Name: Nassim Taleb - The TRUTH About Employment [w/ Russ Roberts]
Uploaded: 2025-02-04T23:28:33.000Z
Duration: 9 min 46 s
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Let's talk a little bit about employment.

Adverbs of degree

We may have talked about this in the last episode, but it's so interesting, I just love it.

Talk about the example of flying to Germany for Oktoberfest, and 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 offer and he's going to do something else.

Exactly, the reason we have employees, and that, again, I credit conversation with you, is not because an employee is cheaper, delivers things better, no.

It's because an employee has a lot more to lose.

In other words, he has something to lose more than that specific job.

And they've also have signaled to us employees, by being employees, someone who was an employee for 35 years, or for 25 years, in a large corporation, they signal to us that they're not free.

And it's great, sort of like 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 let you down when you need them the most.

The reason we have 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 in why we have employees, because you want to own some people.

And just like we have, a lot of people have country houses, and that they don't use, it's much more efficient to stay in a nice hotel.

It's because they want to know that that place, they can go to it whenever they want to.

Either they woke up at midnight and decide to drive to the country house, they can do that.

They won't do it, but they would like to know they can do it.

And that's quite central, this idea of skin in the game.

And that was also a risk management tool that the Romans, the Romans practically have discovered so many things.

I mean, I would say almost everything in one way or another.

So the Romans figured it out because they never let a free person be a steward in a big state.

So if the person is caught cheating, the punishment is much harsher for a slave.

I thought about Joseph in the book of Genesis when he's the steward of Potiphar'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.

And of course, as a result of it, Joseph ends up in prison, really in what appears to be a life sentence, but manages to get out.

But the point about having a slave versus a employee is a really interesting one.

And we talked about this 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 wiped out by your slave or being able to 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.

They say, oh, that's such a low probability event.

Well, but if you die when it happens, it's more important than if you don't die.

You need a slave because you need someone who can be punished by a mistake.

And an employee is never gonna be able to come back if he's developed a reputation, a bad reputation.

Nobody would hire him or her, but a free person can always manage because- You can only fire an employee, but you can torture a slave.

I mean, that's not a very attractive thought, but that's the point.

Yeah, yeah, that's true, but still an employee, by firing an employee, you're actually, you have more to lose than just the job.

Whereas a contractor, when you fire a contractor, you find another client.

And typically, these are people who wanna stay in the job for a long run.

They trade their freedom for reliability.

The hierarchy you're suggesting is contractor employs slave and issue employee 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 in 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.

There are 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?

It 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 in employment, you may not be able to get that job ever again.

Yeah, that's, no, I mean, but in fact, I've observed somewhere that we have many more slaves today than we did in Roman times because in Roman times, slaves were actually sometimes freer.

Because we have a more complex system that need more reliable people, and an employee is practically a slave.

I mean, think about it in these terms, right?

He can go on Twitter and curse at someone else.

There's a lot of things they can't do, but it's not there that they're a slave because they have to show up and give you their time, nine to five or nine to six or sometimes eight to 10 at night, okay?

So they have to give you so much, and they're scared.

With the slaves in Roman times, of course they have downsides.

They could be beaten, they could be crucified.

But a slave at a time, you know, if you damage a slave, you can't sell them, so you lose market value.

So it's quite, I mean, I haven't written much about it in Skin in the Game, of course, so many other topics, but I'm certain that we have more people who are dependent today than we did in Roman times.

You do bear some cost if you fire your employees all the time.

But an employee is, okay, someone who sold you his work unconditionally.

So he's saying, okay, you gotta report by 9 a.m. and come back.

So why, or sometimes if there's nothing to do, they still have to show up.

So, or maybe you may have employees, of course, who are freer, but that's the typical standard.

Well, 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 8 and 4 p.m.

Yeah, so they're broken and young, and they learn.

There's a story in Nassim's book, Skin in the Game, which I think captures perfectly the essence of this idea.

In the famous tale of Ahikar, later picked up by Aesop and then again by La Fontaine, 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 collar and is terrified when he understands its use.