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071 Liability
Manage episode 353184197 series 2954967
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With risk comes reward, but also liability. If we remove any worthwhile reward, we remove the incentive to take risk and assume liability, which causes stagnation.
The modern workplace is a game of who can minimize their liability the most--this also involves doing the least amount of work. The more work you do, the more likely you are to make a mistake; the more work you have, the more liabilities you have.
Misalignment of liabilities and rewards is a misalignment of the incentive structure and results in a dysfunctional world. In the 1930s and in the 1970s when we left the gold standard, owners of gold were liable for government and private fiscal irresponsibility. In 1989 and 2008, taxpayers were liable for government and corporate financial irresponsibility.
In this sense, FTX's collapse is a refreshing alignment of incentives. For once, taxpayers are not bearing the liability of irresponsible investors or the fraudsters--there is no government bailout. Instead, those who took risk are liable for their own actions.
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