Goodbye Risk, Hello Uncertainty.

Young people are opting out of guaranteed decline for a slim chance of incredible success. They did so when the economy boomed, and they have even more reason to do so now that the economy is slowing down. We owe them a third option.

We tend to consider the terms "risk" and "uncertainty" as interchangeable. But they aren't. Risk refers to knowable odds, however bad. Uncertainty refers to odds that are unknown. As Roger Lowenstein points out in When Genius Failed, "risk" can describe a game of dice: You don't know what numbers you'll get, but "you know (for certain) the chances of getting a 7 and every other result." Uncertainty describes a situation in which the odds are unknown and incalculable. It usually implies the existence of innumerable potential outcomes.

Over the past couple of years, a series of articles highlighted how young people are taking on more risk: Investing in high-growth stocks (or no-growth options) on Robinhood, trading volatile cryptocurrencies on Coinbase, and leaving their jobs in droves to make a living as creators and day-traders.

This growing appetite for risk was mostly seen as a result of loose monetary and fiscal policies, as governments and central banks made it cheap and easy for people to borrow or sent people actual checks. As Mohamed El-Erian wrote in Bloomberg last year:

"Long comforted by the ample and predictable injection of liquidity in markets by central banks, investors have been willing to take more and more risks. Some have ventured further and further into highly speculative strategies, causing outsized price moves that then attract others. There are reports of some recipients of U.S. government stimulus checks deploying the funds straight into these strategies, including trading cryptocurrencies. Chat rooms are full of those boasting about astronomical one-day profits."

The implication was that once loose monetary policy ceased, people would calm down and come back to their senses. That once markets crash, people will learn their lesson and crawl back to the safety of 9-to-5 jobs and the slow-and-steady grind to build a happy middle- or upper-class life.

I was not as optimistic. In April 2021, I wrote in The Tina Economy that analysts "assume that embracing risk is something people chose," but

"in reality, young people are not taking more risks. They are simply refusing to pay for the illusion of safety.

We live in a world with low-to-negative interest rates where your money is guaranteed to lose value by simply sitting in the bank. The cost of anything real is going up — houses, medical care, toilet paper, Coca-Cola. All industries are or will soon be disrupted by technology, including the technology industry itself. Traditional institutions seem unable to rise up to the challenges ahead (pick your preferred left/right argument as to why)."

Based on the above, a market crash and/or economic downturn will only increase this trend. The more traditional markets fail them, the more people will seek new and strange places to bet their money and their time.

Looking back at my prediction, I now realize that "risk" was not the correct word. People are not embracing risk; they are rejecting it. They are letting go of a game with known odds and embracing a new game, one with unknown odds. They are doing so because the odds are so clearly against them that it is no longer worth playing. Increasingly, a traditional career and a traditional approach to saving and investment looks seem guaranteed to leave you without the ability to own a home, without the ability to retire with dignity, and even without the ability to maintain the value of your savings. If these are the odds, why play?

People are rejecting risk in favor of uncertainty. They are embracing unknown odds and unknown outcomes. It's a much riskier game, but if you win, you might at least be able to live your dream life.

I do not recommend this option. It is incredibly risky, and I've already lost all my money once. But it's hard for me to recommend the alternative as well. Both options are bad. And unless we develop a third one, we'll have to deal with escalating social unrest and financial upheaval.