Wars, Deficits, and Deficits
Taleb argues that nonlinear interactions can make the costs of wars and other large projects exceed initial estimates. He uses historical cost claims to support his preference for fiscal constraints.
THE IDEA
Wars, Deficits, and Deficits
The Great War was estimated to last only a few months; by the time it was over, it had gotten France and Britain heavily in debt; they incurred at least ten times what they thought their financial costs would be, aside from all the horrors, suffering, and destruction. The same of course for the second war, which added to the U.K. debt, causing it to become heavily indebted, mostly to the United States.
In the United States the prime example remains the Iraq war, expected by George W. Bush and his friends to cost thirty to sixty billion, which, in Taleb’s account at the time of writing, may have swelled to more than two trillion when indirect costs were included—indirect costs multiply, causing chains, explosive chains of interactions, all going in the same direction of more costs, not less. Complexity plus asymmetry (plus such types as George W. Bush), once again, lead to explosive errors.
The larger the military, the disproportionally larger the cost overruns.
But wars—with more than twentyfold errors—are only illustrative of the way governments underestimate explosive nonlinearities (convexity effects) and why they should not be trusted with finances or any large-scale decisions. Indeed, governments do not need wars at all to get us in trouble with deficits: the underestimation of the costs of their projects is chronic for the very same reason 98 percent of contemporary projects have overruns. They just end up spending more than they tell us. This has led me to install a governmental golden rule: no borrowing allowed, forced fiscal balance.
When to use it
Planning a major infrastructure project like a high-speed rail or dam.
Budgeting for military interventions or peacekeeping missions.
Forecasting long-term government spending on entitlement programs.
Evaluating corporate merger integration costs and potential overruns.
FROM THEORY TO EVERYDAY LIFE
In practice
World War I
Taleb reports that the war was expected to last a few months but cost France and Britain at least ten times their anticipated financial outlay.
Iraq War
Taleb contrasts an initial Iraq-war estimate of $30-60 billion with a later estimate above $2 trillion including indirect costs. These are the figures in his historical account, not an updated cost total.
A MOMENT TO REFLECT
Put it to work.
Think of a large project you were involved in; did the actual costs exceed initial estimates? What factors contributed?
How can governments account for nonlinearities and complexity when planning large-scale initiatives?
What mechanisms (e.g., forced fiscal balance) could prevent chronic underestimation of costs?
CONTINUE THE CONVERSATION
Source texts
- Antifragile (Nassim Nicholas Taleb)