The Volatility Tax Must Be Paid

Transmuting volatility into pseudo-stability produces a different cost.

Man innately hates volatility. We're evolved to fear losing money more than making it. We dread being fired more than being stuck in an endless corporate loop of mediocrity. We try to suppress the variability that’s necessary to keep life fresh by fearing volatility, the unknown, so we can take comfort in the predictable; even if the predictable is stultifying and soul draining.

In markets, when we transmute volatility into pseudo-stability with things like bailouts this sometimes results in "zombie businesses": a phenomenon where the company should have died, but was artificially kept alive via some form of government/financial intervention. It now barely makes enough to service its debt and pay operating costs, and nothing more. It’s one economic hiccup away from death. It's living and functioning similar to how Joe Biden is.

To avoid uncertainty and short-term instability, we prefer to delay the volatility tax that should have resulted in the death and rebirth of the businesses, and instead opted for a kind of Faustian bailout bargain to keep it on life support. We hate the unknown more than predictable malaise.

I think the above excerpt of the woman having a nominally ideal existence yet still feeling hollow, is a version of the human manifestation of this “zombie company” existence.

When you choose only safe, conventional options that on paper should make you happy, you end up eschewing the life variance that we apparently require in some form or another… and eventually end up unsatisfied, and aren't sure what's missing. You enter a zombie loop.

There’s a cost for this lack of volatility and predictability, it builds over time… it happens in markets, it happens in life.

Volatility is both dangerous and exciting: it’s colorful. Safety is comforting, but predictable and tedious: it’s gray. There's a quote from someone that says roughly "The utopia can never be, because man would grow so bored with it he'd destroy it immediately"; this perfectly encapsulates what this woman is experiencing in her Reddit post.

She nominally has utopia, yet is still empty. This is simply part of the human condition: struggle and hardship give us a sense of purpose and meaning, and she doesn’t have any, but rather a surfeit of conventional safety and comfort. The ideal amount of trials and tribulations is not zero.

If you go too long without working towards or through something, an aspect inside you begins to chafe. Life needs color, which is to say that which you can’t always predict. Every day, week, and month cannot be the same.

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A Story You Want to Read: Add an Egg

Imagine a book with no rising action, no conflict, no turmoil the protagonist must overcome. No personal growth. Who wants to read that story?

Well, apparently no one wants to live that story either. Hardship provides the volatility and excitement requisite for thriving. Excess comfort eventually creates a prosaic existence, no danger, no uncertainty… people break things when they're bored for too long. Despite what we may say, we like when we have to earn it, not when it’s handed to us. Friction and uncertainty are the spice of life; when you remove both, ennui sets in.

There’s ample evidence people value something more if they have to pay for it as opposed to being given it. You hold it in higher regard, you treasure it. People like the IKEA dresser that they had to pick up and put together themselves, rather than a pre-assembled one delivered to their door (this is a real phenomenon).

The original Easy Bake Oven was too easy; people found it uninspiring to just stick a premade cake into an oven and turn it on. Marketers discovered when they incorporated the step of adding an egg, it imbued the process with enough work to make people feel like they were actually cooking. Economists would say it’s optimum to remove the added friction and cost of an egg, it’s rational to want the cheaper, easier thing, and yet…. revealed preference showed that people actually valued it more with a bit of friction. They had no sense of accomplishment without any effort, even if it was a small one.

For evolved reasons, we cherish what requires struggle to attain, because overcoming obstacles grants satisfaction that cannot be rationalized away. It satiates something deep inside us. I think the degree to which your life satisfies you is a macro derivative of these micro, IKEA-style rules of life. You have to “add an egg” from time to time; if your life is egg-less, tedium sets in.

There is no day without night, no improvement without failure, no spring without winter… The challenging yields the inspiring.

The value you find in life is related to those small victories you achieve, and there is no victory without adversity. Manageable-but-persistent exertion, struggle, and accomplishment bestows purpose, which drives human flourishing. If that goes away, your life becomes a story you become less interested in reading.

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