The warning that he referred to appeared in a January 26th paper that he co-authored with Joseph Norman and Yaneer Bar-Yam, when the virus was still mainly confined to China. The paper cautions that, owing to “increased connectivity,” the spread will be “nonlinear”—two key contributors to Taleb’s anxiety. For statisticians, “nonlinearity” describes events very much like a pandemic: an output disproportionate to known inputs (the structure and growth of pathogens, say), owing to both unknown and unknowable inputs (their incubation periods in humans, or random mutations), or eccentric interaction among various inputs (wet markets and airplane travel), or exponential growth (from networked human contact), or all three.
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“These are ruin problems,” the paper states, exposure to which “leads to a certain eventual extinction.” The authors call for “drastically pruning contact networks,” and other measures that we now associate with sheltering in place and social distancing. “Decision-makers must act swiftly,” the authors conclude, “and avoid the fallacy that to have an appropriate respect for uncertainty in the face of possible irreversible catastrophe amounts to ‘paranoia.’ ” (“Had we used masks then”—in late January—“we could have saved ourselves the stimulus,” Taleb told me.)
Yet, for anyone who knows his work, Taleb’s irritation may seem a little forced. His profession, he says, is “probability.” But his vocation is showing how the unpredictable is increasingly probable. If he was right about the spread of this pandemic it’s because he has been so alert to the dangers of connectivity and nonlinearity more generally, to pandemics and other chance calamities for which COVID-19 is a storm signal. “I keep getting asked for a list of the next four black swans,” Taleb told me, and that misses his point entirely. In a way, focussing on his January warning distracts us from his main aim, which is building political structures so that societies will be better able to cope with mounting, random events.
Indeed, if Taleb is chronically irritated, it is by those economists, officials, journalists, and executives—the “naïve empiricists”—who think that our tomorrows are likely to be pretty much like our yesterdays. He explained in a conversation that these are the people who, consulting bell curves, focus on their bulging centers, and disregard potentially fatal “fat tails”—events that seem “statistically remote” but “contribute most to outcomes,” by precipitating chain reactions, say. (Last week, Dr. Phil told Fox’s Laura Ingraham that we should open up the country again, noting, wrongly, that “three hundred and sixty thousand people die each year “from swimming pools — but we don’t shut the country down for that.” In response, Taleb tweeted, “Drowning in swimming pools is extremely contagious and multiplicative.”) Naïve empiricists plant us, he argued in “The Black Swan,” in “Mediocristan.” We actually live in “Extremistan.”
Taleb, who is sixty-one, came by this impatience honestly. As a young man, he lived through Lebanon’s civil war, which was precipitated by Palestinian militias escaping a Jordanian crackdown, in 1971, and led to bloody clashes between Maronite Christians and Sunni Muslims, drawing in Shiites, Druze, and the Syrians as well. The conflict lasted fifteen years and left some ninety thousand people dead. “These events were unexplainable, but intelligent people thought they were capable of providing convincing explanations for them—after the fact,” Taleb writes in “The Black Swan.” “The more intelligent the person, the better sounding the explanation.” But how could anyone have anticipated “that people who seemed a model of tolerance could become the purest of barbarians overnight?” Given the prior cruelties of the twentieth century, the question may sound ingenuous, but Taleb experienced sudden violence firsthand. He grew fascinated, and outraged, by extrapolations from an illusory normal—the evil of banality. “I later saw the exact same illusion of understanding in business success and the financial markets,” he writes.
“Later” began in 1983, when, after university in Paris, and a Wharton M.B.A., Taleb became an options trader—“my core identity,” he says. Over the next twelve years, he conducted two hundred thousand trades, and examined seventy thousand risk-management reports. Along the way, he developed an investment strategy that entailed exposure to regular, small losses, while positioning him to benefit from irregular, massive gains—something like a venture capitalist. He explored, especially, scenarios for derivatives: asset bundles where fat tails—price volatilities, say—can either enrich or impoverish traders, and do so exponentially when they increase the scale of the movement.
These were the years, moreover, when, following Japan, large U.S. manufacturing companies were converting to “just-in-time” production, which involved integrating and synchronizing supply-chains, and forgoing stockpiles of necessary components in favor of acquiring them on an as-needed basis, often relying on single, authorized suppliers. The idea was that lowering inventory would reduce costs. But Taleb, extrapolating from trading risks, believed that “managing without buffers was irresponsible,” because “fat-tail events” can never be completely avoided. As the Harvard Business Review reported this month, Chinese suppliers shut down by the pandemic have stymied the production capabilities of a majority of the companies that depend on them.
The coming of global information networks deepened Taleb’s concern. He reserved a special impatience for economists who saw these networks as stabilizing—who thought that the average thought or action, derived from an ever-widening group, would produce an increasingly tolerable standard—and who believed that crowds had wisdom, and bigger crowds more wisdom. Thus networked, institutional buyers and sellers were supposed to produce more rational markets, a supposition that seemed to justify the deregulation of derivatives, in 2000, which helped accelerate the crash of 2008.
As Taleb told me, “The great danger has always been too much connectivity.” Proliferating global networks, both physical and virtual, inevitably incorporate more fat-tail risks into a more interdependent and “fragile” system: not only risks such as pathogens but also computer viruses, or the hacking of information networks, or reckless budgetary management by financial institutions or state governments, or spectacular acts of terror. Any negative event along these lines can create a rolling, widening collapse—a true black swan—in the same way that the failure of a single transformer can collapse an electricity grid.
COVID-19 has initiated ordinary citizens into the esoteric “mayhem” that Taleb’s writings portend. Who knows what will change for countries when the pandemic ends? What we do know, Taleb says, is what cannot remain the same. He is “too much a cosmopolitan” to want global networks undone, even if they could be. But he does want the institutional equivalent of “circuit breakers, fail-safe protocols, and backup systems,” many of which he summarizes in his fourth, and favorite, book, “Antifragile,” published in 2012. For countries, he envisions political and economic principles that amount to an analogue of his investment strategy: government officials and corporate executives accepting what may seem like too-small gains from their investment dollars, while protecting themselves from catastrophic loss.