By Ted Schwartz
This week I met with two very bright individuals who parroted the CEO cry that we “need certainty” before the economy will improve and companies will hire people. At the same time, I am reading Taleb’s, Antifragile. His whole point would be that things in life are not predictable and actual results often do not even approximate the outcomes we think are possible. Taleb would argue that certainty is a bad thing, making us more fragile to the problems that will inevitably crop up in the future.
For me, the whole notion of certainty being a necessity goes against the grain of everything I know. The rationale for why entrepreneurs can earn more than employees is that they are taking a risk. The reason equity investors make more than fixed income investors is referred to as the risk premium. You expect to earn more due to the increased risks you take. Now, the cry is that we have to be assured of future results and of what taxes we will owe on our profits. We now refer to things like “making the tax cuts permanent.” The chart below shows the changes in the maximum marginal rates since 1913. Does this look like we offered “certainty” and low taxes up until President Obama arrived on the scene?
Let’s not forget that we experienced a huge amount of growth during the period since 1913. During this time frame we also experienced almost 20 recessions. Yet, we did not have entrepreneurs constantly saying they would not hire or invest unless they were given certainty of results. It is the cry of the 21st century entitled, “the successful class must be assured results before taking any risks.” It really can’t work that way.