Intro. [Recording date: June 20, 2022.]
Russ Roberts: Today is June 20th, 2022 and my guest is Nassim Nicholas Taleb. This is Nassim's 10th appearance on EconTalk. He was last here in July of 2020, talking about the pandemic. Nassim, welcome back to EconTalk.
Nassim Nicholas Taleb: Thank you for inviting me again and thanks for allowing me to test my ideas on you before completing my books. Also, I have to admit that a lot of my economic education comes from EconTalk, the education of the economic reasoning, because you read stuff in books, you learn it at school, it doesn't work. In a podcast forum, because you have a conversation between two people, somehow it helps the idea sink in and stay there.
Russ Roberts: Well, I said, it's a huge sacrifice to have you on again. Like a few other guests, you're one of my most popular guests.
Nassim Nicholas Taleb: Yes.
Russ Roberts: You're also a guest that occasionally there might be two or three people who ask me, why do I have you on? But, I buck the trend.
Nassim Nicholas Taleb: That's okay. [inaudible 00:01:44]
Russ Roberts: I'm a contrarian and you're back.
Nassim Nicholas Taleb: I guess if it's only two or three people, I may be doing things wrong. You need to have more enemies, you need one needs to have more enemies.
Russ Roberts: I'm very polite.
Nassim Nicholas Taleb: Yeah. Okay.
Russ Roberts: I'm very polite. It might be 30. It might be 20 or 30.
Russ Roberts: Our topic for today is a big-picture topic. We're going to talk about the nation, the state, and some of the principles of governance. We're going to draw on a few recent pieces of yours on these topics that we'll link to. I want to start with the difference between a state as a nation, which you talk about in the ethnic sense, a nation and the state as an administrative entity. What's the difference? Why is that an important distinction?
Nassim Nicholas Taleb: The notion of nation-state is extremely modern. I think it's not until 1780 that people started talking about it. Of course, you had what we call nations now as territories of kings. The king would acquire a territory and expand whatever the kingdom would be. Then, of course, people became addicted to the notion of nation-state. And, then we had the German, Italian unification and other things. Of course, the French, what I call domestic colonization when they just realized that they were a state and about 50, 60 years into their idea that now we're a state, they decided to destroy anything that was not French in France, and the French as defined by the upper class language that was spoken in the area near Paris. So, then [?] banned all local languages. You go to school, you get punished for speaking Patois, Provencale, the dialect of Strasbourg, the Germanic dialects, Breton, or other. They call them dialects, of course, because basically a dialect is something that doesn't have a nation-state and language has a nation-state. Anyway.
Russ Roberts: This concept, which is a fairly modern concept--a couple of hundred years old or maybe even less--this was the nation as a homogeneous ethnicity speaking common language.
Nassim Nicholas Taleb: Not necessarily homogeneous.
It's like for the French, their idea of the nation was those who would want to acquire French because it was the formal language. So, not necessarily ethnic.
And then again, the notion of ethnicity is very weird because you have recombination or creation of ethnicities every day, just like you have languages are born every day. They separate. So, you have ethnicities developing all the time.
The Turks, for example, when we talk about ethnicity, what is the ethnicity? Is it the race? The Turks created their nation-state, and that's when they decided to lose whatever tolerance they had for the other. Turkey was Turkey. Today, the Ottoman Empire had a huge number of ethnicities or people speaking different languages--Armenian, Greek, Kurdish, and then in the South, Turkish speaker with all these people, Christians who spoke Greek and then different varieties of Greek--they had all these mosaic of people and people who spoke the [inaudible 00:05:19] dialect in some parts of Turkey. They had all of these.
And then they became a nation-state insurance[?] for, they tried to destroy all these minorities. Visibly, we know about the Armenian and Syriac massacre. Yes, they also had people who spoke Aramaic there. So, they had the massacres and it became intolerant, because the nation-state by definition is something intolerant.
Of course, one interesting thing about it is that it's not really ethnic because when you think about it, when you do the DNA [Deoxyribonucleic Acid] of Turkey today, you realize that maybe about 7% Turkic, at the most. The entire Western Turkey is Greek. The Greeks who speak, who convert to Islam and with Islam came the Turkish language.
Russ Roberts: So, what is the sense in which a nation in the ethnic sense is a meaningful example?
Nassim Nicholas Taleb: One is very small. One is very small. To me, if you're going to have a nation-state, it must be the smallest possible unit because if you make it too big, then you start having minority problems. You start having conflicts.
Let me explain it in these terms and why scale is important. When two people are roommates they could have fights. They may not get along. But then, instead of giving them, say, a thousand square feet for two people together at school or you break it to 500 square feet for each, and each one has an apartment, they'll get along a lot better.
There have been studies showing that good fences make good neighbors. We saw that in Yugoslavia. We saw that in Switzerland, historically in these cantons[?] which effectively are sort of states, small states under some kind of umbrella.
But, if you look at what happened in Yugoslavia: look, they're getting along now. How many states? They have Croatia, Montenegro, Slovenia, North Macedonia--all these states. They get along because each one has a little home. So, even if they're open to commerce with others, see, it's still better than what it was before.
Russ Roberts: Now, there's two aspects of scale here. One is that in certain dimensions--and you can expand on this, obviously--in certain dimensions, small works well generally. There's some economies of scale, also. But, small works well. But, it's not just that it's small. You're making the claim that when I clump my smallness with people like me--my ethnic group, my so-called nationality--we can solve our problems in certain dimensions more easily than if I'm trying to negotiate across roommates. That's the point you're making, right? But there's two types--
Nassim Nicholas Taleb: I'm saying like this. Take a very simple example, Copts in Egypt. The Copts are being persecuted in Egypt. But, if they had their own state within Egypt--if they were not geographically distributed, but they were concentrated in a small state--it would be a lot better for them. And it's the same thing with a lot of countries.
So, that idea of the state is modern. The state as an entity, that's kind of Hegelian idea of reification of states. It's almost like a person--a new person composed of others--that fueled a lot of dramatic ideas. Of course, we know that idea is very modern. In the past, you had ethnicities, you had different groups, but the administration was a city. And, the city is a place that obeys laws, some laws, and pretty much, it was an administrative entity as a city.
City-states flourished, whereas nation-states historically--and I discussed that in Antifragile--turned out to be fragile. Empires, [?] Boyle[?], 'What's an empire?' The difference between empire and a nation is that an empire has absolutely no interest in your life other than collecting taxes and making sure you don't wage wars. You do not allow their enemies to wage wars. So, basically, it's a tax--it's a Mafia scheme. It's some kind of pizzo[?] as the Italian would call it. So, that's pretty much what the empire was. And, the empire lasts long when they don't overcharge the people there. So, they're happy.
And, I know from history of the Phoenicians, they never really had a big nation. They were small cities, city-states. And, they said, 'Okay. What? The Persians are going to come? 10%? Okay.' That's cheaper than having an army. 'Who's going to come?' 'Alexander's coming.' 10%. It's cheaper than having an army. And, then the Romans are going to come. 10%. Okay.
Russ Roberts: When you say 10%, you mean tribute to the [inaudible 00:10:35]?
Nassim Nicholas Taleb: Tribute to whatever, whatever you're going to pay them.
Russ Roberts: Taxes.
Nassim Nicholas Taleb: It's cheaper. Taxes, yeah. And, after the Bronze Age collapse where all these big states--Hattusa vanished; the big, important states, Egypt was brought to its knees--the city-states of the Eastern Mediterranean flourished.
Russ Roberts: But, in modern times, city-states are rare. And, if anything, the impulse is to expand. The classic example would be the Sudetenland, right? There's a piece of Czechoslovakia that happens to have a lot of Germans. So, Hitler says, 'I think that should belong to Germany because those people want to be part of Germany.' Now of course, some of them did, some of them didn't. Their neighbors, like the Copts you're talking about, they were not all in one little place. They were spread out among other ethnicities and other people's.
And, nation-states tend, in my historical observation, my observation of history, to expand to try to grab more of the local ethnic group rather than to be more pure and homogeneous. So, what's going on there?
Nassim Nicholas Taleb: That's true. It depends if you are rural or are you--
Russ Roberts: Urban.
Nassim Nicholas Taleb: Not urban, but are you deriving your livelihood from land or from commerce?
So, the Phoenicians were not interested in land. They we're interested in commerce. Same with Venice. Take Singapore today. You see, they're not interested in conquering land. They're not interested in geopolitics. They're interested in making money. There's that tolerance of city-states that you don't observe. Incidentally, one observation: You are located in a nation-state now, currently as we're talking, a few times zones away.
Russ Roberts: I am.
Nassim Nicholas Taleb: Yes.
Russ Roberts: I am.
Nassim Nicholas Taleb: Yes. What's the name in the language, their language? What's the name of that state?
Russ Roberts: I'm in Israel which is--
Nassim Nicholas Taleb: Yeah. What's the name? What's the name?
Russ Roberts: The city is Yerushalayim.
Nassim Nicholas Taleb: No, no, no. The name of the state on your passport. What does it say?
Russ Roberts: Israel.
Nassim Nicholas Taleb: No, is it Medinat? It means, actually--.
Russ Roberts: Oh, Medinat Israel--
Nassim Nicholas Taleb: Okay--
Russ Roberts: The Country of Israel.
Nassim Nicholas Taleb: No. No. Medinat means, it's--actually in Arabic, it's the same word: medina means city. It means din. Din is law. It means, I live under the laws of Israel. And, that's a city-state. City-state is the body of laws, if you look at it. It's laws. I live under the laws of that place. So, a state is a body of laws, basically, that you're accepting.
Russ Roberts: Or not. But, you're under their rubric. The modern nation-state, which of course is--there are many different ones of different sizes--they have varying abilities to enforce their laws up to their borders.
Nassim Nicholas Taleb: Yes.
Russ Roberts: Meaning, in the United States, if you live in South Dakota or California or Texas, at the edges of the country, the federal law pretty much still applies. You can hide in a cabin somewhere off the grid, maybe, for a while. But, in general, you're going to be subject to the administrative entity known as the United States.
But, there are other nations where that's not so true, right? You live in the borders of that geographical country, but the administrative entity does not fully extend all the way to the border, reliably. That's correct, no?
Nassim Nicholas Taleb: Can you give an example where--
Russ Roberts: Somalia. China.
Nassim Nicholas Taleb: On paper. Yeah, of course. Of course, of course, of course.
Russ Roberts: Even China, right? Which is--people think it's just an authoritarian state. I mean--
Nassim Nicholas Taleb: Actually, what you're saying traditionally held because the--today, the modern state has tools that represent a lot more to the GDP [Gross Domestic Product] than it did before. In France up to--I don't know how you count education--50 to 70% of GDP comes from a state; whereas a years ago it was almost another magnitude lower.
So, the state was not very powerful in the past. If you take the French language distribution in France, for example, it was along the tax roots, because the king can tax these areas. It was very limited, the access of the states. They didn't have radar, they didn't have satellites. They didn't have all these tools of enforcement. They couldn't[?] spy on you. They didn't have the Internet. So, we, as the state had had different morphology.
But, let me make a comment here, why size is central to what we're discussing. Because people keep using names--state, nation--the size is central.
You do a lot better, I think, meeting a person a thousand times than meeting a thousand persons once. In other words, you're in a big city like New York City, you walk out, you're going to see everyday different people. Whereas in a village you're going to probably encounter the same number of people, assuming you encounter them, it would be the same people. It's like knowing it's a friend is a person that you see a thousand times. You see one person a thousand times rather than a thousand strangers once. You see? Things don't scale properly. There are things that work differently at a lower scale. And, what I've discovered while working on volatility models show that why an elephant, for example, is not a large mouse. An elephant is vastly more fragile--
Russ Roberts: Explain.
Nassim Nicholas Taleb: Okay: because on a risk scale, an elephant falling by one mirror would break a leg and would never recover. A mouse visibly is vastly more robust. We can see some biomechanical things, and it comes from the nonlinearity of shocks.
To use an example, I have in Antifragile, the story of the rabbi, who one day was asked by the king to find a solution to the following problem. He had to punish his son who committed a certain crime. And, the punishment was to crush him with a large stone. So, the rabbi said, 'Yeah, of course there's a solution.' He said, at once he said, 'You break the stone in pebbles.' So, that nonlinearity--falling 10 meters once is vastly worse than falling 10 times one meter.
So, most of my work since 2009 has been on this--finding the effect of these nonlinearities in places. Hence, whereas a large state is actually more fragile--it requires an extraordinary, an increased expenditure in monitoring.
So, when we take Russia, for example, it has always been a large state. It has to curate an identity, centralized. It has always been centralized, always has a curated identity; and throughout its three regimes had the same system. You see, that big sprawling country; and of course it has to be aggressive because that's the mode on which Russia was built.
Russ Roberts: The three regimes, you meaning the Czarist regime, the Communist regime, and whatever you want to call the current regime?
Nassim Nicholas Taleb: The one we have now, yes. They had the Cheka, KGB [Komitet Gosudarstvennoy Bezopasnosti], FSB [Federal Security Service] as they had almost the same apparatchiks. It kept moving. What happened is you kill, hang, or fire the top people in administration. But, as we know from Trump's experience, he went to Washington. He had to face an infrastructure that was entirely hostile because they were all Democrats and didn't like him. You can do so little in the administration when you change regime. The same thing happened in Iran. They kept the same apparatus, the Shahed, to monitor dissidents. They used it. Of course, the local offices have got to be practically the same people. It takes a long time to change an administration. When it's large, it is a severe problem.
Russ Roberts: Let's go a little deeper into this. Let me start by--I love--it's a very provocative idea that if I see a thousand people once, is very different than seeing one person a thousand times. It's a very interesting way to think about quality versus quantity in terms of how you interact with your children. It's a very deep idea. I don't see how it works in this case, though. Let's start by going deeper into that. For example, New York City would seem to me to make a pretty good city-state, but are you saying it's actually too big--
Nassim Nicholas Taleb: It is practically--it is operating like a city-state.
Russ Roberts: It has to be Brooklyn, Manhattan, Queens. And, even then, I'm still not going to see somebody often. It's not a village.
Nassim Nicholas Taleb: No. We have to understand that the United States is not a republic. The United States is a federation where you have a lot of power to the local municipalities and local cities. And New York city is effectively a state. You can view it as a state, in the way it does business. The area, the New York area is pretty effectively a state. They say that the optimal size of these units is about 8 million.
The notion of city-state is--I mean, let's not go by labels. Let's go by the function. If you look at functional--so, like, the area around London, the area around Amsterdam, and as the work[?] tend to cluster now in to to these kind of zones.
But, the various aspect of the state that I was discussing is when you have a top-down state and it needs to curate this identity all the time, it becomes like Russia--very aggressive. It cannot tolerate the neighbors who don't abide by their rule. It's imperial in nature. And, then of course, you have the story of Ukraine.
Now to go back to the notion of empire versus nation: the beauty of an empire--and the Ottoman Empire lasted long. The Roman Empire lasted very long. The Habsburg Empire, also the Hungarian lasted long. They were always multi-ethnic and mostly distributed states, and they were there for their tax; and of course, to make sure that military, the area is theirs. But, not the police. I mean, you can have a local police. What is important, and I think, that we recreated that model using NATO [North Atlantic Treaty Organization], you see, where you can have--now, instead of having an empire protecting you, you can have some kind of self-protection mechanism via some kind of leak.
Russ Roberts: Well, it's a way of overcoming the economies-of-scale problem. If you're small, you're vulnerable.
Nassim Nicholas Taleb: You stay small, exactly. So, what happens is that when you have economies of scale, that notion, one that I keep arguing that it depends on the domain. It's domain dependent. You need to be centralized for military. Although in some cases, it helps to have decentralized military as Al-Qaeda--and the United States to replicate their model with the building of this unit. And size, what is large? For example, a restaurant with a hundred tables is large. But, a company that manufactures, I don't know, chemicals needs to be a hundred times the size to be large or a thousand times the size. So, it depends on the domain.
It looks like the thing that requires centralization is a military. Of course, and I will argue also pandemics. And, I've argued that people like von Mises and Hayek, said the state is needed for centralized activities, such as epidemics and wars--that's Hayek. And von Mises accepted the state. They didn't hate the state. They just said their idea of the state having this function, and that function is things that cannot be done by other units. And, that's the notion of subsidiarity under which the European Union was built. Unfortunately, execution is not in line with the claims, the initial claims.
Russ Roberts: We got to back up, we got to back up.
Nassim Nicholas Taleb: Yes.
Russ Roberts: The whole point that I understand you to be making--both in the pieces that you've written recently and going back to your books, Skin in the Game and Antifragile--the value of the small scale is to maintain skin in the game. It's to maintain--
Nassim Nicholas Taleb: It's also, you have skin in the game. Exactly. Because a local ruler--the bureaucrat in Brussels is not going to be punished if the bridge doesn't work well. But, the local mayor, particularly if elected among the citizens, will have to encounter at a cafe on a Sunday the afternoon would feel shame if she or he fails in the project. So, there is some skin in the game, and particularly when you elect people that are embedded from the community.
Russ Roberts: That's a very lovely idea. But it doesn't--I don't know how you get there from here.
Nassim Nicholas Taleb: You have to look at where it worked and how it worked. It worked very well in Sweden and the Scandinavian countries that are already small; and they got smaller. Swedish and Norway speak languages that are close together. When you talk about other countries like in the Middle East countries that speak languages--they call it Arabic--but they're absolutely not connected. I mean, the dialects are not mutually understandable. They broke up things as fast as they could and within the way they manage their provinces, it is bottom up. Switzerland is a country that is built to be bottom up and to stay bottom up, where you paid most of your taxes to the municipality--
Russ Roberts: The canton--
Nassim Nicholas Taleb: to the canton and to the local unit, and the residual to the state.
Whereas things that came from the Old World were top down.
By the way, Germany has always been bottom up. There were 300 states before the French Revolution, 39 states when it came to unification [German Confederation, 1815--Econlib Ed.]. Of course, now they had their boons. The people didn't realize that after the war, the French wanted to punish them. They said, 'Unification. And, then, you get Bismarck, and then you get Hitler. You know what? Let's make sure that their federation is unified.' And that's what made them strong economically. So, they wanted to punish Germany by making it the federation [inaudible 00:26:32] French mind.
Russ Roberts: Distributing their power.
Nassim Nicholas Taleb: Exactly. Distributing the power allows for things to work better.
Russ Roberts: Why?
Nassim Nicholas Taleb: Well, as you mentioned, skin in the game. There are also a lot of mechanical things. You also have to understand that the bureaucrat thinks in terms of geopolitics and abstract matters, whereas the local person thinks in terms of water, bridges, cleanliness of the--
Russ Roberts: Schools.
Nassim Nicholas Taleb: Stuff like that, yes.
Russ Roberts: As an economist, the way I think about it--which is similar, but not exactly the same as the way you think about it--I think about it is that: ideally, I want to be in a club with people who share my preferences. We can then do things together effectively. But, that's going to be a very small club. So, it has to be bigger than that, usually, and I'm going to sacrifice some autonomy, some freedom of choice. And in particular, there are going to be situations where it's inherently going to be a conflict that we don't agree, say, on the size of the military, size of the police force. And, we accept that restraint on our ideal, because we understand that the gains from banding together are sufficiently large.
When you go past that point--and I'll use the United States as an example--all of a sudden, there's a potential cross-subsidization and the political process can start to devote itself to rent-seeking, to exploiting certain groups at the expense of others. And, you're stuck. You can leave. To leave the country is relatively costly. And, the politicians are then able to pass certain regulations and laws that are not, quote, "for the good of the people," but are rather good for certain people and not for others.
So, what you're suggesting, and I think maybe you don't agree, but what I think you're suggesting is something that was unimaginable 25 years ago, but I think is increasingly likely, which is that the United States will divide into more than one country. California could be in some country--
Nassim Nicholas Taleb: But, the United States is designed for that. The United States is designed to be divided into more than one country. All you have to do is weaken the federal government's role in some affairs and increase the role of the state.
The problem is, every time I talk to people about it, the Republicans love the idea of a strong state, weak central government. On the other hand, they want a strong state over the municipalities, as we saw with COVID. So, we already have the structure in the United States for what you're discussing. You have states. That's the idea exactly, that you have states.
Russ Roberts: I think it's called the United States.
Nassim Nicholas Taleb: Exactly.
Russ Roberts: It's hard to remember that that name actually isn't just like, Fred. It's an actual description.
Nassim Nicholas Taleb: Exactly. So, people may be fighting in Washington over something, and in the states over something else. What matters for you is what happens in your municipality and in your state, not far away. And the states here has a size problem. Some states are very small. Some states are very large like California, so are Texas. So, effectively, all you have to do is redistribute decision making from the central government to the states.
Russ Roberts: But, that's not very popular. Although again, I think the South could secede again, ironically. The coastS could secede from the federation. Right? You could have California, Oregon, Washington State called a new country. You could have the East Coast be another country. The Midwest would be a country, and the South would be a country.
Now, what would be wrong with that? There would be two things potentially wrong. One is they'd still need some, perhaps, unified defense policy, although it's not obviously so necessary because they have the oceans.
But, the other idea that's fascinating, which we haven't talked about, is that people like the idea of belonging to the United States of America. They used to. I don't think they like it so much. I don't think there's a national narrative that's shared by those four different countries.
Nassim Nicholas Taleb: The notion of national narrative--again, I mean, in my work now, the narrative should not be the driver because national narratives change all the time. This is why, when you're small, it's easier. Again, it's a matter of scaling. They could change narratives much faster.
The piece I wanted to discuss today is the one I wrote on Ukraine versus Russia. Not because we care about Ukraine--well, we care about Ukraine, of course; we care about Russia--but because it's represents the model. The talk I gave in Ukraine during the summer--I was a guest of the government--and I saw what was happening. When I explained first that you can speak Russian: is not a problem. You don't have to create a new category, a linguistic category. You can speak Russian and not be part of Russia, as Russians couldn't get it.
But, the Swiss get it. You can speak French, be culturally linked to France, but administratively linked to Switzerland where it works better.
So, first, I started explaining that you had to break up that notion of 'state equal nation, equal people'--that equality. And then effectively, you can start having pathologies with the nation-states where the whole nation as an entity, on balance acts against the interest of the individuals--see, where you have, you have these things that start emerging from bad scaling.
So, in that piece, I said, 'What we have here, it's a war.' And, then I rewrote it after the war started, I said, 'We have a war not between two countries, not between East and West. Between a model, the new model, which is NATO-based--where basically all we have is that you could have any kind it, so long as our defense is insured as it was during the Ottoman Empire, the Roman Empire, or under Alexander, under some kind of new imperial power, which is NATO, with shared decision making.
Russ Roberts: A confederation of military power.
Nassim Nicholas Taleb: Exactly. And then, you do whatever you want outside of that.
You see? What we call the West is not the West versus Russia. If it was the West, it was[?includes?] Taiwan. You see?
And when you look at that model, of course it's a classic liberal model. When you let nations start working as nations, they focus on prestige--like Napoleon was interested in prestige of France. The English couldn't understand him and he didn't understand the English. The English were interested in commerce and couldn't understand why this person hurting his economic interest in the name of prestige, simply to prevent trips from carrying merchandise across his territory. He couldn't understand the English. They couldn't understand--they were already one century apart. You see?
We're living in Adam Smith's world where this pencil is made by people who have never met one another and don't even know that their contribution is going towards the pencil, except for one. We're living in that world. Thanks to some globalization. And, of course, it's going to have its limits. Nobody really wants autarchy. So, what we're disagreeing about is the degree of the limits of that globalization; but nobody wants to go back to autarchy. So, when people say, 'I'm against globalization,' they usually mean 'I would like it reduced in some places to--exactly--to be managed better.' But, globalization visibly is the name of the game today. And, that idea of people obsessed with national identity and prestige and stuff like that, it is very archaic. But, it was already archaic 225 years ago.
Russ Roberts: But, don't you think it appeals to people? Isn't part of what we talked about, Brexit, with Megan McArdle based on Roger Scruton's book, Where We Are--don't people have a sense of self, part of their identity, that comes from where they live and pride they have in their country?
Nassim Nicholas Taleb: It is, but it changes all the time. That's the problem.
Russ Roberts: Why is that important? Explain.
Nassim Nicholas Taleb: Okay. This is why I like the minimum deliverable--the minimum deliverable unit in size--because when things are small, they can change more easily than when things are big. It's, again, a matter of scaling. You see, running Russia is much more difficult, much more than 10 times more difficult than running a country a tenth of its size. It's disproportionate. You have to curate an identity. You have to keep curating an identity. The state has to keep managing things--the flag, the anthems, the history, the language, and all these matters. And, this gets harder disproportionately as the state gets bigger, just like the stone harms you more and more as it gets bigger, disproportionately. So, if you double the stone, you have four times the harm. Yes.
Russ Roberts: So, in the United States, you're suggesting that at its current size, given its diversity, it cannot curate an anthem, a narrative aligned with--
Nassim Nicholas Taleb: It can, it can. Because in the United States, just is probably an exception to that rule because of the way it's built. In the United States, you realize the federal government doesn't enter your life that much. The municipality, the county, the state, the smaller units enter disproportionately.
And, a country like Russia under Putin, as it was under the czars, Putin now names the governors of provinces. And, then you end up having a large state with at least a hundred ethnicities of Russia that needs to be curated all the time, because otherwise it will break apart.
Russ Roberts: So, I want to get this. You gave me half the story of this recent essay. Ukraine is Western, you're arguing. It is de facto, kind of, under the umbrella of a military confederation known as NATO. France is part of that. Germany is part of it.
Nassim Nicholas Taleb: Yeah. I mean, Ukraine is not there yet. That's where it wants to be.
Russ Roberts: I understand. It's longing--
Nassim Nicholas Taleb: Yeah, exactly.
Russ Roberts: It's aspiring to be part of this, what you call, more bottom up, quote, "Western approach."
Nassim Nicholas Taleb: Exactly.
Russ Roberts: You pointed out 'Western' is a misnomer in the sense that Taiwan is in the West. It wants to be an independent entity. What's the other side? What against the West?
Nassim Nicholas Taleb: The other side is the Czarist model of centralized, over-centralized administration, curating an identity and a large territory. And, needing to acquire more territory, because you had to think of the genesis of that. Venice was a flourishing republic for 1100 years--more: 1100-some years. Venice. It did not try to acquire territory. That's not the business they were in. You see? It tried to acquire places like Famagusta, and other other spots for commerce, but not like for the sake of territory. That was not their business. You see? Russia has businesses to acquire territory plus we have to think of Russia--
Russ Roberts: Why? But, why? Why can't it be content having its big self?
Nassim Nicholas Taleb: Well, that's how it started. When you talk about ethnic state and you have to say ethnicity as of when? You see? When people go back in history and say, 'This is a territory.' Okay. But, every piece of the world had belonged to some other group claiming historic answers. But, Russia is very weird because for one--it has two exceptions. One, it's a place that was formed by migrations coming from west to east--from the Volga, the fresh-water Vikings coming down and mixing with these populations, west to east.
And, the other one is it creates its identities--big identity--rather late in history or quite late in history. You have to remember that in the 13th century, Kiev was [?] Kiev, under the grandson of Genghis Khan. So, the Eurasian Steppes is the one--the Mediterranean was settled early but the Eurasian Steppe is the one that was settled the latest.
So, creating identities and things that formed late requires a lot of work. A lot of, lot of, a lot of work. It was helped by Orthodoxy, not because of the religion, but because they had that Slavic language or Church Slavonic as a beacon, as a pure language to work with.
Russ Roberts: But, that curation challenge--which I understand--I understand the challenge of it. But it seems to me, the point you're really making is that a state of that size with that loss of skin in the game, that loss of accountability for the people: if you're living in--I was going to say Leningrad--if you're living in, what is it called now? Is it Saint Petersburg?
Nassim Nicholas Taleb: Saint Petersburg, yes. Saint Petersburg.
Russ Roberts: Okay. Thank goodness. Didn't humiliate myself completely. You know, I had COVID recently, Nassim; and they say COVID is tough on your memory.
Nassim Nicholas Taleb: I don't know. It increased mine.
Russ Roberts: Yeah. I didn't have very good memory. I forgot stuff a month ago--before I had COVID--too. And, I get tired in the afternoon before I had COVID and I still get tired in the afternoon: 'Yeah, I'm so tired with COVID.'
But anyway, if you're living in Saint Petersburg, it's true. You care about whether the water is clean, or whether the bridge has potholes, that it's safe. You care about the quality of your school, if you're going to a public school, and so on. And, it's true that if Putin has basically named the mayor of Saint Petersburg or named the head of the province or whatever, the governor, it's not going to work very well. But, isn't that the essential point? That the lack of skin in the game of a large centralized top-down place is the problem, not this curation identity-thing you're talking about?
Nassim Nicholas Taleb: No, no. There are a lot of things together, but skin in the game, that's not one of them. It's multifactorial. But, I think that it's also easier to manage when it's small. Other than skin in the game, it is communication-wise because things grow, the connections grow non-linearly when you have a large country. So, having this communication network, all that requires more and more effort to just keep the thing centralized. So, centralization has not worked in practice aside from skin in the game.
Russ Roberts: And, you're saying the United States is partly an exception because it's a more federated system.
Nassim Nicholas Taleb: It started as a federation, the United States.
Russ Roberts: Yeah.
Nassim Nicholas Taleb: The individual has a big role in the United States. You don't have a national narrative. You don't have a national language--
Russ Roberts: Used to--
Nassim Nicholas Taleb: You can speak Spanish. The common narrative is the law. People talk about the Constitution as if it were--religiously. The mechanism of the United States actually is being used as a model in Europe, to try to have the same things to hold together these bunch of countries now, that new legal system called EU [European Union]. And, a lot of people are using--the United States, we have to also realize, is the oldest, I suppose, one of the[?] the oldest democracies functioning. At the Congress of Vienna, there were only three democracies. And, people didn't understand: Where's the king? Who does it belong to? Because before, when you had kings, it belonged to a king. So, it's a country built differently and it works.
Russ Roberts: But, I like your metaphor. The thing I've enjoyed so far the most of what we've talked about is: It's better to be a mouse than an elephant in many situations, because you're antifragile. But, of course, there are times you'd rather be an elephant--when there's a lot of cats around.
Nassim Nicholas Taleb: Of course, of course.
Russ Roberts: The elephant has got those advantages. And that's the--
Nassim Nicholas Taleb: Yeah, but look at survival. Let's look at numbers. You don't have a lot of elephants left. The mammoth went--even before we started messing with the environment, the mammoth disappeared. The large animals disappear quickly. They go extinct very quickly. It tells you something about if you want to survive, if you want your genes to survive or your species to survive--
Russ Roberts: As a species.
Nassim Nicholas Taleb: Yes.
Russ Roberts: But, that's your other big point in some of this writing, which I also love. It's one of the deepest things I've learned from you, that: As a species, as a group, we really want to avoid ruin. And, ruin for one person is a tragedy, of course. A death, a single death is a tragedy. But, the death of a people--the death of the species, the death of a humanity on the surface of the Earth--that's apocalyptic. That's a cataclysm, that's a catastrophe. It's not a tragedy. And that we should be very aware of things that threaten ruin. We should do that as individuals,, too. I think it's a powerful personal lesson. But, your point is that mice may be vulnerable to a stampeding elephant--a mouse might be vulnerable. But, mice, they're hanging in there. They're doing pretty well. There's a ton of them.
Nassim Nicholas Taleb: Exactly. We have more mice in New York than humans, they claim. Can't say the same about elephants in Africa--even if you scale by the size.
I have a couple of more things I'd like to discuss with the modern world. In fact, I just thought of contradicting your idea. Maybe the United States should break up. The rest of the world is trying to resemble. The United States--
Russ Roberts: Is trying to what? Resemble it?
Nassim Nicholas Taleb: Resemble the United States as a structure. Europe, for example. I mean, we're far away from that. So, it works. And, it doesn't work in many other places that are large because this structure is effectively--you don't need to belong to another country because you don't feel the need.
But, if you feel the need to belong to another country if you're in Tatarstan, for example, part of the Russian Federation, you want to be out if you're a Tatar. You want to be out of Russia if you're Ingush. You want out of Russia if you're Chechen. They tried, by the way, before the Ukraine, with even more disastrous consequences, more lives lost per square mile.
One thing I would like to add is the perception of the system, and that's an idea I'm borrowing from Tocqueville and extending to the modern world. We live in a free world. But, it's sort of like, yeah, as you say, not so free. You feel that it's not so free because it's free; and it's improving. So, Tocqueville realized that the degree of dissatisfaction in a country is proportionate to how good things are. You see? Effectively, before we had the Internet, people weren't obsessed with freedom--about people spying on you, but the state had J. Edgar Hoover. You see? So, the more people talk about loss of liberty and stuff, the more liberty there is in the system. See? At no point in history, have we had given more rights to people who are underprivileged. But, at no point in history, have people complained more.
So, that comes with the system. It's another phenomena where transparency can be a problem because you tend to see the bad things more easily in the Western World. Whereas in places like Russia and opaque systems, you don't see them. You don't see what's going on and people don't complain about it.
So, what happened is states like Russia and China have tried to exploit that attribute of the Western system by creating distrust of the government on the part of citizens. You see, by finding examples, cherry picking example--of course you have malfunction everywhere. It's not perfectly free, but it's free. Generally, free.
Russ Roberts: I think vigilance is the [inaudible 00:48:33] price of liberty and fighting tyranny is always important. And I just blew that quote because I've had COVID and I can't remember it correctly, but maybe I'll remember by the end of our conversation.
Russ Roberts: But, I want to come back to your point, in the United States, in a different way. I think it would help--I think maybe listeners see this, helps me see it when I think about--if the United States had a federal police system. You know, we have the FBI, which is the Federal Bureau of Investigation. But, suppose all police were employees of the United States. That's a remarkably enormously different system than San Francisco having police or New York City having police. So, all of the terrible things that have happened with police in the last 10 years or so, and of course, [inaudible 00:49:20] before, we weren't as aware of, created enormous backlash; but it's localized and the people who are accountable have had trouble. If it was at the federal level, it would be hard to hold them accountable.
Nassim Nicholas Taleb: Yes, exactly. Yes. It would be.
Russ Roberts: It's profoundly important--
Nassim Nicholas Taleb: Exactly, exactly--
Russ Roberts: in a country the scope of the United States, the fact that police is decentralized--even though it's imperfect; it doesn't work great; it's not perfect--it does have some accountability, which we would have none of.
Nassim Nicholas Taleb: Exactly.
Russ Roberts: The idea of firing the chief of police of the United States because somebody in San Francisco was treated badly or somebody in New York City would be unimaginable; and it would just persist.
Nassim Nicholas Taleb: So, there are two things. Things that are imperfect but functioning well--self-correcting mechanism, I call the West a self-correcting mechanism, was complaints causes self-corrections. So long as complaint leads to something--we had Snowden arguing about [inaudible 00:50:14]. I don't think that he did that in earnest. He wanted to hurt the country, whatever; but it led to some correction. Whatever leads to correction, there's a good system. Now, this is very similar to fooled by randomness--the problem of fooled by randomness.
Russ Roberts: Explain.
Nassim Nicholas Taleb: Because--you said earlier, the death of a child is a tragedy. The death of a million is a statistic. Misattributed to Stalin.
Russ Roberts: I didn't say that. That's what Stalin said. I said, the death of millions is a catastrophe.
Nassim Nicholas Taleb: A catastrophe, okay. All right. So, the way we perceive things again, is scale. I know that from trading. If you show someone his P&L [Profit and Loss] live, he or she would go nuts. They would magnify it. If you look at a screen--
Russ Roberts: What do you mean? P&L being profit and loss?
Nassim Nicholas Taleb: Yeah. Profit and loss. If you're a trader and you see your P&L throughout the day, you'd go nuts. You'll have all these emotional swings. Whereas if you see it every day, it's better. I gave the example in Fooled by Randomness, by saying something has one unit of standard deviation for one unit of returns. You have, say, 51% chance of being profitable on any given day. But, you have a very high--probably a 90-some percent chance--of being profitable over, say, a year, or over longer than a year, something like that. The 85% probability being profitable over a year, but very small. And intra-days, nothing: 50.001%. So, it's the same thing was when you have details.
So, what disinformation does is provide people with a lot of details rather than the [inaudible 00:52:21]. It will drown you in details. So, you don't see the thing at scale. We don't see what we have at scale.
Russ Roberts: So, you're giving a theory of propaganda.
Nassim Nicholas Taleb: Propaganda, yes.
Russ Roberts: If I'm surfing on the web, and if my Facebook feed or my Twitter feed is full of these little nagging thorns of dissatisfaction, I might start to think I have a bad life, when in fact I have a great life. It's just that it's not perfect.
Nassim Nicholas Taleb: Exactly. You want to prevent yourself. The therapy you use as a trader is you look at your life-to-date P&L. You see? So, when you focus on your life-to-date P&L, it puts things in perspective. You say what? This is tiny. Or your year-to-date, sometimes, when you have a good year. But, it's best to focus on your life-to-date. This is tiny and it allows you to continue.
But, a lot of people don't do that. They're drowning in news. They're drowning. And, we're not good at scaling the news. So, if you have a piece of information, you know how to put it.
It's a well-known statistical problem. You have decision scientists and psychologists who created a whole field with it, the Kahneman/Tversky approach, all that. And, how representative is that piece of information, how you overestimate its value.
So, disinformation will play on that, whether it's vaccines or other things. So, just to tell you that, 'Hey, we live in tyranny.' 'Why?' 'Because so-and-so happened.' Because you have truckers and [?] and people managed to make them believe that truckers are trying to block roads in Canada are equivalent to fighters in Ukraine. Think like that. The mechanism is very linked to fooled by randomness.
Russ Roberts: Now, it's certainly true that we have trouble putting things in perspective and understanding the law of large numbers in every direction, right?
Nassim Nicholas Taleb: Yeah.
Russ Roberts: It's like when the student complains about the exam being misgraded, and you want to say, 'Are you going to come in when I gave you too many points?' When you have lots of exams, it's not a major injustice if your homework is off by a couple points.
Nassim Nicholas Taleb: Exactly.
Russ Roberts: It's only 10% of the grade.
Nassim Nicholas Taleb: It's a question of scaling. It's the same thing as scaling. How your mind scales, how things scale. There's a law of large numbers in the question of scaling, of how randomness washes out at a large scale. And, the same problem with a lot of other things related to political life.
Russ Roberts: So, this is really interesting, Nassim. But, here's my--let's close with this question and I'll give you a chance to make fun of libertarians, which I know you do occasionally, even though you're something of a libertarian.
Nassim Nicholas Taleb: Because, I am a [?] libertarian at an Italian school, where I think that nobody should coerce me into something. But, at the same time, like von Mises, I believe it has limitations.
Russ Roberts: So, you're not anarchist. We know that. Neither am I.
Nassim Nicholas Taleb: I'm not an anarchist. I saw anarchy in Lebanon. We see it in Somalia. We see it in Libya. We know what happens when you have no states. You want to correct. You want to reform the establishment.
Russ Roberts: So, these observations that you've made today, and you've started to write about, I think you would describe them generally as: What is the appropriate scale of the state? What is the appropriate scope of the state? And, that many of the states today around the world are, quote, "too big." So, that's an interesting observation. Is it a political message? Is it a rallying cry? Is it just a description and observation of how the world works? Do you think we should all turn into Switzerland--not move to Switzerland, but do you think all countries should head towards Switzerland in some dimension?
Nassim Nicholas Taleb: Or United States or Germany. People don't realize when I tell them, 'Listen, what's the most successful place in the Near East or a place you'd like to go to?' They tell you, in the Middle East, not Near East. They say Dubai. Dubai is a city-state. The other one, Abu Dhabi. Abu Dhabi is a city-state. They're part of a Confederation of City States. They share an army. They share an honorific ruler and they share ambassadors. You tell them, 'Hey, what's the most successful modern country in last 50 years?' 'Singapore.' What is a city-state? See? It's a model for China. I mean, if the Chinese want to survive, they should read more about the Bronze Age collapse.
Russ Roberts: About the what?
Nassim Nicholas Taleb: Bronze Age collapse. And, try to build themselves as a confederation of Hong Kongs and Singapores.
Russ Roberts: So, what is stopping that? Is it simply the desire to--
Nassim Nicholas Taleb: Culture. Blind culture.
Russ Roberts: And, not for power to accrete around centers that naturally want to expand?
Nassim Nicholas Taleb: I think that it all starts with, we have bad education, in many things. If you look at French education, how Napoleon was great because he made France great, are you interested in France or Frenchmen? Okay? There's a difference. The goal is actually, we're not interested Frenchmen. The glory of France and [inaudible 00:57:40] Frenchmen. Just to tell you how bad things can be in the education: They think that it's an entity, a religious entity, you have to ratify[?reify?], and all that came after the French Revolution. I mean, all this disease of nation-state came after French Revolution. And it has some things that are horrible about it. To give you an idea, what happens, the deaths you have in another country don't count on your battle sheet. You see?
So, whereas the--the Christian religion makes you treat foreigners as equal. So you really--a step in the moral field is a step backwards in the nation-state.
And, think about it. It's not wars. I'm going to give you something quite convincing. We looked, Cirillo and I, we study wars. We studied the dynamics and properties of wars. How many people died in Italy before unification? You had hundreds of wars--like, at least--that we know of. Some killed three people, sometimes the same area, and then they settle. It's a small town, small wars between people, states and this and this; and some killed of course, 15,000. But, over 500 years, the number is somewhere between, we think 15,000, under 80,000 people died in wars. The first war cost Italy 680,000 soldiers.
Russ Roberts: First World War.
Nassim Nicholas Taleb: First World War. 680,000 people. Okay? So, you realize that nation-states, they like war.
Russ Roberts: But isn't part of that, aren't you confounding the advances in technology that made the First World War much more lethal? It wasn't merely that it was waged between nation-states, right?
Nassim Nicholas Taleb: Maybe. Have you seen states waging wars? We had the [inaudible 00:59:34] wars with the Greek Confederation against the state, the person state. City state have wage wars, but nothing central. That's not part of the record. That's not the business they're in.
Russ Roberts: The other point, to make your point when they wage a war, its impact is limited. It's your point about, if people drink and drive, some of them are going to die. They're going to be taken out of the gene pool and they're not going to kill other people down the road, literally. And, city states that get rambunctious, they may cause some trouble in the neighborhood, but they're not going to [inaudible 01:00:13] limited.
Nassim Nicholas Taleb: Exactly. It doesn't generalize quickly. I'm not wrong to say that never [inaudible 01:00:20]. In Italy, it's always over something small and it's never systemic. Like Hitler wanted substance systemic, wanted the German race to dominate this part of Paris. It was their territory or what we have with the Russians.
Russ Roberts: I really like this vision, but it reminds me a little bit of my favorite poem by Hilaire Belloc, although I have a couple. It's called Pacifism. It goes like this--it's very short:
Pale Ebenezer thought it wrong to fight,
But Roaring Bill (who killed him) thought it right.
It's nice in the poem. It's nice to have a city-state that minds its own business, involves, engages in commerce, lets people flourish, choose their own paths in life, and so on. But, in a world of nations, a city-state is very vulnerable and there's a natural tendency towards forming a nation. Any imaginable path toward a reduction, again is centralization.
Nassim Nicholas Taleb: Yeah, exactly. Yeah. I told you NATO. NATO is there. That's the purpose of NATO. That's why I was excited about NATO. You see? That's how it started. That's how this whole essay on Ukraine started. In Ukraine, rather Ukraine before the war, because it was like Hannibal ad portas--Hannibal at the gates. They all saw this monster. Silent monster.
Russ Roberts: The giant bear. Not an elephant, but a bear.
Nassim Nicholas Taleb: Exactly. So, it was a bear. They saw at the border trying to get in, and sure enough it's trying to explain the notion of a system where these things don't happen. Small states, I mean, I said, nationalism works at small scale because you may not like your neighbors, but you end up dealing with them.
And, look what's happening in Yugoslavia. People forget to look at Yugoslavia as the best experience we had in years. There's actually additional state to the six. Kosovo is a state now as part the former Yugoslavia. When you think about it, this works.
Russ Roberts: I guess you would also make the observation that NATO's military power under the umbrella of a set of nation-states all smaller than the whole has yet to run amok. Is that an accurate statement? There's never been a war of aggression by that kind of confederation. It's a defensive confederation. Am I romancing it?
Nassim Nicholas Taleb: No, no. You're not romancing it. The only problem was NATO. I mean, I'm going to play the devil's advocate to NATO, because a lot of people say NATO is an extension of United States using their colonies, militarily speaking, to do work for them.
Russ Roberts: And, they say the European Union is an extension of Germany using their colonies. You hear the same thing.
Nassim Nicholas Taleb: Exactly. You're going to hear a lot of things. But, to end my point is that I've spoken to a lot of political scientists over time and not one of them was interested in scaling. You just introduce the notion of scaling, not the [inaudible 01:03:32] of scaling to the discussions, and you come up with all these results that are obvious and answer a lot of questions that are obvious. Scaling is important. They didn't think about it. Communism failed in the Soviet Union. Is it because Communism is bad or is it question of scale? Communism works in a kibbutz. You had a kibbutz fellow. It all sort of works in a kibbutz. No?
Russ Roberts: Yeah, or in the family as we talked about many times.
Nassim Nicholas Taleb: Or in the family. Exactly, exactly. It's works in a kibbutz, but it failed in the Soviet Union. So, we ignore that essential thing, that people who work with nonlinearity and nonlinear responses under uncertainty are familiar with. So, we just translate some of our modest knowledge about nonlinear response to questions of foreign affairs, political science, and international relations.
Russ Roberts: My guest today has been Nassim Nicholas Taleb. Nassim, thanks for being part of EconTalk.
Nassim Nicholas Taleb: Thank you. I'm always honored to be here.