The newest chic is to call everything "2.0," as though adding a major version number actually changes anything. Of course, sometimes it changes things completely.

I recently ran across this list of Ten Principles for a Black-Swan-Robust World, in which Nassim Nicholas Taleb, author of the book The Black Swan: The Impact of the Highly Improbable*, describes what he believes "Capitalism 2.0" should look like.

The only problem with it is that almost all of the items he lists are not actually capitalistic. He seems to have jumped on the recent bandwagon of confusing "for your own good" regulatory changes with free market self-regulation. The other items he lists are simply fluff – sickly sweet bits of cotton candy that melt to nothing as soon as you place them in your mouth. Here are a few examples.

Not Capitalism

2. No socialisation of losses and privatisation of gains. Whatever may need to be bailed out should be nationalised; whatever does not need a bail-out should be free, small and risk-bearing. We have managed to combine the worst of capitalism and socialism. In France in the 1980s, the socialists took over the banks. In the US in the 2000s, the banks took over the government. This is surreal.

Taleb makes two mistakes in this paragraph:

1. That the banking system isn't already nationalized – The old saying goes, "The worst trick the devil ever played was to convince the world that he doesn't exist." This could be modified to apply to the banking industry as follows: "The worst thing the Fed ever did was to convince the world that it's private." The Fed is a government-sanctioned monopoly whose chief administrator is appointed by the president; it conjugates with the Treasury Deptartment to whelp fiat money; and it enacts rules that bear the force of law. If it walks like a federal agency and quacks like a federal agency, then guess what – it ain't a private company.
2. That there exists anything that requires bailouts. – Taleb actually contradicts himself between his first and second suggestions. Basically, if fragile and risky businesses are allowed to fail when they are small, then nothing will ever require a bailout. There is no such thing as an "essential service"; there are only services that people want.

Next item.

3. People who were driving a school bus blindfolded (and crashed it) should never be given a new bus. The economics establishment (universities, regulators, central bankers, government officials, various organisations staffed with economists) lost its legitimacy with the failure of the system. It is irresponsible and foolish to put our trust in the ability of such experts to get us out of this mess. Instead, find the smart people whose hands are clean.

I agree with the sentiment of this item, but Taleb contradicts himself (again) in the "solution." The problem isn't so much that people are "driving the bus" but that they force others to ride with them. Handing the same regulatory structure over to a new set of people won't solve the primary issue, which is that a top-down approach is never a good economic policy.

6. Do not give children sticks of dynamite, even if they come with a warning. Complex derivatives need to be banned because nobody understands them and few are rational enough to know it. Citizens must be protected from themselves, from bankers selling them “hedging” products, and from gullible regulators who listen to economic theorists.

Yikes! Children with dynamite! Oh no! This reminds me of the opening scene of Arlington Road where the kid who plays Tim Robbins' son is walking down the street, arms bleeding from an accident he had while playing with fireworks.

Um, except that adults aren't children. I don't get why Taleb feels the need to consistently contradict himself, but just above this item he talks about the yin and yang of capitalism being reward and punishment. If people are stupid enough to buy into something they don't understand, that's their problem. Banning something "for your own good" is about as fascist as you can get.

Fluff

7. Only Ponzi schemes should depend on confidence. Governments should never need to “restore confidence”. Cascading rumours are a product of complex systems. Governments cannot stop the rumours. Simply, we need to be in a position to shrug off rumours, be robust in the face of them.

I don't disagree with this, but it's non-actionable. "Don't listen to rumors." Um, ok. Regardless, this really has nothing to do with capitalism – it's just general good advice.

8. Do not give an addict more drugs if he has withdrawal pains. Using leverage to cure the problems of too much leverage is not homeopathy, it is denial. The debt crisis is not a temporary problem, it is a structural one. We need rehab.

Riiiight. Isn't this list supposed to tell us how to do that? Self-referential reiteration of your goal is not a step in the plan to achieve that goal.

10. Make an omelette with the broken eggs. Finally, this crisis cannot be fixed with makeshift repairs, no more than a boat with a rotten hull can be fixed with ad-hoc patches. We need to rebuild the hull with new (stronger) materials; we will have to remake the system before it does so itself. Let us move voluntarily into Capitalism 2.0 by helping what needs to be broken break on its own, converting debt into equity, marginalising the economics and business school establishments, shutting down the “Nobel” in economics, banning leveraged buyouts, putting bankers where they belong, clawing back the bonuses of those who got us here, and teaching people to navigate a world with fewer certainties.

Again, this just a restatement of what Taleb said in his previous items.

Conclusion

Like many "Top 10" lists, Taleb's "10 Principles" do not really say or do much – at least, not with regard to moving the world toward capitalism. If Capitalism 2.0 really includes moves such as banning certain types of activity from the market place and seating new captains at the helms of the slave ships, then you can rest assured that I won't be upgrading anytime soon.

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