Nassim Nicholas Taleb is all praise for US President Donald Trump because he has made idiotic mistakes and lost money as an entrepreneur, and hence can be trusted because he has his skin in the game.
When the great musician Yanni held his most famous concert at the Acropolis in Greece in 1993 (the album was released in 1994), he had put in $2 million of his own money into the initiative. This was a big risk, as the outcome was uncertain, but it worked. When Metallica came to India, and the concert was cancelled in 2011, people were disappointed and the organisers were blamed, but their reputation was unaffected. More recently, Justin Bieber supposedly took the Mumbai audience for a ride by lip-syncing in 2017, but he still remains an icon with admirers. So how does one judge which artiste had more stake in the game or, what Nassim Nicholas Taleb would call, ‘skin in the game’? Taleb, better known for his two trending books—Fooled by Randomness and Black Swan—in his new book, Skin in the Game, explores the payoffs that are inherent in any activity that we pursue. This can be from taking decisions at the government or corporate level to simple advice given to our neighbours. Do we have enough skin in the game? The issue really is that payoffs in life are asymmetric and, hence, actions taken today that lead to failure later can never be penalised, which was the case with the financial crisis that made former treasury secretary Robert Rubin Taleb’s favourite punching bag through this book, as he had cornered $120 million from Citibank before the crash. When corporates fail, the bonus may not materialise and the stock value may be down, but CEOs never get penalised. Today, for example, the NPA issue in India has not seen any retired management officials being held responsible, and the blame is laid more on an intangible entity with no name or face.
Skin in the Game is an interesting book, as Taleb brings in a lot of stories, especially from Greek literature, besides his own experiences, to drive home the point that unless we have stake in what we are doing, there would be asymmetric payoffs. A doctor has his skin in the game, as successive blunders will earn him a bad name and make him lose patients. The same holds for architects or lawyers, who need to have good reputations, as clients always look to see whether their money is being paid to someone worth the cost. But when we give advice to others, we really have nothing to lose and, hence, don’t have skin in the game. The one class of people Taleb says he despises openly is bureaucrats and policymakers, because they have no skin in the game. They have a fixed tenure and can do anything with justification. But if things do not work, people end up suffering, but nothing happens to these people. If one probably brings in this theory to the demonetisation exercise, one can see the absence of skin in the game. While technically something that does not rhyme with the public will speak as action during elections, such episodes tend to be forgotten along the way. Another group of people he asks us to be wary of is economists and academicians. This class gets too theoretical and beyond reasoning when they use crafty models to come to some weird conclusions. If they remain as academic papers, there is no harm, but if used in the system, the results can be disastrous. This is similar to what author Morris West had indicated in his famous book, Cassidy, where he warned readers to be careful of professional economists, as they can lose elections for the government and yet have their tenures secure in universities—they have no skin in the game. The narrative is all about such stories and the reader can have a quarrel over many such examples that have been put forward by Taleb. He is all praise for US President Donald Trump because he has made idiotic mistakes and lost money as an entrepreneur, and hence can be trusted because he has his skin in the game. He is critical of Thomas Piketty, whom he lambasts for false reasoning.
The same will probably hold for the Reinhart-Rogoff controversy, where they had apparently used incorrect data to link government debt with growth. Merton and Scholes have been blamed for the financial crisis, where their models failed—but they have themselves lost nothing. Their reputations remain virtually intact even today. However, Taleb, who got his hands dirty being a trader, is not clear on whether he wants academic work to have models and math or not. He takes the view that models can’t be used for real-life trading, where he has a point. However, he attacks Piketty for the absence of models in his voluminous book, Capital in the Twenty-First Century. This could make it confusing for the reader at times. At another level, Taleb takes his argument to religion, where he insists that Jesus Christ was the one who had his skin in the game, as he got crucified! Hitler had his skin in the game, and whether or not the cause was right, he played the game and died for it. Bush and Blair had no skin in the game when they invaded Iraq, and continue to live happily even though it was a major political faux pas. It is left for the reader to decide what she or he agrees with, but the book is enjoyable. It is written in a brusque fashion, which is typical of Taleb. Interestingly, he is full of praise for himself—he has skin in the game and, hence, retains US citizenship and pays taxes, unlike others who want to reside in the country, but claim citizenship elsewhere to escape taxes. But don’t all corporates do that for tax planning, which is legitimate? He makes several such forceful points in the book. He is also against journalists, because they have no skin in what they do. But the counter-argument is that if they do, it would be considered biased reporting and, therefore, his argument becomes weak. Besides, all media channels have a reputation to protect, as traffic is related to credibility and that is skin in the game. Skin in the Game is definitely a good book, written by a former market player who, though self-opinionated, does make one think hard every time there is any action to be taken. He ends with a whole list of what we should watch out for: no life without effort, opinion without consequence, facts without rigour, virtue without risk, religion without tolerance, decision without asymmetry, wealth without exposure… the list can go on.
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