There’s no doubt that globalization has its benefits, but we often ignore the fact that it has also exponentially increased the complexity of the world markets and has eliminated many of the redundancies (economists call these “inefficiencies”) and robustness that once made it so individual markets could withstand failures in other parts of the world. Complex systems are very fragile.
See Nassim Nicholas Taleb’s Ten Principles for a Black-Swan Proof World
Here are a couple of my favorites:
1. What is fragile should break early while it is still small. Nothing should ever become too big to fail. Evolution in economic life helps those with the maximum amount of hidden risks – and hence the most fragile – become the biggest.
8. Do not give an addict more drugs if he has withdrawal pains. Using leverage to cure the problems of too much leverage is not homeopathy, it is denial. The debt crisis is not a temporary problem, it is a structural one. We need rehab.
9. Citizens should not depend on financial assets or fallible “expert” advice for their retirement. Economic life should be definancialised. We should learn not to use markets as storehouses of value: they do not harbour the certainties that normal citizens require. Citizens should experience anxiety about their own businesses (which they control), not their investments (which they do not control).
For more Taleb see here. (h/t John Robb)
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