient our views in two ways: first with respect to our attitudes regarding prevention of bank failures and second with respect to focusing on the resiliency and adaptability of the financial system to bank failures after the fact.

Todd’s last paragraph will prove very true.

I have focused on Dodd-Frank and antifragile financial regulation, but the rolling disaster of Obamacare’s effort to remake the American healthcare system is yet another example of what happens when these insights are ignored.