“The idea of skin in the game is woven into history: historically, all warlords and warmongers were warriors themselves, and, with a few curious exceptions, societies were run by risk takers, not risk transferors…
less than a third of Roman emperors died in their beds…
the very status of a lord has been traditionally derived from protecting others, trading personal risk for prominence” (Skin in The Game, 11-12)
Lords used to be lead their countries into battle. The last known world leader to march into battle alongside his troops was King Albert I of Belgium who fought in World War One to protect his people when Germany invaded.
The mere thought today of a country’s leader going to a war-zone is absurd. But on a less understandable level, we don’t even expect them to be responsible for any mistakes. The idea of a president’s wealth moving with the market that he rules over is also never considered.
All the biggest companies in the United States are Limited Liability Corporations (LLC). This structure protects all shareholders and workers from personal liability. They’re incentivized to do well but not disincentivized to do harm. If I take a risk and it does well, I get rich, if it accidentally impoverishes a foreign country, the company takes the hit.
Our society is pushing for less and less skin in the game. As legislation gets increasingly strict, leaders are looking for more ways to protect themselves from risk. The fundamental question is, how can I make as much money as possible while shrinking my risk if things go bad?
It’s the root of the fundamental asymmetry we see in large companies, governments, banks, universities etc. Next we’ll look into how it affects normal people in our daily lives.
Question of The Day
Who would you prefer in a war-zone protecting the country: Trump or Biden?
Your Friend,
Noah “BigNerd” Sochaczevski
I am already liking this book. Good post. Looking forward to more.