The Fifth Risk by Michael Lewis (August 2019)
Michael Lewis, firmly established on the TOA’s ‘read everything by this author’ list, released his latest work in late 2018. Unlike with some of his other work, I had no idea what this book was about, but eventually a definition rolled along – the fifth risk is consistently implementing short-term solutions to mitigate long-term risks. It essentially means filling in the potholes on a crumbling bridge; broadly speaking, we could just call it infrastructure.
As I learned in this book, the government takes on much of the work addressing this risk. For example, governments have traditionally funded most early stage innovation. This accounts for the free market’s failure to create incentives for people to go into labs and try things that may or may not work. Governments also understand that people generally respond better to what just happened as opposed to what might happen and respond accordingly by allocating resources into protecting people from the unseen or unpredictable risks.
There are many constant pressures against these ideals, however. One is simply that governments are themselves staffed by those subject to the same human responses, biases, and temptations that define decisions within the free market. If a government can pay later rather than pay now, historically it will opt to pay later and this generally comes at the cost of our infrastructure progress. Government transitions are also critical and Lewis focuses the early part of this book on the subject. Many of the experts he highlights in The Fifth Risk cite botched transitions as a major factor when governments struggle to keep up with change. The Trump Administration in particular comes under significant fire for repeating this error (though they are hardly the first to underestimate the complexity of government while dismissing the competence of those most recently tasked with its operation).
Though there are many nuances involved, my first thought after reading this book was the understated importance of keeping up our government’s involvement in R&D. America’s advantages in the short-term are unassailable but a push to privatize research brings short-term market thinking into a long-term domain; inevitably, the market’s inability to function as a tool for meeting long-term objectives will be exposed. The USA has always successfully assembled its building blocks but taking advantage of this strength requires having blocks available to put together. If we do not ramp up investment into early stage research, it will mean fewer available blocks for our future. Let’s get our act together on this before we fall behind in the race to discover the next great idea.
One up: I referenced the first half of the book above but chose to ignore its latter half – we’ll cover it in an upcoming post. In short, the second half took a closer look at the applications of the government’s infrastructure investments and in the process I found quite an abundance of interesting observations.
For now, I’ll highlight the thought that weather forecasts should reflect more about their uncertainty. Most of us expect a five-day forecast but sometimes a two-day forecast is more appropriate (as would be a two-week outlook on certain days). The consistent five day outlook creates a false sense of certainty about certain forecasts made during unstable weather periods and we would all benefit from an understanding that predictions will be made only when it meets a high threshold of certainty.
One down: Without getting into the details (reader, read the book), I must wonder – is it legal for a private weather forecasting company to withhold information from the nonpaying public about an impending disaster?
Just saying, part one: My first thought about this book was overwhelmingly positive and for a really simple reason: the book started on page 17! More of this, please! It should be against the law to have extended openings, introductions, and prefaces that are numbered so that I turn the page onto the main work and learn that I’m on… page 3??? How could I be on page 3 when I’ve been reading for two hours? I say The Sixth Risk is idiotic numbering within books but I applaud Michael Lewis for starting this book on page 17 and getting us off to a great start in the fight.
Just saying, part two: I laughed at the observation that when things go wrong in an organization, the best and brightest leave first merely because they can generate good job offers relatively easier than their less skilled colleagues.
