Extremistan

REVERSALS AWAY FROM EXTREMISTAN

There is, inevitably, a mounting tension between our society, full of concentration, and our classical idea of aurea mediocritas, the golden mean, so it is conceivable that efforts may be made to reverse such concentration. To understand what is at stake, one must first recognize that our world has drifted from the mild randomness of Mediocristan into the wild randomness of Extremistan, especially in social and economic domains. Extremistan is the realm where a single observation can disproportionately impact the aggregate—where inequalities are so large that one outlier dwarfs everything else. For instance, imagine adding a fortune of $80 billion, using Bill Gates as the example, to the wealth of a thousand people whose combined holdings are much smaller. Do the same with authors and J. K. Rowling, whose hundreds of millions of sales make a thousand other writers collectively represent a tiny fraction. In height or weight, no individual can weigh fifty million pounds, because physical quantities belong to Mediocristan. Social quantities such as wealth, book sales, academic citations, and company size face different constraints and can vary over a much wider range. This is Extremistan, a domain with non-linear effects, fat tails, and the constant threat of Black Swans—unpredictable large-impact events that are later rationalized. Weapons of mass destruction also illustrate exposure to concentrated losses: one event can have consequences far beyond ordinary variation in past conflicts.

We live in a society of one person, one vote, where progressive taxes have been enacted precisely to weaken the winners. Political rules can be changed to limit some consequences of concentration, though doing so is not necessarily easy. But it does not require voting to do so—religion could soften the problem. Consider that before Christianity, in many societies the powerful had many wives, thus preventing those at the bottom from accessing wombs, a condition that is not too different from the reproductive exclusivity of alpha males in many species. But Christianity reversed this, thanks to the one man–one woman rule. Later, Islam came to limit the number of wives to four. Judaism, which had been polygynous, became monogamous in the Middle Ages. One argument for tightly monogamous marriage (with no official concubine, as in the Greco-Roman days), even when practiced the “French way,” is that it limits reproductive concentration. Whether that produces social stability is a further question; the rule alone does not establish the outcome.

But I find the emphasis on economic inequality, at the expense of other types of inequality, extremely bothersome. Fairness is not exclusively an economic matter; it becomes less and less so when we are satisfying our basic material needs. It is pecking order that matters! The superstars will always be there. The Soviets may have flattened the economic structure, but they encouraged their own brand of übermensch. What is poorly understood, or denied (owing to its unsettling implications), is the absence of a role for the average in intellectual production. The disproportionate share of the very few in intellectual influence is even more unsettling than the unequal distribution of wealth—unsettling because, unlike the income gap, no social policy can eliminate it. Communism could conceal or compress income discrepancies, but it could not eliminate the superstar system in intellectual life. The mechanism is often reinforced by the Matthew Effect—“For unto everyone that hath shall be given… but from him that hath not shall be taken away even that which he hath”—so that early success becomes a self-amplifying accelerator, making it necessary to succeed early, even in fields like mathematics erroneously thought to be a young man’s game.

It has even been shown, by Michael Marmot of the Whitehall Studies, that those at the top of the pecking order live longer, even when adjusting for disease. Marmot’s project links social rank with longevity; isolating the causal role of rank is a separate question. The account also cites a calculation that actors who win an Oscar live on average about five years longer than peers who don’t. It links longevity with social gradients, but an observed difference does not by itself show that winning an award lengthens life or that another person’s success shortens it. I do not know how to remedy this (except through religious beliefs). Is insurance against your peers’ demoralizing success possible? Should the Nobel Prize be banned? Granted the Nobel medal in economics has not been good for society or knowledge, but even those rewarded for real contributions in medicine and physics too rapidly displace others from our consciousness, with possible consequences for how others experience their own status.

Extremistan is here to stay, so we have to live with it, and find the tricks that make it more palatable. Some reversals, however, are emerging from the bottom up. The Web’s bottom‑up feature makes book reviewers more accountable. While writers were once helpless against arbitrary reviews that could distort their messages and expose small, irrelevant weak points, they can now post their review of a review on the Web, go after the reviewer’s credibility ad hominem, and ensure their rebuttal shows quickly in an Internet search or on Wikipedia, the bottom‑up encyclopedia. This partially dampens the concentration of critical power. At the same time, we must be vigilant, because many institutions have deepened our vulnerability to Black Swans. In the period discussed in the book, I argued that banks had become dangerously exposed, with “scientists” on staff employing risk‑management methods I considered phony. The giant firm J. P. Morgan introduced RiskMetrics in the nineties, a method that relied on the ludic fallacy and promoted the widespread use of “Value‑at‑Risk,” all based on the mistaken assumption that financial markets follow the Gaussian bell curve. Government‑sponsored institutions like Fannie Mae sit on barrels of dynamite, with large teams of scientists deeming catastrophic events “unlikely.” The lesson of Extremistan is that such models fail precisely because they ignore the fat tails—where the true action resides. A single Black Swan can outweigh everything, and risk management must account for rare, extreme events rather than hide behind the illusory comfort of the average.