Beware those Black Swans

The bestselling economist Nassim Nicholas Taleb argues that we can’t make the world financial system

After completing my book The Black Swan, I spent some time meditating on the fragility of systems with the illusion of stability. This convinced me that the banking system was the mother of all accidents waiting to happen. I explained in the book that the best teachers of wisdom are the eldest, because they may have picked up invisible tricks that are absent from our epistemic routines and which help them survive in a world more complex than the one we think we understand. So being old implies a higher degree of resistance to "Black Swans" (events with the following three attributes: they lie outside the realm of regular expectations; they carry an extreme impact; and human nature makes us concoct explanations for their occurrence after the fact).

Take Mother Nature, which is clearly a complex system, with webs of interdependence, non-linearities and a robust ecology (otherwise it would have blown up a long time ago). It is a very old person with an impeccable memory. Mother Nature does not develop Alz­heimer's - and there is evidence that even humans would not easily lose brain functions with age if they took long walks, avoided sugar, bread, white rice and stock-market investments, and refrained from taking economics classes or reading the New York Times.

Let me summarise my ideas of how Mother Nature deals with the Black Swan. First, she likes redundancies. Look at the human body. We have two eyes, two lungs, two kidneys, even two brains (with the possible exception of company executives) - and each has more capacity than is needed ordinarily. So redundan­cy equals insurance, and the apparent inefficiencies are associated with the costs of maintain­ing these spare parts and the energy needed to keep them around in spite of their idleness.

The exact opposite of redundancy is naive optimisation. The reason I tell people to avoid attending an (orthodox) economics class and argue that economics will fail us is the following: economics is largely based on notions of naive optimisation, mathematised (poorly) by Paul Samuelson - and these mathematics have contributed massively to the construction of an error-prone society. An economist would find it inefficient to carry two lungs and two kidneys - consider the costs involved in transporting these heavy items across the savannah. Such optimisation would, eventually, kill you, after the first accident, the first "outlier". Also, consider that if we gave Mother Nature to economists, it would dispense with individual kidneys - since we do not need them all the time, it would be more "efficient" if we sold ours and used a central kidney on a time-share basis. You could also lend your eyes at night, since you do not need them to dream.

Almost every major idea in conventional economics fails under the modification of some assumption, or what is called "perturbation", where you change one parameter or take a parameter henceforth assumed to be fixed and stable by the theory, and make it random. Take the notion of comparative advantage, supposedly discovered by David Ricardo, and which has oiled the wheels of globalisation. The idea is that countries should focus on "what they do best". So one country should specialise in wine, another in clothes, even though one of them might be better at both. But consider what would happen to the country if the price of wine fluctuated. A simple perturbation around this assumption leads one to reach the opposite conclusion to Ricardo. Mother Nature does not like overspecialisation, as it limits evolution and weakens the animals.

This explains why I found the current ideas on globalisation (such as those promoted by the journalist Thomas Friedman) too naive, and too dangerous for society - unless one takes into account the side effects. Globalisation might give the appearance of efficiency, but the operating leverage and the degrees of interaction between parts will cause small cracks in one spot to percolate through the entire system.

The debt taboo

The same idea applies to debt: it makes you very fragile under perturbations. We currently learn in business schools to engage in borrowing, against all historical traditions (all Mediterranean cultures developed over time a dogma against debt). "Felix qui nihil debet", goes the Roman proverb: "Happy is he who owes nothing." Grandmothers who survived the Great Depression would have advised doing the exact opposite of getting into debt: have several years of income in cash before any personal risk-taking. Had the banks done the same, and kept high cash reserves while taking more aggressive risks with a smaller portion of their port­folios, there would have been no crisis.

Documents dating back to the Babylonians show the ills of debt, and Near Eastern religions banned it. This tells me that one of the purposes of religious traditions has been to enforce prohibitions to protect people against their own epistemic arrogance. Why? Debt implies a strong statement about the future, and a high degree of reliance on forecasts. If you borrow $100 and invest in a project, you still owe $100 even if you fail in the project (but you do a lot better in case you succeed). So debt is dangerous if you are overconfident about the future and are Black Swan-blind - which we all tend to be. And forecasting is harmful since people (especially governments) borrow in response to a forecast (or use the forecast as a cognitive excuse to borrow). My "Scandal of Prediction" (bogus predictions that seem to be there to satisfy psychological needs) is compounded by the "Scandal of Debt": borrowing makes you more vulnerable to forecast error.

Just as Mother Nature likes redundancies, so she abhors anything that is too big. The largest land animal is the elephant, and there is a reason for that. If I went on a rampage and shot an elephant, I might be put in jail and get yelled at by my mother, but I would hardly disturb the ecology of Mother Nature. On the other hand, my point about banks in my book - that if you shot a large bank, I would "shiver at the consequences" and that "if one falls, they all fall" - was subsequently illustrated by events: one bank failure, Lehman Brothers, in September 2008, brought down the entire edifice.

The crisis of 2008 provides an illustration of the need for robustness. Over the past 2,500 years of recorded ideas, only fools and Platonists have believed in engineered utopias. We shouldn't think that we can correct mistakes and eliminate randomness from social and economic life. The challenge, rather, is to ensure that human mistakes and miscalculations remain confined, and to avoid them spreading through the system - just the way Mother Nature does it. Reducing randomness increases exposure to Black Swans.

My dream is to have a true "epistemocracy"; that is, a society robust against expert errors, forecasting errors and hubris, one that can be resistant to the incompetence of politicians, regulators, economists, central bankers, bank­ers, policy wonks and epidemiologists.Here are ten principles for a Black Swan-robust society.

What is fragile should break early while it's still small: Nothing should ever become too big to fail. Evolution in economic life helps those with the maximum amount of hidden risks become the biggest.

No socialisation of losses and privatisation of gains: Whatever may need to be bailed out should be nationalised; whatever does not need a bailout should be free, small and risk-bearing. We got ourselves into the worst of capitalism and socialism. In France, in the 1980s, the Socialists took over the banks. In the US in the 2000s, the banks took over the government. This is surreal.

People who drove a school bus blindfolded (and crashed it) should never be given a new bus: The economics establishment lost its legitimacy with the failure of the system in 2008. Find the smart people whose hands are clean to get us out of this mess.

Don't let someone making an "incentive" bonus manage a nuclear plant - or your financial risks: Odds are he would cut every corner on safety to show "profits" from these savings while claiming to be "conservative". Bonuses don't accommodate the hidden risks of blow-ups. It is the asymmetry of the bonus system that got us here. No incentives without disincentives.

Time to definancialise

Compensate complexity with simplicity: Complexity from globalisation and highly networked economic life needs to be countered by simplicity in financial products. Complex systems survive thanks to slack and redundancy, not debt and optimisation.

Do not give children sticks of dynamite, even if they come with a warning label: Complex financial products need to be banned because nobody understands them, and few are rational enough to know it. We need to protect citizens from themselves, from bankers selling them "hedging" products, and from gullible regulators who listen to economic theorists.

Only Ponzi schemes should depend on confidence: Governments should never need to "restore confidence". Cascading rumours are a product of complex systems. Governments cannot stop the rumours. We just need to be able to shrug off rumours, to be robust to them. Do not give an addict more drugs if he has withdrawal pains: Using leverage to cure the problems of too much leverage is not homoeopathy, it's denial. The debt crisis is not a temporary problem, it's a structural one. We need rehab.

Citizens should not depend on financial assets as a repository of value and rely on fallible "expert" advice for their retirement: Economic life should be definancialised. We should learn not to use markets as warehouses of value.

Make an omelette with the broken eggs: The crisis of 2008 was not a problem to fix with makeshift repairs. We will have to remake the system before it does so itself. Let us move voluntarily into a robust economy by helping what needs to be broken break on its own, converting debt into equity, marginalising the economics and business school establishments, banning leveraged buyouts, putting bankers where they belong, clawing back the bonuses of those who got us here and teaching people to navigate a world with fewer certainties. Then we will see an economic life closer to our biological environment: smaller firms and no leverage - a world in which entrepreneurs, not bankers, take the risks, and in which companies are born and die every day without making the news.

Extracted from the postscript to "The Black Swan: the Impact of the Highly Improbable" by Nassim Nicholas Taleb (Penguin, £9.99)
© Nassim Nicholas Taleb 2008 penguin.co.uk

This article first appeared in the 05 July 2010 issue of the New Statesman, The cult of the generals

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“The guards WANT you to mess up”: meet the prison wives of Instagram

How memes featuring Disney Princesses, Spongebob Squarepants, and saggy jeans have empowered women with incarcerated partners.

During a recent trip to visit her boyfriend in federal prison, 27-year-old Makenzie wore a floor-length black skirt and a grey shirt that completely covered the top half of her body. After a brief inspection, the guard on duty deemed her outfit appropriate and waved her through, and she was able to spend a happy eight hours with her incarcerated boyfriend and her six-year-old daughter. The next day, she came back to visit again.

“I wore the exact same outfit the second day of visitation because I didn’t want to fight with the guards about any other clothing,” says Makenzie, who had to drive five hours out of her home state, Texas, in order to visit her partner. “I was sent away by a guard who had seen me the day before.”

Makenzie felt “belittled and humiliated” by the guard, who forced her to go to the nearest shop to buy a new shirt. “I wore the exact same outfit down to my shoes and earrings,” she explains. When she confronted the guard, Makenzie says he said: “I honestly don’t care.

“All I’m telling you today is you’re not going in there dressed like that.”

Being a “prison wife” can be isolating and confusing. When wives and girlfriends first go to visit their newly-incarcerated partners, the rules and regulations can be overwhelming. When visiting her boyfriend, Makenzie has to place her money in a clear plastic bag, go through a metal detector before a smaller metal detector is used on her feet, and be patted down by guards. If her clothing is too loose or too tight, she is sent home.

“The guards WANT you to mess up,” Makenzie tells me over email, emphasis hers. “They want to make you mad, make you get in trouble.” For wives and girlfriends isolated by these experiences, the internet has become a haven.

***

Makenzie’s Instagram account has 1,123 followers. Under the handle “Texas Prison Wives”, she has been posting memes, photographs, and advice posts for five years. After incidents like the one above, Makenzie can use her account to vent or warn other wives about changes in clothing rules. Followers can also submit text posts to her that she screenshots, overlays on scenic pictures, and publishes anonymously.

One, imposed on a city skyline, asks if anyone wants to carpool to a prison. Another, overlaying a picture of a nude woman, reads: “I’m wondering if I can get some ideas on sexy pics I can take for my man. I’m about 85lbs heavier than I was the last time he saw me naked.”

The prison wives of Instagram recently went viral – but not on their own posts. A Twitter user discovered the community and tweeted out screenshots of prison wife memes – which are formatted with an image and caption like all relatable memes, with the crucial difference being that not many of us can actually relate.

“The life that we live is not widely accepted by families, friends, and the general outside world because people hear ‘inmate’ and automatically assume the worst,” says Makenzie, whose boyfriend was sentenced to two fifteen year sentences for drug possession.

“This account has given women a safe space and anonymity to seek personal advice, ask questions, and seek other women within their area if they want to reach out.” Her account, Makenzie says, also allows prison wives to laugh during tough times. She both makes her own memes and shares those from similar accounts. One, from May 2016, features a collage of four celebrities rolling their eyes. The caption reads: “When you hear ‘Babe, we are going on lock down again…’”

To outside eyes, some prison wife memes can seem flippant or – to those who retweeted the viral tweet – laughable. “My Life As A Prison Wife” is an account with over 12,000 followers that posts a wide array of memes, often using stills from Disney movies to portray emotions. A post featuring an image of a crying Belle – from Beauty and the Beast –  is captioned “that feeling when… when your visits get suspended”. Yet though many online criticise what they see as the glorification or normalisation of a life choice they don’t agree with, Makenzie emphasises that memes – especially funny ones – are important.

“I think it’s fun to have so many people relate to funny memes even though the direct meaning behind it is about being lonely or the hard things we go through to make this relationship work,” she explains. “It’s a reminder we aren’t alone in our struggle and we can laugh through the pain.”

Jemma, a 22-year-old from London who runs an account called “Doing time too”, concurs. Her profile – which has 1,369 followers – showcases memes featuring puppies, Disney princesses, and stills from Spongebob Squarepants.“I'm sure ordinary members of the public would disagree with our light-hearted way of looking at our loved ones being in prison and I would totally understand that,” she says – also over email.

 

HAPPY VALENTINE'S DAY LADIES  #prisonwife #prisonwifelife #doingtimetoo #inmatelove

A post shared by doing time too (@doingtimetoo) on

“Before I was in the situation myself, I would have probably reacted in the same way to an account like the one I now own. But sometimes you end up in situations you never expected to and you deal with things in a way that others won’t understand.”

***

Prison wives don’t use Instagram just for memes. Makenzie’s account helps women in need in an array of ways: they can find out if there have been riots in their partner’s prison; get advice on gifts to send a loved one; and even find out how to appeal sentences. Alongside her Instagram, Jemma also runs a website called www.doingtimetoo.co.uk

Via @TexasPrisonWives

“I started the website because I was in a relationship with someone a couple of years ago who ended up going to prison. It was totally out of the blue for me and something neither of us saw coming,” she says. “I had no idea how to deal with it.” Her site provides information about individual prisons, what to expect from a prison visit, and what to do after release. She also provides tips on how to send creative gifts made out of paper to incarcerated loved ones.

“I believe the internet has been a massive help in supporting prison wives,” says Jemma, who finds most people don’t understand or relate to her situation. Her boyfriend was charged with GBH (grievous bodily harm) and sentenced to two years in prison, after getting into a fight.

Jemma also feels that Instagram can provide prison wives with information that the prisons themselves withhold. “I can't speak for everyone but in my experience, prisons and the visit centres are far from helpful in providing any information, support or advice,” she says. “Sometimes people won’t hear from their husband when they expect to but through interacting with other ‘prison wives’ they may find out that that particular prison is currently on lock down, providing an explanation and reassurance as to why they hadn’t heard from their husband. Without the internet, this wouldn't happen.”

 

Advice! @mothafukn.irvin

A post shared by OFFICIAL N. CALI SUPPORT (@north_cali_prisonwives) on

When Jemma reached out to prison visitor centres in the UK to promote her website to those in need, she never heard back. When she emailed her boyfriend’s visitor centre prior to her first visit to ask what to do, what to wear, and what to expect, she also never received a reply. “There is no communication with family and no support offered… It’s important to remember that the families themselves did nothing wrong or illegal and so don’t deserved to be punished or treated like criminals themselves.” In such circumstances, information shared online is crucial.

Makenzie also believes that the US prison system has it faults when it comes to visitors. “While I know and understand that inmates are being punished for a crime they committed, the guards treat their families disrespectfully and unfairly almost as if we are being punished as well,” she says. “Being a larger woman, I have gotten in trouble for my clothes being too tight AND for my clothes being too loose. It’s a lose-lose situation.”

Makenzie explains that sometimes visitors are forced to wear gowns similar to those worn in hospitals if their clothes are deemed unsuitable. In the past, she has even been sent away to buy a new bra after she wore one without underwire in order to get through the metal detector. In one prison her boyfriend was incarcerated in, visitors had to wait outside to be signed in, one-by-one, regardless of the weather. “We had to wait two hours several times, sweating, drenched in rain, they don’t care…

“The guards degrade your loved ones right in front of your face, they are mean, hateful, and over the top rude, even to the inmates who are the most well behaved and respectful.”

For these women, Instagram has become an invaluable network of support.

***

There are hundreds of Instagram accounts just like Jemma and Makenzie’s. Many often take memes from each other, but Jemma explains there is no competition. In fact, she says, the network is incredibly supportive. “I spoke to one lady regularly about her situation and I remember counting down to her boyfriend’s release date with her,” she says. Jemma and Makenzie also use their accounts to help lonely prisoners find pen pals.

Instagram allows prison wives to find likeminded people, free from judgement. Yet the accounts can also be incredibly informative to outsiders. By using the “When…” format, memes provide a detailed insight into the lives of prison wives. “When you’re kissing baby towards the beginning/end of the visit and the CO yells ‘enough’,” reads one. “When you check your phone and see… not only did you miss 1 call, you missed two,” is the caption on an image of a crying child.

 

A post shared by doing time too (@doingtimetoo) on

“Nobody understands this long distance, no physical intimacy, and then the added stresses of dealing with prison politics, corrupt guards, and the worry of riots, lock downs, and retaliation like women who are living through the same thing,” says Makenzie. Yet thanks to these Instagram accounts, outsiders do have an opportunity to understand.

For prison wives, memes are an easy and fast way to talk about a topic that many deem taboo. The fact that Jemma and Makenzie wished to communicate with me over email, and the fact many more prison wives didn’t want to speak to me at all, shows how difficult it can be to talk about these issues. For many, memes are just a bit of fun. For prison wives, they can be a lifeline.

 

A post shared by doing time too (@doingtimetoo) on

 “None of us enjoy prison visits or being treated like we are criminals ourselves. We don't enjoy waiting for phone calls that never arrive or having to deal with situations all on our own but if we can laugh about it, that’s something,” explains Jemma.

“Memes allow us all to laugh at the situations we are in, rather than cry.”

Amelia Tait is a technology and digital culture writer at the New Statesman.

This article first appeared in the 05 July 2010 issue of the New Statesman, The cult of the generals