Fuhgetaboud Universalism (The Danger of Universal Rules)

Fuhgetaboud Universalism

By applying symmetry to relations between individual and collective, we get virtue, classical virtue, what is now called “virtue ethics.” But there is a next step: all the way to the right of Table 1 is Immanuel Kant’s categorical imperative, which I summarize as: Behave as if your action can be generalized to the behavior of everyone in all places, under all conditions. The actual text is more challenging: “Act only in accordance with that maxim through which you can at the same time will that it will become a universal law,” Kant wrote in what is known as the first formulation. And “act in such a way that you treat humanity, whether in your own person or in the person of any other, never merely as a means to an end, but always at the same time as an end,” in what is known as the second formulation.

Formulation shmormulation, fughedaboud Kant as it gets too complicated and things that get complicated have a problem. So we will skip Kant’s drastic approach for one main reason:

Universal behavior is great on paper, disastrous in practice.

Why? As we will belabor ad nauseam in this book, we are local and practical animals, sensitive to scale. The small is not the large; the tangible is not the abstract; the emotional is not the logical. Just as we argued that micro works better than macro, it is best to avoid going to the very general when saying hello to your garage attendant. We should focus on our immediate environment; we need simple practical rules. Even worse: the general and the abstract tend to attract self-righteous psychopaths similar to the interventionistas of Part 1 of the Prologue.

In other words, Kant did not get the notion of scaling—yet many of us are victims of Kant’s universalism. (As we saw, modernity likes the abstract over the particular; social justice warriors have been accused of “treating people as categories, not individuals.”) Few, outside of religion, really got the notion of scaling before the great political thinker Elinor Ostrom, about whom a bit in Chapter 1.

In fact, the deep message of this book is the danger of universalism taken two or three steps too far—conflating the micro and the macro. Likewise the crux of the idea of The Black Swan was Platonification, missing central but hidden elements of a thing in the process of transforming it into an abstract construct, then causing a blowup.

II. FROM KANT TO FAT TONY

Let us move to the present, to the transactional, highly transactional present. In New Jersey, symmetry can simply mean, in Fat Tony’s terms: don’t give crap, don’t take crap. His more practical approach is

Start by being nice to every person you meet. But if someone tries to exercise power over you, exercise power over him.

Who is Fat Tony? He is a character in the Incerto who, in demeanor, behavior, choices under uncertainty, conversation, lifestyle, waist size, and food habits would be the exact opposite of your State Department analyst or economics lecturer. He is also calm and unfazed unless one really gets him angry. He became wealthy by helping people he generically calls “the suckers” separate from their funds (or, as is often the case, those of their clients, as these people often gamble with other people’s money).

This symmetry thing happens to link directly to my own profession: option trader. In an option, one person (the buyer of the option), contractually has the upside (future gains), the other (the seller) has a liability for the downside (future losses), for a pre-agreed price. Just as in an insurance contract, where risk is transferred for a fee. Any meaningful disruption of such symmetry—with transfer of liabilities—invariably leads to an explosive situation, as we saw with the economic crisis of 2008.

This symmetry thing also concerns the alignment of interests in a transaction. Let us refresh earlier arguments: if bankers’ profits accrue to them, while their losses are somewhat quietly transferred to society (the Spanish grammar specialists, assistant schoolteachers …), there is a fundamental problem by which hidden risks will continuously increase, until the final blowup. Regulations, while appearing to be a remedy on paper, if anything, exacerbate the problem as they facilitate risk-hiding.

This misalignment of interests is an agency problem.