Systemic Risk Conversion

Risk Ponzi Schemes and other modern amusements — working draft.

In 2005, BMW unleashed a new M5 that was remarkable for two reasons. First, it was the first production sedan of its kind to have a V10 engine, making it the most powerful, fastest production sedan the world had ever seen. Second, its engines blew up. BMW had engineered the tolerances on its rod bearings so tightly and then recommended a thick oil such that in cold temperatures, the oil wasn’t thin enough to lubricate the rod bearings. The rod bearings would wear over time and eventually fail, turning your $100,000+ car into scrap. Great precision in engineering the components resulted in systemic failure.

Risk Distribution

The classic redistribution of risk explains the creation (at least theoretically) of government. Of course there’s the explanation that one voluntarily accepts limitation of rights and in exchange the government can better guarantee other rights. (So you can’t steal your neighbors plow or pollute his water, but neither can he steal your wife nor bewitch your pudding.[2]) In many cases, though, government assumes individual risk, turns it into collective risk, and sometimes then absolves itself from this risk. Increasingly, though, the promise of Marxism/socialism is for the government to convert/redistribute risk as much as possible; of course, governments are generally as or more capable of monetizing such risk redistribution as is Uber.[3]

Risk Narrative

The altered risk narrative does not proclaim universal salutary conditions (the constant struggle of Marxism would never permit it) but rather redirects criticism. So a problem in education is transmuted into inadequate funding and a problem in millennial engagement is transmuted into complacency.[6] The complacency argument — that many (generally young) are complacent — requires some critical mass of success that fuels complacency (e.g. that things are going so well it’s making people complacent). While there are some fin de siècle signals (which may signal comparative wealth or cultural exhaustion more than complacency), Bernie Sanders alone signals a lack of complacency. Those who have aggregated power wish to drive the complacency narrative precisely because it assumes some level of success.

Genetic Risk Hypothesis[7]

Risk Mythology

Dynamic societies provide a framework for risk production, not the pervasive marketing and selling of supposed risk mitigation; risk dynamism operates in a framework of friction optimization between the risk-takers (always a minority) and the necessities of civil society[8]. It does seem that instead of having risk distributed among individual actors and small groups resulting in systemic dynamism we have aggregated risk through a risk mitigation scriptorium into lifeless financial instruments wherein we’ve convinced ourselves via narrative construction that we’ve engineered the risk out like a 2005 BMW M5. But in reality are just waiting for engine failure. If that happens, you’re facing a very expensive engine rebuild or a vehicle only good for scrap — or Europe in the 6th century.

[1] Risk is distributed across actions and actors, thus producing a giant matrix of risk for any given action/actor. The primary issue isn’t that the risk matrix has been reconfigured for profit and power but rather the overt effort to conceal the reconfiguration and the systemic damage of the reconfiguration. Systemic damage:

[2] There is actually a 17th c. law suit over bewitched puddings. FYI the court found the accused insane. Mentioned in my next book.

[3] Uber is a remarkably apt example of a company that culturally reflects its time. Of course, there is the issue of the moral hazard created when risk becomes concealed (e.g. untethered from its predicate actor/action), and systemic concealment creates systemic moral hazard.

[4] Noted here that, in constant dollars, we’re paying >50% more for cars than we did in 1970.

[5] Taleb’s Anti-Fragile is the reference work for optimizing against fragility and the false prophets of stability. “Stability,” for Taleb, is actually a false narrative concealing brittleness. A.I. aside: the same is true for many robots — alter the environment even slightly and the robot becomes useless. Many A.I. systems are actually quite brittle.

[6] So we’ve captured the inherent fear of the unknown future (philosophers would say death, though I’d suggest that a 17-year-old is preoccupied with many fears perceptually greater than death), and this corresponds to the decline of religion (particularly as cultural institution); it also corresponds to the rise of consumerism and youth culture; see

[7] Left unmentioned is the dynamic between time horizon perspectives, which I suspect is also genetic … the expression of which produces a ratio of short- and long-term social objectives within populations. The balance between such objective determined whether a culture produces the necessary institutions — or manages its water supply or puts a man on the moon. Etc.

[8] Obviously a civilization built on all risk … probably can’t exist for long.

Extended car metaphor. So the tolerance in a rod journal is generally 1.5–2mm — fairly industry standard. The tolerance in a BMW M5 E60/61 is 1.25mm (not published by BMW and difficult to measure, but this is the measurement from the wax method … which is often referred to as the plastic method). The problem? Rod journal tolerances in high performance cars are usually higher than in standard cars, not lower (number is higher, or tolerance is looser) and tend to be in the 2–2.5mm range. The greater tolerance is necessary in part due to the higher heat/expansion of the internals (eg the rod etc). So BMW’s effort at higher precision was actually the exact wrong instinct for higher precision — and higher heat — combustion systems. The social-political metaphor writes itself.

About Nathan Allen

Founder of Xio Research (A.I.), Applied Magic (A.I.), and Andover (data). A.I. strategy and development leader at IBM. Academic training is in intellectual history; his most recent book, Weapon of Choice, examines the creation of American identity and modern Western power. Don’t get too excited, Weapon of Choice isn’t about wars but rather more about the seeming ex nihilo development of individual agency … which doesn’t really seem sexy until you consider that individual agency covers everything from voting rights to the cash in your wallet to the reason mass communication even makes sense…. Lectures on historical aspects of media, privacy/law, and power structures (mostly). Previous book: Arsonist.




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