Winnipeg Free Press - ONLINE EDITION

Unintended consequences vex policy making

  • Print

TORONTO — On a long plane trip last summer, I took a crack at Nassim Taleb’s The Black Swan, the 2007 book in which he predicted the financial crash. Whether because of the rigours of air travel or the nature of the material, it was a hard slog.

The basic message was clear: black swans, which are defined as unpredicted and consequential events, can upend the best laid plans. But other than that, it was difficult to find a concise takeaway.

Taleb is a former derivatives trader who made a pile of money by betting against the conventional wisdom. And he is now back with a new book — Antifragile: Things That Gain From Disorder. Fortunately, he has also written an accessible Wall Street Journal article that provides a guide to some of the book’s main ideas.

In Taleb’s telling, fragility refers to "things that are vulnerable to volatility" whereas antifragility implies being able to "gain from volatility, variability, stress and disorder." You don’t have to be a rocket scientist to figure out which quality is preferable.

He also posits a number of "policy rules that can help us to establish antifragility as a principle of our socioeconomic life." While not particularly novel or earth-shattering, several of these are worthwhile insights that offer practical value.

One rule addresses the way in which public policy over-manages by trying to fix everything. For instance, there was the attempt to eliminate the business cycle by "injecting cheap money into the system, which eventually led to monstrous hidden leverage and real-estate bubbles." By interfering with the system’s ability to self-correct, problems were masked until they became much bigger. And the resulting mess was far more destructive.

Taleb makes it clear that he’s not opposed to all government intervention. Rather it’s a matter of recognizing that in highly complex systems, such as modern economies, effective intervention is difficult. So you should really pick your spots.

Another rule riffs on the small is beautiful theme, making the point that small can also be more efficient. To be sure, economies of scale can be real and size can be a decided asset. But size also increases complexity, fragility, and the exposure to large losses. For anyone who’s ever been involved in project management, this won’t come as a surprise.

Then there’s the matter of how trial and error can be superior to academic knowledge — subject to the caveat that the cost of error is small and the potential for gain is large. As evidence, Taleb notes that Britain’s Industrial Revolution was driven by tinkerers rather than academic researchers (a point also made at some length by Terence Kealey in 2008’s Sex, Science and Profits).

And Taleb is big on the need for decision makers having "skin in the game." As he puts it, "At no time in the history of humankind have more positions of power been assigned to people who don’t take personal risks."

But while he’s certainly right about both this observation and its capacity to cause problems, practical remedies will be hard to come by for anything but the most egregious situations. After all, the last 50 or so years have produced an enormous professional class, duly credentialed and distributed through public and private bureaucracies. Making decisions about other people’s money and lives is what they do.

Reading Taleb is a reminder of the pervasively unforgiving nature of the law of unintended consequences. Actions that are supposed to promote good things can often come with an unanticipated sting in the tail. And sometimes that sting is downright poisonous.

Alan Greenspan had the best of intentions when he pumped liquidity into the financial system. As Taleb puts it, he was trying to "smooth" things out, not create a speculative boom.

Current low interest rates are meant to stimulate economic activity. But in the process, they make life difficult for pension funds and retired people living on their savings.

As for the lack of "skin in the game," the separation of ownership and management was once considered a progressive development, the idea being that it brought together ability and power. Decisions would now be made by those best qualified, not by those who had simply inherited businesses from their fathers.

Life is indeed complicated.


Columnist Pat Murphy worked in the Canadian financial services industry for over 30 years.


—Troy Media


Fact Check

Fact Check

Have you found an error, or know of something we’ve missed in one of our stories?
Please use the form below and let us know.

* Required
  • Please post the headline of the story or the title of the video with the error.

  • Please post exactly what was wrong with the story.

  • Please indicate your source for the correct information.

  • Yes


  • This will only be used to contact you if we have a question about your submission, it will not be used to identify you or be published.

  • Cancel

Having problems with the form?

Contact Us Directly
  • Print

You can comment on most stories on You can also agree or disagree with other comments. All you need to do is be a Winnipeg Free Press print or e-edition subscriber to join the conversation and give your feedback.

You can comment on most stories on You can also agree or disagree with other comments. All you need to do is be a Winnipeg Free Press print or e-edition subscriber to join the conversation and give your feedback.

Have Your Say

New to commenting? Check out our Frequently Asked Questions.

Have Your Say

Comments are open to Winnipeg Free Press print or e-edition subscribers only. why?

Have Your Say

Comments are open to Winnipeg Free Press Subscribers only. why?

The Winnipeg Free Press does not necessarily endorse any of the views posted. By submitting your comment, you agree to our Terms and Conditions. These terms were revised effective April 16, 2010.


Make text: Larger | Smaller


Total Body Tune-Up: Farmer's Carry

View more like this

Photo Store Gallery

  • Someone or thing is taking advantage of the inactivity at Kapyong Barracks,hundreds of Canada Geese-See Joe Bryksa’s goose a day for 30 days challenge- Day 15- May 22, 2012   (JOE BRYKSA / WINNIPEG FREE PRESS)
  • Water lilys are reflected in the pond at the Leo Mol Sculpture Garden Tuesday afternoon. Standup photo. Sept 11,  2012 (Ruth Bonneville/Winnipeg Free Press)

View More Gallery Photos


Do you agree with the sale of the Canadian Wheat Board to foreign companies?

View Results

View Related Story

Ads by Google