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Falling off the Cliff: a Good Thing?

February 1, 2013 3 minute Read by John Prestbo

More than a few people think we should drive right off the fiscal cliff, like Thelma and Louise, because only that rash act would shake up everybody into seriously tackling our financial problems. Now comes a new book from the author of “The Black Swan” that suggests this idea may not be as loony as it sounds. The new book is “Antifragile: Things That Gain from Disorder” by Nassim Nicholas Taleb. I haven’t read it, but an except and a review in The Wall Street Journal caught my attention.  The overarching thesis of “Antifragile” is that some things in life not only improve and get stronger if they are subjected to stress but also need uncertainty, volatility, and even chaos to flourish. With this view, the book examines innovation by trial and error, life decisions, politics, urban planning, war, personal finance, economic systems, and medicine. Among the points he makes is that the human body is antifragile because, for example, you need to put stress on bones and muscles through exercise in order to build them up. Without this kind of stress, the body withers and dies. The book contends that attempting to shelter antifragile things from stress actually weakens them and, by extension, the systems or structures they are part of. Thus, Taleb comes out foursquare against bailouts of banks and auto companies because they undermine the resilience of both the institutions that are “saved” and the larger financial system and auto industry. As the reviewer, Matt Ridley, summarizes: “The reason that restaurants are competitive is that they are constantly failing. A law that bailed out failing restaurants would result in disastrously dull food. The economic parallel hardly needs spelling out.” However, it is a stretch to use Taleb’s intriguing argument as justification for embracing rather than dodging the fiscal cliff. The consequences are just too big and terrible. The combination of higher tax rates and mindless government spending cuts is almost certain to bring on another recession, which would be extremely painful for millions of people around the globe. We might become stronger in the long run if we drop off the precipice, but the short- and intermediate-term cost would be prohibitive. Still, it’s important to keep Taleb’s philosophy in mind as we turn to such matters as reforming the tax code and boosting U.S. economic growth to 4% annually: The stress of competition and fear of failure spurs innovation, and innovation in turn powers economic expansion. Let us do no harm to this time-tested formula.


Author

John Prestbo
John Prestbo

2012 Economic Growth Fellow

John Prestbo is retired as editor and executive director of Dow Jones Indexes. Previously he was markets editor at The Wall Street Journal. He has co-authored or edited several books over the past 30 years. The most recent is “The Market’s Measure: An Illustrated History of America Told Through the Dow Jones Industrial Average,” published in 1999 by Dow Jones Indexes. His column, Indexed Investor, appears on the highly regarded “MarketWatch” business and finance website. He received his bachelor's and master's degrees from Northwestern University.

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