
Inequality and Skin in the Game - braymundo
https://medium.com/@nntaleb/inequality-and-skin-in-the-game-d8f00bc0cb46
======
bbctol
I think the distinction between those who have "skin in the game" and those
who survive on arbitrary indicators of prestige is an important one
_culturally_ , but especially as applied to Trump, I still think it's weird
Taleb doesn't address any distance between _perceived_ skin in the game and
actual. Saying "Trump's a businessman who takes real risks, Krugman's just a
writer who will never answer for mistakes" ignores that Trump is a media
figure at least as much as he's a businessman, and has put effort his entire
career towards presenting that image (as a businessman who takes real risks)
regardless of the truth. Is Trump really more likely to end up going to a soup
kitchen than Krugman? Are the elaborate terms of his bankruptcies really
"losing your own money, not someone else's?" Or is he just trying to present
himself that way?

I agree that there's a serious problem in society of people coasting on their
arbitrary degrees/status/reputation in a way that lets them take no
responsibility for their mistakes; see Theranos/general examples of VCs
focusing on style over meritocracy, see diploma mills and rent-seeking
prestige colleges, see Ross Douthat's career (if the mainstream media wants to
restore faith and trust, the best thing they could do would be to fire people
who continue to screw up...) But the other issue, of resentment against the
mandarin class, people waking up and getting angry against those without skin
in the game; that's a matter of perception, not reality. Heck, Trump switching
to the Apprentice after facing bankruptcy seems exactly the sort of coasting
based on arbitrary celebrity Taleb might despise in a different context. If we
want to understand the effects of the mandarin class, we should figure out not
just who has "skin in the game" or not, but the level of cultural and media
fluff that leads people to believe that someone has skin in the game or not.

~~~
bko
Yes Trump did make most of his money using borrowed funds and leverage.
However, the lenders in that case have skin in the game and the debtors
presumably exert some restraint on Trump. Trump did have his credit on the
line as well as whatever personal assets he pledged. For every high profile
bankruptcy there were likely many more in which everyone made out, otherwise
no one would extend him any credit.

Bankruptcy laws add a lot of value to a functioning capitalism and debtor and
obliger are both aware of the laws. Perhaps you don't agree with them or Trump
abused them but that's a different story.

Trump was smart in that he likely structured his financial dealings in a way
to limit his personal losses, but the banks knew they and Incorporated that
into their offer.

But it's true that more recently he has been a celebrity and leased out his
name. However, since his name is his primary asset, you can still say he has
skin in the game.

Also I would add that Trump's celebrity is due to something in his control.
Whether it's because he's a demogouge, visionary or marketer extrodinaire, he
is successful on his merits. Taleb would probably contrast that to some
academic on an unelected government panel somewhere due to personal
connections

~~~
bbctol
So I'm not criticizing Trump here per se (I mean I really dislike him, but
that wasn't what I was getting at.) My point is more that this distinction
between "skin in the game"/"no skin in the game" that Taleb portrays as binary
is really quite murky, and people's perceptions of who's taking risks are
affected by factors other than the truth. I agree that bankruptcy laws often
add value, but that wasn't the point; they add value precisely because they
reduce the "skin in the game" of the person going bankrupt, whereas Taleb had
indicated that Trump had shown his risk-taking by losing his own money. And
it's exactly this idea that leasing out one's name, putting one's reputation
on the line, turning yourself into a celebrity could also be considered having
"skin in the game" that makes this distinction murky: isn't that what Taleb's
IYIs do? Aren't all columnists, academics, journalists and so on playing in
the same system, and self-promoting as a form of hustling their way to the
top? It depends more on your perspective than on any objective definition of
"skin in the game."

Also with respect to Trump being "successful on his merits"... being born into
hundreds of millions is better than most connections. More importantly, Taleb
isn't talking about success/failure on one's own merits, but _taking on risk_
, and I think that's one of his better points. That's the difference between
the "skin in the game" concept and judging based on some abstract idea of
meritocracy: people understand that Trump was given advantages in his life,
but they respect him because (they perceive!) he's opened himself up to risk
and put those earnings, unfairly gotten as they may be, on the line.

------
curun1r
Speaking personally, having "skin in the game" matters very little to me when
it comes to resenting those who have achieved great wealth. What matters to me
is someone's effect on the rest of society. It matters _how_ someone made
their money but it also matters _who else benefitted_ from that person's
success and who else suffered.

For instance, I don't begrudge Larry Page or Sergei Brin their billions.
Neither had much skin in the game, they were just pursuing a project they were
passionate about after college, largely using someone else's money. Had they
failed, they'd likely have incurred some opportunity costs of not having
worked a more lucrative job, but wouldn't have lost much else. But what makes
their wealth acceptable to me is what they created. Google has made my life
and billions of other people's lives easier.

Contrast this with a hedge fund manager who's also a billionaire or a Mitt
Romney -esque corporate raider who doesn't create anything and often leaves
human misery in their wake. These billions are often made while incurring far
more risk than that borne by the creative types and, yet, I still find their
wealth the more detestable.

Buddhists have the concept of "right livelihood" that followers are supposed
to adhere to. And it's always resonated with me. Whether or not one gets rich
is independent of what truly matters...how much your life and work benefit
others. I don't dislike people for being rich, I dislike people for living
their lives in service only to themselves. Having "skin in the game" is a
tangential property that is meaningless to me on its own.

~~~
eldavido
A lot of hedge fund and private equity guys make money by doing _necessary_
things management is unwilling, or politically incapable, of doing.

Unprofitable businesses, by definition, destroy their owner's wealth. Saying
an unprofitable business has to continue operating is basically saying, "I
think business owners have to operate charities", which is something I don't
believe. Sometimes the best thing is the big job cut, at least that way, the
employees, landlords, lenders, etc. can all start fresh, and put whatever bad
situation exists today, behind them.

I think of private equity as corporate garbage collection. Sometimes
adjustments is painful.

------
golergka
I don't have anything to add to the blog post itself, but I find the
complaints about the writing style pretty strange, especially to HN. I never
even try to read New Yorker articles anymore, which get shared and upvoted
here so abundantly: lazy, wordy writing that concentrates on people instead of
concepts, tries to reason about important things through emotions instead of
logic and in general tries to be prose instead of journalism is insufferable
to me.

After that, Taleb's writing is like fresh air: straight and to the point,
logical and precise. He's using concepts that I myself utilize in analysis of
outside world, shows great intellectual honesty and backs his claims with a
plethora of sources. If anything, I expected HN to be full of fans of this
writing style, not New Yorker's.

~~~
sosodaft
Seconded. I found his style genuinely delightful.

People are more likely to comment about things that piss them off though,
right?

------
eldavido
"Reputationism" might be a good way to describe a system with "no skin in the
game". I agree that a world where nobody has skin in the game is bad.

And yet, who do we admire in Silicon Valley? "Thought leaders". Guys like Ben
Thompson of Stratechery, VCs with blogs, Elad Gil, etc.

I'm very torn about this. On one hand, the whole enterprise of being _famous
without taking any risk_ feels so dirty, and yet, it's so _effective_ in
today's world.

Who in their right mind would want to be a military leader, small-business
owner, or elected politician, when you could be a VC, investment banker,
journalist, or mid-level corporate executive? All of the upside, none of the
risk! It feels "rational" in a way to want to have no skin in the game.

It was Taleb himself who said in the bed of Procrustes (another of his books)
something like, "it's the sign of the loser to lament human nature without any
attempt to exploit or profit from it". Does that apply here?

Another thought: is reputationism inevitable?

Taleb is a hardcore empiricist -- someone who values experience and firsthand
knowledge over all. The problem is that we live in a global world, where
knowledge, products, and ideas flow all over the place, and we can't have
firsthand knowledge of all of it. So we rely on words, symbols, brands, and
other "experts" to help us make sense of all of it. Perhaps inevitable, but it
does take my smugness down a peg or two when thinking about medieval peasants
consulting the local priest for advice. Maybe these reputationists today are
the modern capitalist priestly class?

------
yummyfajitas
It is shocking that people continue to cite Piketty. His results have been
more or less shot down completely - his measurements are unstable (taken), and
insofar as he has shown r > g, this is primarily due to middle class household
wealth (rognlie). Further, his results are only within country and don't apply
globally (c.f. Milanovic).

But his results are just so convenient and sound so cool. How can we discard
them for something as silly as being totally wrong?

~~~
pdog
The central thesis of Piketty's _Capital_ [1] is that inequality is a core
feature of capitalism. He backs this with meticulous research[2] into
centuries of wealth, income, and tax data. You can argue about what is the
"right" level of inequality or with the policy recommendations (that massive
government interventionism via a global tax on wealth is required). However,
the results and data are solid.

[1]: [https://www.amazon.com/Capital-Twenty-First-Century-
Thomas-P...](https://www.amazon.com/Capital-Twenty-First-Century-Thomas-
Piketty/dp/1491591617)

[2]:
[http://piketty.pse.ens.fr/files/capital21c/en/Piketty2014Fig...](http://piketty.pse.ens.fr/files/capital21c/en/Piketty2014FiguresTablesLinks.pdf)

~~~
skylan_q
"capitalism"

That word is the problem. It means something different for every person. To
you it means one thing, to him it means another. When people criticize
capitalism their arguments are always convincing because you project your own
negative connotations into the word.

~~~
sosodaft
Well said. It always pains me to see people criticising capitalism for easy
points, when despite its flaws it has brought us an age of unprecedented
equality and prosperity. That's not to say it's necessarily the best "system"
for the future, but tearing it down because it is the Establishment and
tearing down the Establishment is cool is counterproductive.

~~~
collyw
"it has brought us an age of unprecedented equality and prosperity"

People say this, yet when I have traveled in some of the poorest countries in
the world (Zambia and Nepal for example) they seem a lot more capitalistic
than Europe / the US. It seems to bring some people wealth at the expense of
others.

~~~
pitaj
What do you mean by "capitalistic"?

~~~
collyw
[http://lmgtfy.com/?q=capitalistic](http://lmgtfy.com/?q=capitalistic)

------
joncrane
Man, what a great article. This guy kind of reminds me of Ignaz Semmelweis.
Great example of a guy who is right, but pisses people off so much that the
uptake of his ideas is severely hindered.

------
q-base
Looking forward to the discussion on this. Can anybody help me understand his
use of "rent seeker" or "rent seeking"?

~~~
tpm
Rent-seeking is an attempt to obtain economic rent (i.e., the portion of
income paid to a factor of production in excess of what is needed to keep it
employed in its current use) by manipulating the social or political
environment in which economic activities occur, rather than by creating new
wealth. Rent-seeking implies extraction of uncompensated value from others
without making any contribution to productivity. The classic example of rent-
seeking, according to Robert Shiller, is that of a feudal lord who installs a
chain across a river that flows through his land and then hires a collector to
charge passing boats a fee (or rent of the section of the river for a few
minutes) to lower the chain. There is nothing productive about the chain or
the collector. The lord has made no improvements to the river and is helping
nobody in any way, directly or indirectly, except himself. All he is doing is
finding a way to make money from something that used to be free.

[https://en.wikipedia.org/wiki/Rent-
seeking](https://en.wikipedia.org/wiki/Rent-seeking)

~~~
q-base
Thanks a million! Had to read the first line a few times, but then read
through it all and understood the concept. Thank you very much for the
thorough explanation.

------
good_sir_ant
I've read my share of socio-economic philosophizing, but did anyone else find
this a slog to read through?

~~~
bbctol
Taleb's style is generally... insufferable, but it's a good way to remind
yourself that how nice someone's writing is isn't necessarily a sign of how
good their ideas here. He takes great joy, for better or for worse, in
pointing out critics who call him arrogant and pretentious rather than
criticize his ideas.

~~~
dazzawazza
I couldn't get to his idea to criticise.

~~~
gaius
Its worth persevering. Taleb is incredibly influential among professional
risk-takers.

------
emmelaich
Arriviste?

> Simply, it looks like it is the university professors (who have arrived) ...

I wonder whether some over enthusiastic (or automatic) editor has changed
[https://en.wiktionary.org/wiki/arriviste](https://en.wiktionary.org/wiki/arriviste)
into

"(who have arrived)"

------
jdpigeon
This guy's writing style is insufferable. Basically, 'let me introduce an
abstract, technical concept, criticize the reader for not knowing it, and then
not define it until halfway through the article'

Dropping words like 'Markov Chain' in a Medium post without any context or
explanation just makes the author seem like he wants us to think he's smart.

~~~
gbog
For me as a French reader, Taleb's writing style feels familiar, just like
French sentences translated in English: long and constructed sentences with
articulations, and some soft punch inside.

Maybe it is not the proper style for English native speakers, but it feels a
clear and well organised writing style to me. On a higher level, Taleb's
thought may have weaknesses, some contradictions, some unmomtivated
leitmotives. But still interesting and thought provoquing.

~~~
tomhoward
Interesting. Taleb was educated at the Grand Lycée Franco-Libanais, a French
school in Beirut, Lebanon [1], then at the University of Paris [2].

[1]
[https://en.wikipedia.org/wiki/Nassim_Nicholas_Taleb#Early_li...](https://en.wikipedia.org/wiki/Nassim_Nicholas_Taleb#Early_life_and_family_background)

[2]
[https://en.wikipedia.org/wiki/Nassim_Nicholas_Taleb#Educatio...](https://en.wikipedia.org/wiki/Nassim_Nicholas_Taleb#Education)

------
nerdponx
_Caveat: I did not read the entire article._

I think the idea of "skin in the game" as described in the intro is close but
not quite right. It's not about "falling from the pedestal" as such; it's
about bearing the costs of your actions in fair proportion. This is an old
argument: politicians make war, but it's working-class teenagers who actually
go to war. Therefore people resent politicians for starting wars because the
people being sent to die are not responsible for the war, while the people
responsible for the war are not being sent to die. It's about fairness.

~~~
dmichulke
While I think you're close, the war example is not fitting unless people are
_forced_ to go to war. If they decide to do go to war voluntarily, then it's
IMO partly their fault.

Probably a better example is CEOs who get big bonuses if the company goes well
but will get a good pension and other benefits ("golden parachute") if they
are fired after a few months because of bad performance. It's kind of win /
win for them, so a loss for everyone else.

Same holds for a risky bank that keeps its profits (if there are any) or gets
a (taxpayer funded) bailout if "profits are negative".

~~~
q-base
And as long as the general consensus is that a good CEO can change everything,
CEOs will be able to attract these contracts that has serious assymetric
risk/benefit profiles.

