Nassim Taleb - The TRUTH About Employment [w/ Russ Roberts]

let's talk a little bit about employment we may have talked about this in the last episode but it's so interesting I just love it talk about the example of um flying to um Germany for October Fest and with I've contracted out my private plane and I've got a pilot coming and he informs me the day before that he's gotten a better offering he could do something else exactly the reason we have employees and that again I credit uh conversation you know with you is the reason is not because an employee has uh you know you

it's cheaper delivers things better no it's because an employee has a lot more to lose he has skin in the game in other words he has something to lose more than that specific job so for so if if and and theyve also have signaled to us employees by being employees someone had was an employee for 35 years or for 25 years in a large corporation they signal to us that they're not free and and it's great sort of like you're you're so you have an employee it's inefficient but it's a good risk management tool because

you know that they're not going to um let you uh down when when you need the most the reason we have uh corporations is to avoid having legal contracts but that version that the person the employee is not someone is someone who escapes that notion of contract is to me quite Central and why we have uh uh employees because you want to own some people and be just like we have a lot of people have country houses and that they don't use is much more efficient to stay in a nice hotel is because they want

to know that that place they can go to it whenever they want to if they woke up at midnight and decide to drive to their country house they can do that they won't do it but they would like to know they can do it so they don't want to share and that that's quite Central in s have skin in the game and that was also a risk management tool that the Romans like the Romans practically have discovered so many things uh uh PR I mean I would say almost everything in one way or another so

the Romans figured it out because they never let a a free person be a steward in a big in a big state they wanted a slave and what's the reason because you can punish a slave you own a slave you can punish a slave so if the person is caught cheating the the the the punishment is much harsher for a slave so the steward was typically a slave yeah that was very deep I I thought about Joseph in the Book of Genesis uh when uh he's he's the steward of Piper's house and you're thinking why

is this lowly person given this control well he's really smart was one answer but it's not enough it's that ability to punish downside and of course as a result of it Joseph ends up in prison really in it what appears to be a life sentence but um manages to to get get out but the point about having a Slave versus a um employee is a is a really interesting one and it it highlights something and we talked about this in in another one of our conversations and it's so trivial but it's so deep because it's

so easily misunderstood and the way you phrase it is probabilities aren't the same as expectation the odds of something being remote is not enough to mean you don't have to worry about it because it depends on the consequences of that remote thing happening not just the probability so being uh wiped out by your slave or having being able to uh punish your slave is really very powerful because it's the magnitude not just the probability that matters and I think that's just an incredibly it's incredibly obvious but it's very deep because people forget it all the

time they say oh just that's not that's that's a low probability event well but if you die when it happens it's more important than if you don't die it exactly and here you can look at it that that it's it's uh um you you you need a slave because you need someone that who can be punished by a mistake and an employee is gonna never going to be able to come back if um he's you know developed reputation bad reputation nobody would hire him or her but a free person can always manage because you can

fire an employee but you can torture a slave I mean it's not a very attractive thought still an employee by firing an employee you're actually they have more to lose than just the job as a contractor when you fire a contractor you know you can find another client firing employee has more downside agree and and typically these These are people who want to stay in the job for a long run they trade the freedom for real liability uh no it's the uh it's the same argument I make the hierarchy suggest is contractor employee slave and

issue employe is getting close to slave because they have more at stake than contractor but not as much as a slave but it reminds me of this argument I sometimes make about football coaches or general managers and sports they are very risk averse and yet they're in this highly competitive business and it's hard to understand why they're so risk averse but the answer is there's a decent chance that if they mess up they'll never get that job again they're only 30 of them say or 32 depending on the sport and as a result they act

very cautiously you could say well but what's the worst thing that can happen that doesn't work out the strategy or the trade or the draft pick but it matters because the outcome isn't just unlikely it's unlikely with effectively a death sentence you may not come as as an employment you may not be able to get that job ever again yeah yeah that's that's uh no I mean but in fact I I made I've observed somewhere that we have um many more slaves today than we did in Roman times because in Roman times slaves were actually

sometimes Freer and why are we so slave burdened today because you because we have a more complex system that need more reliable people and an employee is practically a slave I mean you think about it in these terms right he can't say what he thinks he get fired he can go on Twitter and curse at someone else there's a lot of things they can't do but but it's not there that that there because they have to show up and give you their time 9 to5 or 9 to 6 or sometimes 8 to 10 10 night

okay so they have to give you so much um and and they're they're scared with with a slave and in Roman times of course they have downside they could be beaten they could be crucified I mean the owner could do whatever those are two negative things he wanted yeah but but but a Slave at a at a time you know if you damage a slave you can't sell so you lose market value and and and and with an employee it's not the same so it's quite I mean I I look I mean I haven't written

much about it in skin in the game of course so many other topics but um but I'm certain that that we have uh more people who are dependent today than we did uh Roman times it's an interesting argument I you do bear some cost if you fire your employees all the time people are mess less excited to work for you true but but but there uh an employee is okay someone who sold you his work unconditionally see saying okay you got to report 9:00 a.m. and come back so why or sometime if there's nothing to

do they still have to show up so or or I mean may you may have employees of course who are Freer but that's that's a typical uh standard why is that so what because you want people who are not free and this is why we have a school system to basically teach people to not be free between the you know between 8 and 400 p.m. that's how it works yeah it's practice yes they they so so they're broken and young and and they learn and and so you have employees Reflections there's a story in a

Sims book skin in the game which I think captures perfectly the essence of this idea so I will now leave you with this story in the famous tale of aikar later pick up by esub and then again by La Fontan the dog boasts to the wolf all the Contraptions of comfort and luxury he has almost prompting the wolf to enlist until the wolf asks the dog about his color and is terrified when he understands its use of all your meals I want nothing he ran away and is still running another aspect of the dog versus

wolf dilemma the feeling of false stability a dog's life may appear smooth and secure but in the the absence of an owner a dog does not survive most people prefer to adopt puppies not grownup dogs in many countries unwanted dogs are uiz a wolf is trained to survive so the question is what would you like to be a dog or a wolf thanks for watching and if you want to expand on these ideas I highly recommend you checking out nasim's book skinning the game as well as the guide on sh form which compiles all the

key nuggets I've been using sh form for the past 2 years and it has boosted my learning with its vast library of over 1,000 book guides they're not sponsoring this video but there's an affiliate Link in the video description and you can get a 5-day free trial and a 20% discount