More Skin in the Game

So I’m still stepping through and digesting Taleb’s latest book, and I’m not sure what’s more surprising. On the one hand, I’m not into the deeper parts of the book yet and already, there are a lot of relationships he alludes to that are not obvious to most people. On the other hand, in several cases, the specific examples he brings up are ones that I had considered, and for much the same reason. For example – on citizenship, and specifically assuming the tax burdens and duties/obligations of where you choose to live:

Once you become a U.S. citizen, you will have to pay taxes on your worldwide income, even if you live overseas. And it is not easily reversible, so you lose the optionality. But other Western countries, such as France and the United Kingdom, allow their citizens considerable exemptions if they reside in some tax haven. This invites a collection of people to “buy” a citizenship via investments and minimum residence, get the passport, then go live somewhere tax-free.

A country should not tolerate fair-weather friends. There is something offensive in having a nationality without skin in the game, just to travel and pass borders, without the downside that comes with the passport.

I have the opportunity if I wish to get citizenship outside of the states. I have so far refused, and barring the need to protect my life and family, will continue to do so. I’ve had family call me crazy for refusing dual citizenship.

It’s my country – I’m not going to make the temptation and choice to abandon it so much easier.

Then, an argument for at least a limited protectionism, that echoes and runs parallel to several aspects that I’ve brought up, that man is not a purely economic being. Note that in this point he barely even alludes to the anti-fragility and resilience aspects of not overspecializing.

For, contrary to what lobbyists paid by international large corporations are trying to make us believe, such protectionism does not even conflict with economic thinking, what is called neoclassical economics. It is not inconsistent with the mathematical axioms of economic decision making, on which economics lays its foundations, to behave in a way that does not maximize one’s narrowly defined dollar-denominated bottom line at the expense of other things. As I said earlier in the chapter, it is not irrational, according to economic theory, to leave money on the table because of your personal preference; the notion of incentives as limited to financial gain cannot otherwise explain the very existence of an economics academia that promotes the idea of self-interest.

We may be better off in a narrowly defined accounting sense (in the aggregate) by exporting jobs. But that’s not what people may really want. I write because that’s what I am designed to do, just as a knife cuts because that’s what its mission is, Aristotle’s arête— and subcontracting my research and writing to China or Tunisia would (perhaps) increase my productivity, but deprive me of my identity.

So people might want to do things. Just to do things, because they feel it is part of their identity. A shoemaker in Westchester County wants to be a shoemaker, to enjoy the fruits of his labor and the pride of seeing his merchandise in the stores, even if his so-called “economic” condition might benefit from letting a Chinese factory make the shoes and converting to another profession. Even if such a new system allows him to buy flat-screen TV sets, more cotton shirts, and cheaper bicycles, something is missing. It may be cruel to cheat people of their profession. People want to have their soul in the game.

In that sense, decentralization and fragmentation, aside from stabilizing the system, improves the people’s connection to their labor.

Taleb, Nassim Nicholas. Skin in the Game: Hidden Asymmetries in Daily Life (p. 39). Random House Publishing Group. Kindle Edition.

Finally, the one that made me stop and think a while.

A stance against violation of symmetry appears in the Parable of Unforgiving Servant in the New Testament (Matthew 12: 21– 31). A servant who has his huge debt waived by a compassionate lender subsequently punishes another servant who owed him a much smaller amount. Most commentators seem to miss that the true message is (dynamic) symmetry, not forgiveness.

You see, while I may have my nitpicks with how he’s applying the golden and the silver rules (and he’s logically consistent), that particular bible story of all the examples people point to did more to make me realize the traditional understandings of the golden rule as effectively “be nice”, and ditto, to “turn the other cheek”, were wrong.

Leave aside selling cloaks for swords or whipping the moneychangers out of the temple. In this story, a man grants mercy, and revokes it when he discovers the man he granted mercy to had no mercy to grant in turn – that the servant who had his debt waived was a hypocrite.

In what “be nice” and “turn the other cheek” universe is the master subsequently revoking his mercy and torturing the first servant/throwing him in prison morally justified?

But if you unpack it according to reciprocity and game theory, or the golden rule as I’ve unpacked it – it becomes understandable.

I’m only a chapter or so in. I haven’t reached the part on the intolerant minority that was turned into a standalone post online, nor any of the other sections that delve deeper into the second and third order consequences of choices and skin in the game. Yet, already, the concepts are strung together in such a straightforward and clear manner as to clarify and focus not only my earlier thoughts, but of course teach me new things, and serve as a model for clear writing.