Skin in the Game
This week I watched Nassim Taleb's talk at BlockCon where he explored the concept of having 'skin in the game' and how asymmetric risk sharing pervades our everyday lives.
The example of asymetric risk and reward that Taleb loves to showcase is the 2008 great financial crisis, where the large bank CEO's received millions in severance pay while tax payers were left holding the tab to bail out the banks.
But how should we think about the thousands of businesses and millions of citizens who have been given lifelines by the government in the form of a $2 trillion stimulus package to combat the economic fallout from COVID-19? Most of these businesses were prepared for normal circumstances, and even an economic downturn. But most weren't prepared for the equivalent of an economic heart attack with demand down 50-70% month over month.
If we lived in a 100% capitalistic, red-in-tooth-and-claw society with little to no social safety net (i.e. an economic equivalent of the pre-historic jungles), all of these businesses from the corner coffee shop to Delta airlines would be toast. But that's not the reality we live in - thank goodness.
But since reality isn't black and white, the real questions lay in the grey area.
Does the small business owner who socks away cash, pays his employees a living wage, and yet still has to close down for months on end - does she deserve a bailout any less than a large corporation that spent nearly all of its profits buying its minority partners out over a period of years in the form of buybacks? Who deserves assistance more? What about the employee that diligently contributed to their 401K, borrowed to go through school part time, only to find their jobs eliminated? These are all difficult questions and there are no shortages of opinions.
As Morgan Housel has pointed out, this virus will cause people to question the wisdom of over-optimizing for efficiency and maximizing opportunity cost, and encourage a shift towards survival and security.
In my opinion, this isn't such a bad idea.