The Risk Economy

Inequality has a number of side effects. One of them is that risk becomes a form of currency, in that people who have little in the way of other assets (be that material wealth or in-demand skills) start to find themselves in a position where what they have to offer is their ability (note that I'm not including willingness or readiness in this) to take on risks so that other people don't have to.

The transference of risk is a common project-management practice, and so it shouldn't be surprising to find that it's common in the realm of economics. What makes it difficult is the fact that it's possible to take on risks without having access to any of the means of mitigating against it, and in return for something that isn't valuable enough to mitigate the effects of risk, should a triggering event occur and the risk becomes reality.

But the other factor that should be taken into account is that pushing risk onto other people isn't confined to wealthy people. It's a common practice up and down the economic spectrum, and it may even become more common as people have less material wealth or other assets to work with, as they seek to guard themselves against risking those assets by lowering their own exposure to potential risks. But risks seldom go away completely; rather they are simply moved from one party to another. And as risk that comes to pass and depletes a person's other assets simply places them into a position where they may have to take even further risk if they want to return to the point where they started.

Perhaps the best way to manage long-term risk is with short-term risk. The willingness of a greater number of people to take risks today may mean that there will be less risk in the system in the future, although this too, is a balancing act. It's also, and this is the difficult part, a Public Goods problem, where a person can derive the greatest benefit by taking on less risk than other players, as they can often share in the benefits of the risk that others take, while sheltering themselves from the consequences of it actually coming to pass.

And the problem with a Public Goods Game is that it's hard to change the rules, as they aren't really subject to the desires of the players. This is because it's difficult to change the self-interest calculus of a large number of people all at once. The idea that it takes money to make money is a cliché at this point, but it's no less accurate for that. If we view wealth as a hedge against risk, it becomes clear that asking people who understand themselves to have little in the way of wealth to take risks now, on the chance that there will be less risk (greater wealth) later could be a very hard sell.

We have an unequal society, one that is pushing people to use their ability to take risks as an economic asset out of necessity, rather than choice. And we have this because it's side effect of large-scale societies, and the fact that human beings are more evolutionarily suited to small ones. Changing all of humanity is hard, perhaps to the point of being a fools errand. And while I'm not suggesting that we simply sit back ans watch how this all plays out, I'm not sure we can do anything else.