I was little sluggish this morning. I picked up a copy of Nassim Nicholas Taleb’s latest book, Skin in the Game, yesterday and I found myself still thumbing through the pages on my Kindle into the wee hours last night.

Taleb is best known for his writings about risk, the role of randomness and specifically about black swans – low-probability but high impact events that wreak havoc on the unprepared.

In fact, Taleb became something of a household name by publishing his second book – The Black Swan – just a year before the 2008 financial system collapse.

But Skin in the Game is little different than most of Taleb’s prior writings. It’s less a discussion of risk and probabilities and more a guide to living a moral life: one with skin in the game.

That means you accept the risk that comes with your actions. You shouldn’t take the upside unless you’re willing to risk the downside.

This seems so obvious, yet it’s remarkably rare in public life. Bankers enjoy multi-million-dollar bonuses in good years… yet resort to taxpayer-funded bailouts when the risks they took come home to roost.

Politicians vote for war… yet do not fight on the front lines like kings of old. Taleb has special scorn for virtue signalers: those who have all the “correct” public opinions about economic or racial equality – and are the first to join a Twitter lynch mob against unpopular opinions… yet wouldn’t be caught dead “hanging out with Pakistani cab drivers or lifting weights with cockney speakers.”

Skin is far too broad to be summarized in a short article, and I don’t want to turn into a regular book reviewer, but I think it’s useful to pass on Taleb’s advice to young people. We can all use the lesson. As Taleb writes:

“Finally, when young people who ‘want to help’ mankind come to me asking ‘What should I do? I want to reduce poverty, save the world,’ and similar noble aspirations at the macro level, my suggestion is:

  1. Never engage in virtue-signaling;
  2. Never engage in rent-seeking;
  3. You must start a business. Put yourself on the line, start a business.

“Yes, take risk, and if you get rich (which is optional), spend your money generously on others. We need people to take (bounded) risks…. Courage (risk taking) is the highest virtue. We need entrepreneurs.”

Hear, hear. I couldn’t agree more.

We already touched on virtue-signaling – something Taleb calls “a mixture of bullying and cowardice.” But rent-seeking is arguably even worse.

Rent-seeking is the essence of crony capitalism.

You seek economic gain without actually creating wealth it or taking any real risk. In centuries past, a rent-seeker might have been a feudal lord who inherited his privilege and used his connections to the king to preserve it.

Today, it might be the banker or corporate CEO that depends on government guarantees or protection from competitors.

A rent-seeker plays the system. An entrepreneur creates real wealth.

And this brings us to Taleb’s final piece of advice: To start a business.

Real entrepreneurs are not smooth talkers with glossy business plans or PowerPoint presentations. If your goal is to start a business and then immediately “flip” it by selling out or going public, you’re not a real entrepreneur. You’re actually a lot closer to rent-seeker engaging in a financing scheme leaving someone else to deal with the mess later.

Real entrepreneurs are doers who put their capital, their sweat equity and their reputation at risk.

If you think you have what it takes to be an entrepreneur, consider putting your name on the door. As Taleb puts it, “products or companies that bear the owner’s name convey very valuable messages. They are shouting they have something to lose. Eponymy indicates both a commitment to the company and a confidence in the product.”

I’ll wrap this up with one closing quote from the book: “No muscles without strength… life without effort, facts without rigor, statistics without logic… virtue without risk… and most of all, nothing without skin in the game.”

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