“I don’t know the odds of an earthquake, but I can imagine how San Francisco might be affected by one. This idea that in order to make a decision you need to focus on the consequences (which you can know) rather than the probability (which you can’t know) is the central idea of uncertainty…..
Invest in preparedness, not in prediction.”
So says Taleb in “the Black Swan.” Taleb is an empericist. Rather than trying to predict what’s going to happen, he talks of the “Great Asymmetry” and advises that one “Put yourself in situations where favorable consequences are much larger than unfavorable ones.”
As a practical matter this means the vast majority of your assets (or a nation’s assets) be put into the safest of investments. But a much smaller portion should concurrently be put into endeavors which, while most will fail, a few will reap huge dividends.
An example of an endeavor with potentially huge dividends: R&D into clean energy. We should, as a nation, invest across the broadest spectrum of such endeavors.
But in contrast, commercial banking should be treated as a utility and capital standards should be conservative and tightly regulated. In this industry, as we’ve learned, again, there’s not much upside but plenty of downside.
Consider health care. We are provided at birth with a marvelous creation: Ourselves. As far as modern science is concerned, we’re pretty much perfect from the beginning. That means we, physically, have limited upside but lots of downside. We can get deathly ill. We can get run over by a car. We can’t predict whether anything will happen to us, so we must be conservative with our most precious asset.
This would argue for a comprehensive health care system available to all citizens. Such as system, a utility really, would allow us the maximum preparedness cited by Taleb. People with a direct connection to a general practitioner are less likely to suffer negative health consequences. Problems are more likely to be spotted early and the damage mitigated. A GP’s ability to influence healthy living habits will enhance overall health, and reduce incidence and thus the cost of adverse consequences.
On the other hand, each one of us contains the ultimate in upside potential mentally. We have marvelous computing power contained in those six inches between our right and left ears. Our brains are, in fact, huge non-linear computers of pedaflop power (one quadrillion computations).
So what is the investment we should obviously make considering this powerful human capability? Education. Education is the enabling tool for the highest utilization of this human capital. Universal health care helps keep this huge upside healthy and operating while limiting the downside. Education enhances our mental powers and, as a result, unleashes huge upside potential.
You don’t have to take my word for this. Take Winston Churchill’s, the Great Britain Prime Minister during WWII.
“The future of the world is to the highly educated races who alone can handle the scientific apparatus necessary for pre-eminence in peace or survival in war,” Churchill said. He also said “Those who think that we can become richer or more stable as a country by stinting education and crippling the instruction of our young people are the most benighted class of human beings.”