Excerpted from the preface of Skin in the Game

Skin in the Game is necessary to reduce the effects of the following divergences that arose mainly as a side effect of civilization: action and cheap talk (tawk), consequence and intention, practice and theory, honor and reputation, expertise and pseudoexpertise, concrete and abstract, ethical and legal, genuine and cosmetic, entrepreneur and bureaucrat, entrepreneur and chief executive, strength and display, love and gold-digging, Coventry and Brussels, Omaha and Washington, D.C., economists and human beings, authors and editors, scholarship and academia, democracy and governance, science and scientism, politics and politicians, love and money, the spirit and the letter, Cato the Elder and Barack Obama, quality and advertising, commitment and signaling, and, centrally, collective and individual.

But, to this author, is mostly about justice, honor, and sacrifice as something existential for humans.

Let us first connect a few dots of items the list above.

Antaeus Whacked

Antaeus was a giant, rather semi-giant of sorts, the literal son of Mother Earth, Gaea, and Poseidon the god of the sea. He had a strange occupation, which consisted of forcing passersby in his country, (Greek) Libya, to wrestle; his trick was to pin his victims to the ground and crush them. This macabre hobby was apparently the expression of filial devotion; Antaeus aimed at building a temple for his father Poseidon, using for material the skulls of his victims.

Antaeus was deemed to be invincible; but there was a trick. He derived his strength from contact with his mother, earth. Physically separated from contact with earth, he lost all his powers. Hercules, as part of his twelve labors (actually in one, not all variations), had for homework to whack Antaeus. He managed to lift him off the ground and terminated him by crushing him as his feet remained out of contact with his mamma.

What we retain from this first vignette is that, like Antaeus, you cannot separate knowledge from contact with the ground. Actually, you cannot separate anything from contact with the ground. And the contact with the real world is done via skin in the game –have an exposure to the real world, and pay a price for its consequences, good or bad. The abrasions of your skin guide your learning and discovery, a mechanism of organic signaling, what the Greeks called pathemata mathemata (guide your learning through pain, something mothers of young children know rather well). Most things that we believe were “invented” by universities were actually discovered by tinkering and later legitimized by some type of formalization. I have shown in Antifragile how the knowledge we get by tinkering, via trial and error, experience, and the workings of time, in other words, contact with the earth, is vastly superior to that obtained through reasoning, something universities have been very busy hiding from us.

Libya After Antaeus

Second vignette. As I am writing these lines, a few thousand years later, Libya, the putative land of Antaeus now has a slave market, as a result of a failed attempt of what is called a “regime change” in order to “remove a dictator”.

A collection of people classified as interventionists (t0 name names, Bill Kristol, Thomas Friedman, and others) who promoted of the Iraq invasion of 2003, as well as the removal of the Libyan leader, are advocating the imposition of additional such regime change on another batch of countries, which includes Syria, because “it has a dictator”.

These interventionistas and their friends in the U.S. State Department helped create, train, and support, Islamist rebels, then “moderates”, but who eventually evolved to become part of Al-Qaeda, the same Al-Qaeda that blew up the New York City towers during the events of Sep 11 2001. They mysteriously failed to remember that Al-Qaeda itself was composed of “moderate rebels” created (or reared) by the U.S. to help fight Soviet Russia because, as we will see, these educated people’s reasoning doesn’t entail such recursions.

So we tried that thing called regime change in Iraq, and failed miserably. We tried it in Libya, and now there are now active slave markets in the place. But we satisfied the objective of “removing a dictator”. By the exact same reasoning, a doctor would inject a patient with “moderate” cancer cells “to improve his cholesterol numbers”, and claim victory after the patient is dead, particularly if the post-mortem shows remarkable cholesterol readings. But we know that doctors don’t do that, or, don’t do it in such a crude format, and that there is a clear reason for it. Doctors usually have some skin in the game.

And don’t give up on logic, intellect and education, because a tight but higher order logical reasoning would show that the logic of advocating regime changes implies also advocating slavery. So these interventionistas not only lack practical sense, and never learn from history, but they even make mistakes at the pure reasoning level, which they drown in some form of semi-abstract discourse.

Their three flaws: 1) They think in statics not dynamics, 2) they think in low, not high dimensions, 3) they think in actions, never interactions.

The first flaw is that they are incapable in thinking in second steps and unaware of the need for it –and about every peasant in Mongolia, every waiter in Madrid, and every car service operator in San Francisco knows that real life happens to have second, third, fourth, nth steps. The second flaw is that they are also incapable of distinguishing between multidimensional problems and their single dimensional representations –like multidimensional health and its stripped, cholesterol-reading reduced representation. They can’t get the idea that, empirically, complex systems do not have obvious one dimensional cause and effects mechanisms, and that under opacity, you do not mess with such a system. An extension of this defect: they compare the actions of the “dictator” to the prime minister of Norway or Sweden, not to those of the local alternative. The third flaw is that they can’t forecast the evolution of those one helps by attacking.

And when a blow up happens, they invoke uncertainty, something called a Black Swan, after some book by a (very) stubborn fellow, not realizing that one should not mess with a system if the results are fraught with uncertainty, or, more generally, avoid engaging in an action if you have no idea of the outcomes. Imagine people with similar mental handicaps, who don’t understand asymmetry, piloting planes. Incompetent pilots, those who cannot learn from experience, or don’t mind taking risks they don’t understand, may kill many, but they will themselves end up at the bottom of, say, the Atlantic, and cease to represent a threat to others and mankind.

So we end up populating what we call the intelligentsia with people who are delusional, literally mentally deranged, simply because they never have to pay for the consequences of their actions, repeating modernist slogans stripped of all depth. In general, when you hear someone invoking abstract modernistic notions, you can assume that they got some education (but not enough, or in the wrong discipline) and too little accountability.

Now some innocent people, Yazidis, Christian minorities, Syrians, Iraqis, and Libyans had to pay a price for the mistakes of these interventionistas currently sitting in their comfortable air-conditioned offices. This, we will see, violates the very notion of justice from its pre-biblical, Babylonian inception. As well as the ethical structure of humanity.

Not only the principle of healers is first do no harm (primum non nocere), but, we will argue: those who don’t take risks should never be involved in making decisions.

This idea is weaved into history: all warlords and warmongers were warriors themselves and, with few exceptions societies were run by risk takers not risk transferors. They took risks –more risks than ordinary citizens. Julian the Apostate, the hero of many, died on the battlefield fighting in the never-ending war on the Persian frontier. One of predecessors, Valerian, after he was captured was said to have been used as a human footstool by the Persian Shahpur when mounting his horse. Less than a third of Roman emperors died in their bed –and one can argue that, had they lived longer, they would have fallen prey to either a coup or a battlefield.

Valerian humiliated

And, one may ask, what can we do since a centralized system will necessarily need people who are not directly exposed to the cost of errors? Well, we have no choice, but decentralize; have fewer of these. But not to worry, if we don’t do it, it will be done by itself, the hard way: a system that doesn’t have a mechanism of skin in the game will eventually blow up and fix itself that way. We will see numerous such examples.

For instance, bank blowups came in 2008 because of the hidden risks in the system: bankers could make steady bonuses from a certain class of concealed explosive risks, use academic risk models that don’t work (because academics know practically nothing about risk), then invoke uncertainty after a blowup, some unseen and unforecastable Black Swan, and keep past bonuses, what I have called the Bob Rubin trade. Robert Rubin collected one hundred million dollar in bonuses from Citibank, but when the latter was rescued by the taxpayer, he didn’t write any check. The good news is that in spite of the efforts of a complicit Obama administration that wanted to protect the game and the rent-seeking of bankers, the risk-taking business moved away to hedge funds. The move took place because of the overbureaucratization of the system. In the hedge fund space, owners have at least half of their net worth in the funds, making them more exposed than any of their customers, and they personally go down with the ship.

The interventionistas case is central to our story because it shows how absence of skin in the game has both ethical and epistemological effects (i.e., related to knowledge). Interventionistas don’t learn because they they are not the victims to their mistakes. Interventionistas don’t learn because they they are not the victims of their mistakes, and, as we saw with pathemata mathemata :

The same mechanism of transferring risk also impedes learning

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