Risk resilience

Debt, Austerity And Unemployment

Mario Draghi, Europe’s chief central banker, advised Davos 2013 participants, “Growth can't be achieved through the endless creation of debt.” Yet, there was no mention of how the banks themselves profited mightily off the debt they pushed citizens of Greece, Spain, Ireland and Italy to take on – and then made sure that when the bill came due, they got out (mostly) unscathed. Meanwhile, the austerity policies imposed by the elite to pay the bankers back are choking off prospects for economic growth and driving unemployment. 

During the forum, the global unemployment crisis was a prominent topic. In the same week, the jobless rate in Spain was reported at 26 percent (with 60 percent of those under the age of 25). The problem extends beyond Europe: some 200 million are unemployed worldwide, with 5 million more added each year, according to the ILO.

There were calls for “structural reforms,” but if those reforms mean austerity, neither growth nor stability will be the outcome -- only greater inequality and unemployment. If they mean structural reform of the banks – including breaking them up so they are no longer “too big to fail” – resilience may yet be possible. (They may also be “too big to manage,” as this week’s reports that traders at JPMorgan Chase bet against the bank’s own chief investment office positions on derivatives indicate.)

Antifragility and Small vs. Big

The key to unlocking the disconnect between the lofty goals given voice at Davos and what many point to as the WEF’s failure to make good on those goals may be found in the problem of bigness. Big institutions with little input from below, little or no external checks on their actions, and huge personal stakes on the part of their leaders in remaining the same, are prone to fail.

Resilient they are not.

Nassim Nicholas Taleb, author of The Black Swan, explores this territory in his fascinating new book, Antifragile. For Taleb, an ex-Wall Street hedge fund quant, small and redundant is beautiful. It is perhaps no coincidence for our argument that he has been called “The Ghost of Davos” (for his warnings at a previous annual meeting of WEF). 

“When these guys in Davos try to take the idea of dynamic resilience, they’re still trying to have tomorrow resemble the world of yesterday,” he said recently on CNBC’s Power Lunch. “You need to break eggs and what we need to break first is the banking system”.

Too much centralization of power, as in the banks, creates intolerance for error, Talib says – and it is the ability to make errors and learn from them to come back better than before that marks true resilience. Only economies that can tolerate “randomness, volatility and disorder as drivers of response and innovation,” he asserts, will survive disasters – and not only survive, but thrive.

Next: Sustainability: A New Vision for Agriculture?