Limited liability as optimism

Depending on who you ask, limited liability is either “the greatest single discovery of modern times” or “a substantial, regressive cross-subsidy to capital at the expense of tort creditors, tax authorities, and small businesses.”

I suspect the benefits of limited liability outweigh its costs. But I can see how in its maximalist corporate form limited liability can become too much of a good thing.

Regardless of the relative benefits of corporate limited liability, the asymmetric features of limited liability provides a useful lens through which to view optimism and pessimism one’s my personal life.

Being “correctly optimistic during good times” (COGT, right) generally has unbounded upside and being “incorrectly optimistic during bad times” (IOBT, wrong) generally has capped downside. But the absolute value of the upside of being “correctly pessimistic during a bad time” (CPBT, right) tends not to exceed the absolute value of being “correctly optimistic during good times” (COGT, right). And many times the downside of being “incorrectly pessimistic during good times” (IPGT, wrong) actually exceeds the downside of being “incorrectly optimistic during good times” (IOGT, wrong).

This is obviously subject to a thousand exceptions and assumptions but in general aligns with my lived experience. In fact, this might just be me trying to find a framework to support the not so complex observation that in general being positive tends to be a good thing.

I think this might be why I enjoyed this part of Tyler Cowen’s recent conversation with Stewart Brand. Tyler asked Stewart if his younger self would ” be disappointed in the future that has come to pass.” Brand replied:

Mixed bag. A whole lot of stuff developed fantastically, I think… By and large, when I was optimistic about stuff, I turned out to be right, and when I was pessimistic about stuff, I turned out to be wrong often enough that it has kept optimism alive.

Stewart Brand is empirical proof that optimism maps well to the structural features of limited liability. His life seems to have benefited immensely from the structural advantages of optimism outweighing the less advantageous features of pessimism.

Clamping financial language onto all features of everyday life sometimes feels nasty to me (death by optionality, etc.), but I will always take another reason to be optimistic. I found the broader Cowen and Brand conversation moving in a way that has been hard for me to articulate. Brand’s experience with optimism and pessimism is at least a part of it.

And the interview with Stewart Brand will give you 999 other non-financial reasons to feel optimistic. If you prefer to stay hungry and foolish while leaving the limited liability debates for the finance types, consider giving the whole interview a listen.

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