The future ain't what it used to be
Reflections and Introspections
The Big Picture
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The Story
This project is dedicated to our weakness to be fooled by randomness. To help us remember that we tend to see masks in clouds and like anecdotes instead of statistical evidence.
This is a work of art. It is not about giving a rational explanation for what is happening in the world. The truth is always subjective depending on your education, your accumulated experiences and how you see things in relation to your vision of the future. This is especially true for the social sciences. It is not applicable to physics or math where inanimate objects are believed to be controlled by universal principles.
What is it?
Antifragility
Antifragility is the opposite of fragility. Things which are fragile will break. The longer we wait, the less likely it is that a fragile object will survive. But an antifragile object will gain in strength over time. It benefits from uncertainty and volatility.
Robust objects just survive. But they would not undergo an evolution which make them stronger over time. Most technological devices these days are fragile or merely robust. A space rocket, for example, is very fragile. It is designed to just withstand the forces for a single start. It also depends on many small details to work as expected. So when one of those small details goes wrong - as it did, for example in the Challenger disaster then the whole mission breaks down.
It is often wrongly claimed that Nassim Taleb foresaw the 2008 financial crisis. This is humbug. He merely recognized that the financial system was very fragile. Almost nobody in these times back then asked the question what would happen if home prices would fall. But he did care about that and saw that then most banks would probably go bust. So nobody can foresee when a fragile thing breaks down - but the property itself can be recognized.
To some extend the mechanism of life on this planet has antifragile properties. Due to the constant remixing of the genetic code nature has found a way to produce organisms which can survive the most unexpected circumstances. Nature can also not foresee under which conditions its organisms have to exist in a 100 or in a 1000 years. But it also does not need to care about that. Evolution will just produce the kind of biological machines which can cope with new circumstances.
Antifragility is not an absolute kind of property which is valid under any circumstances. If volatility is small then the most fragile things can easily survive. If volatility is very high then there are of course limits under which even the most antifragile thing could survive. So when finally our sun becomes a Red Giant and subsequently collapses - life on this planet eventually will be shut down, too.
The Black Swan metaphor
The concept of antifragility is closely related to the Black Swan metaphor. The black swan warns us about prediction errors. Many people misunderstand this. They want to know what to do to protect against a black swan event. This is a contradiction in itself because then we would need to predict that very event. Our brain is wired to make predictions. It is a prediction engine. That may be good for our survival because on short time scale the world does not jump but moves gradually. On the other hand on longer time scales the world behaves like a many-body system which is inherently unpredictable. And the black swan metaphor simply warns us of our limitations to predict somthing meaningful on long time scales.
Therefore the black swan asks us to exert self contraint, to be aware of our limitations to foresee the future. When prices for homes were rising for the last 8 years that may be a bad indicator of what might happen in the future. Of course we can make scenario analysis, brainstorming, critical thinking exercises etc. to try to dream up what the future will bring. And many events can be predicted in the sense that they are possible in principle. So in principle there could be a 3rd World War, there could be a terrorist attack with nuclear or biological weapons, there could be a devasting tsunami in the Atlantic, a hugh meteorite could hit the planet etc.. But that tells us nothing when this will happen. So how can we prepare for that?
Since you cannot foresee these events in detail it is useless to make any specific preparations. The point here is to have a system in place which has a redundant and a diverse set of resources. I assume that our objective here is that mankind survives these rare events. So to be antifragile mankind should have ready a plan B and C what to do under these extreme circumstances. Our societies are very over-optimized at the moment. Just in time delivery chains, just in time money transfers, just in time commodity mining etc. This makes us very fragile with regard to big disruptions. What would happen if some serious problems in world trade occur tomorrow?
The main point here is that only mankind as a species can survive these extreme events. There is no silver bullet that will save everyone. In fact the belief in a single silver bullet would be very fragile because it would have to assume a specific set of boundary conditions under which it would be effective. And that is a contradiction. There need to be many ideas and plans how to survive. And people should be free to make their specific plans. Some will dig out big underground shelters. Others will try to escape to a space station. Still others may just want to save their DNA - to be activated 10000 years later again. And maybe anothers group shoots artificial live to Mars and elsewhere in order to preserve life as we know it.
Antifragility is therefore the pursuit to go down as many alleys as possible. You cannot predict where "success" will occur or why this or that may prove helpful. That can only be seen in hindsight. In the sense of via negativa antifragility also means that you should remove fragility. Identify where you depend much on prediction and what would happen if those predictions do not occur?
The Future
The earth is more than 4 billion years old. We live on average for about 70 years. The diameter of the earth is about 12000 km. The deepest hole we were able to drill is about 10 km deep. Our insights into the world and into the universe is not even equal to the blink of an eye. There may still be many surprises for us.
The Book Project
Antifragility in Practice
It is hard to act in an antifragile manner. Our DNA is wired to give us a rear-view mirror expectation of the world.
On way to overcome this limitation is to introspect. Observe what is going on in the world. Reflect on it and ask yourself if these things were predicted as they are today. Check against earlier expectations.
Nassim Taleb is not saying anything new in the world. But we need to listen to him to remember our own shortcomings which we otherwise are wired to forget again and again.
To Do List
This is a decade long project. Accumulate as many predictions and expectations. Reflect on them 10 or 20 years later to see what really happened. Some work has already started.
The Problem
70 years of life is too short to learn anything meaningful. Our society has the tendency to pick winners and dump loosers immediately. Being a CEO for 5 years of a company without going through any meaningful business cycle does teach you anything. You at least need to have 20 years of experience to get a better understanding how naiv many decisions are.
But people are not patient. Once you make a mistake they think you are responsible and replace you with someone who recently had a winning streak. This is almost like an illness. An obsession to belief that we can be responsible for the things which happened. If you are a really good leader you maybe can be 50% responsible of what is going on. Anything else is just luck.
Many people do not like to hear about how important luck is. Let's have a simple example. You need to hire a new employee. There are to possibilities: he or she is very well or very badly qualified with regard to skills needed. After one year you check performance. In one world you see that you have hired a high performer. This can be due to two outcomes: you hired someone with good skills and the project he or she worked on was successful. Second, you hired someone with bad skills but the project was also successful. The only observation you have is the success of the project. You cannot look into your new employee to really assess his or her skills. It may also happen that someone highly qualified has been assigned to work on an unsuccessful project and you tend to belief that he or she is not so qualified after all.
The past is opaque. And the future is even more so. It is prudent and conservative to assume that there are many factors beyond our control - but they nevertheless have a big influence on our own performance. So when I now hire somebody I do not primarilythink if the skills fit. I think about and want to find out what "ticks" he or she has. I call this the "tick theory". I want to make sure that there are a few things which a new employee NOT has. If this minimun requirement is met I can be sure that there is no barrier for success. This is a via-negativa approach to hiring.
Introspections
Time is ticking against us. And we are prisoners of it. We even may know and accept that we cannot predict anything meaningful. But then: what do you do if you do not know what is going on? Can you ever make a meaningful decision if there are many factors outside of your control?
The thinking bias
Nothing is fragile or antifragile but thinking makes it so.
Okay, we assume that the universe is infinite. Hence we have access to an infinite number of resources. Everything is cheap. Then suddenly: we discover that the universe is finite. Prices skyrocket. Does this mean that the universe is fragile with respect to size? Now lets think of constructor theory. The human brain is simply a mirror image of the experience it was exposed to. It is like a tree having been exposed to west wind all of its life. The neural network strukture can only be built on historical experience. And the more intense or frequent some experiences were in the past the stronger the neural networks for that history are connected.
So if a system like Heathrow has worked fine during times of average traffic conditions then this is the only state of the world the human brain can imagine. Fragility is then about the question what this neural network will predict if traffic increases 10% or 20%. Since the brain does not know other it cannot predict a breakdown of the system. The neural network was not trained to do so. It will most likely make a linear interpolation. This state of the mind then can lead to more fragility as this linear prediction mode is used to build ontop of fragility other fragile systems.
Is antifragility an illusion?
Or is antifragility a contradiction of physical laws? Antifragility is defined as a property of something that gains from disorder. In consequence that would mean that something becomes stronger and potentially bigger the more volatility it experiences. So if we would have an antifragile banking system that system would become bigger and eventually be a monopoly as long as tumult and uncertainty rule the world. We then would have a system not ruled by fragile banks but by antifragile banks.
This is a contradiction. Since this "new" state of the world would again be a mono-culture of thinking (i.e. antifragile thinking) it is as vulnerable as a world dominated by fragile banks. Why? Because when volatility ceases and the world becomes more quite again the antifragile property would no longer be a competitive advantage. Instead the fragile way of thinking would be the again-new approach to be successful in business.
Entropy
The second law of thermodynamics: an isolated system always evolves towards the state of maximum entropy. Therefore any system which today has some degree of order will evolve into a state of less order when it is left alone. It therefore makes sense to have the word "fragile" because to some extend the fragility of things simply reflects the entropy increase in this world.
When we would like to increase the order of a system then we need to use external forces to bring that about. Therefore antifragility would mean in this logic that the order of a system increases naturally. But that cannot be true due to the 2nd law of thermodynamics. Therefore an antifragile behaviour can only be there if there exists a mechanism which uses external forces in order to reduce entropy. And there are many examples where natural systems do just that. It means that in these examples the number of system-states is decreased and things move to a higher internal order.
This said it makes little sense to me to explain "antifragility" as something that gains from disorder. Instead I would explain that property as the mechanism to reduce entropy or something that can heal itself.
The Gene Pool
Is the human gene pool Gaussian? There is an interesting argument out there that it would be more worthwhile to have a fat meal once in a time with periods of deprivation in between rather than a constant flow of nutritionals into our body. Maybe on average this insight can be confirmed by future research. The argument is also plausible given our pre-modern living conditions.
On the other hand I think that these kinds of conclusions cannot be made from the standpoint of many-body theory and evolution. We humans may have certain properties on average but there is no hard evidence that human properties can be described by a Gaussian distribution. The potential gene variety is practically almost infinite with (maybe long) tails to the left and to the right. So for the majority of the prevailing human biological machines it may in effect turn out that the above argument for intermittent nutrition supply is optimal. But maybe there are other human gene compositions out there in the world which thrive on another flow of food supply. Remember, the existence of a single person which would contradict the above conclusions would make the argument invalid.
The reason that many scientists have little respect for medicine is exactly this focus on the compatibility of a cure or medicine for the average patient. I in principle want only to know if the medicine is just right for me and nobody else. Evolution is probably not a very steady process but jumps once in a while due to fat tails in the gene pool.
Tinkering
It is very difficult to tell what the right scale of tinkering is. And this is due to the metaphor of fractality coined by Benoit Mandelbrot. This means that the world is in many instances self-similar - independent of scale. Good examples where this comes into play is nuclear power, artificial life and machine thinking. Some activists claim that we as human beings should not mess with life and do things which have the potential to blow out life on this planet. In my opinion this does not capture all dimensions which we face on this planet. An antifragile approach would recognise that we cannot foresee the scale of the challenges of tomorrow. We need to tinker large and small.
When we think in terms of time scales of a 100 or a 1000 years it may indeed appear to us as if nuclear power maybe is very dangerous. If done wrong it has the potential to do big harm in the short term. A 1000 years are nothing compared to the history of the planet. The earth's residual heat is to a big part generated by radioactive decay, the energy from the sun comes from nuclear interactions, and there has even been a natural nuclear fission reactor operating in Oklo, Gabon. So what is the appropriate scale of tinkering?
Now we progress to the next level of thinking. If we would like to do deep space exploration, if we would like to build colonies on Mars or if we would like to survive an ice age on this planet then nuclear power or any other of the above mentioned technologies could be essential for survival.
Sustainability
Currently the "sustainability" movement is fashionale. It is a symptom of looking at too small a time frame. It is hyper-conservative. We would like to preserve the earth at it is. This is nonsense. History will go on and the forces of the universe are far too mighty to be contained or stopped. Survival means to be able to do everything small and big what is physically possible on this planet.
Red Giants and White Dwarfs
We do not in detail understand our past and it may very well be that life on earth was initiated by massive events - not small-scale tinkering. Yes, there are many developments coming and going and some activists may be right to avoid all that trash. This approach neglects the mechanism of evolution. Progress depends on us to try these things out and form an opinion if they are useful or not. If everyone would be just waiting for the silver bullet it can never every turn up. Evolution relies on our foolishness to reduce the entropy of all the garbage which is invented.
Technology is constantly revised and what appears to be dangerous today maybe harmless tomorrow. So denouncing some technologies as dangerous or useless denies evolution and the possibility that new challenges may bring a problem to a solution waiting for it. Technology is not invented by linear thinking. The process of technology development is as opaque as our inability to make any meaningful prediction how the world may look like in 10 or 100 years.
Life on earth is not sustainable per se given its physical laws. Sometime in the future nature will experiment with us by smashing a huge meteorite onto our planet, trigger gigantic volcanic eruptions, and finally turn the sun into a Red Giant and White Dwarf. To overcome these challenges we need to tinker at an equivalent scale. Craig Venter should go on as fast as possible to create his artificial life. We may shoot his creatures to Mars and into the universe to preserve our insights which we have gained on this planet. We as human beings are an integral and indistinguishable part of nature. If nature has created us then our acts are the acts of nature. If the laws of biophysics allow us to create new forms of life on Mars then this is just nature's destiny.
We do not know per se where the horizon ends and hence it is impossible to distinguish between small and safe tinkering and big and grand experiments. In a hotel with an infinite number of rooms any number of surprise visitors can be accommodated.
Eons come and go
We do not need no coins
The name 'Bitcoin' is a misnomer because the perceived virtual currency is no currency at all and it is not a coin for sure. It is basically a peer-to-peer network which authorizes transactions. Human economic activity consists of transactions and credit. Transactions take place almost instantaneously. Credit is a formalism in which one part of a transaction happens immediately and the counter transaction is promised to happen at some point in the future. Modern economic activity is characterized by high specialisation where many transactions do not have an immediate counter-transaction and a store of value is needed. When you deliver a software engineering service you are very likely not to receive bread and butter in response. You receive a store of value which enables you to later on to do a transaction in which you receive some food. These deferred transactions need trust in some authority that your store of value is preserved. That traditionally has been the role of a central government.
The problem with central governments is that for political reasons this trust has been abused in order to finance all kind of pet projects. Be it wars, generous welfare promises or unnecessary infrastructure investments. Therefore it is understandable that people have looked for alternatives like gold or 'Bitcoins' where physical scarcity or by algorithm design scarcity is likely to be preserved and trust is high.
Since 'Bitcoins' essentially are an algorithm to authorize transactions they cannot store value in a traditional sense. They store the history of transactions.
In order to understand this one has to go a bit deeper into how the Bitcoin concept works. It is best to start in a steady state: a number of nodes or peers are connected on the Bitcoin network. Each node has a wallet with consists of a number of digital units. The ownership of these digital units is stored in a protocol distributed to every node. In the moment when one node transfers some of its units to another node a new transaction entry is added to this protocol. In order to prevent fraud this new transaction entry has to be independently verified and validated by the majority of all of the nodes. These nodes check if the unit transferred is indeed owned by its true owner and if the true owner has authorized the transaction.
What the units represent is arbitrary and not part of the Bitcoin protocol. Some 'exchanges' have tried to connect Bitcoins to fiat money. But then you could have used fiat money right away without the trouble of creating a Bitcoin network. In my opinion this has spoiled the real value of Bitcoins.
Bitcoins are best suited to authorize information transactions - because the internet is nothing more than an exchange of information. You create new 'coins' by creating new information. Your unique Bitcoin signature marks your ownership. You can transact this information to any other user by a signalling to the network a new owner of this piece of information. First of all the owner must accept the transaction and second the entire network nods need to confirm that you are the true owner of that piece of information. Then the transaction is confirmed and a new owner is listed in the transaction ladder. So please bitcoin volks, think a bit more abstract and do not try to mimic fiat money which we do not need on the internet anyway.
Oversupply
To me it appears totally outlandish that we live in a world of oversupply. Ask people in rural Africa or China if there is oversupply? Ask food stamp receivers in the U.S. if they belief that there is oversupply of anything? The oversupply point of view is one piece of the puzzle in this complex world but not the holistic remedy we would like to have. Homo sapiens are designed by nature to always belief that there exists a rule of thumb or some simple, heuristic explanation for their problems. Yet this is a fallacy. The world is complicated and it always has been.
Some critics say that Nassim does not tell us something new under the sun. And that is totally true. But since humans are inherently designed to forget what Nassim is saying it is worthwhile to help remember them on every occasion.
So the oversupply heuristic explains that "oversupply of labour, productive capacity, and capital relative to the demand for all three" is a root cause for our problems... And that we can restore growth if we write off bad dept and that austerity is the last thing which we need... Does not sound logical to me.
If there is oversupply we exactly need austerity in order to go back to equilibrium of demand and supply. And we do not need more growth to produce more oversupply. Yes, there has been capital misallocation - as it has happened for the last 1000s of years, too. We cannot foresee the future and consequently it is naive to belief that oversupply is a root cause problem. One factor for the present crisis is surely that expectations for the future were too rosy. And elites in some emergent markets allowed a certain group of people to "get rich first". In those emergent markets it was agreed that many people gave away their resources far below a fair market price. While Germans were allowed to build a nice, green conscience - environmental damage was outsourced to other countries. Hugh promises were made in developed nations that people get generous benefits once they are retired. Et cetera.
This kind of mess is hardly any news. Before the two world wars of the 20th century the world was in a similar situation. Only the massive confrontations in these two wars provided enough justification to clean up some old mess. Now we are full back in multi-body-physics mode. What happens now is like in a garden which just previously has been abandoned (maybe only growing miscanthus sinensis) and is now left on its own - normally an explosion of diversity will follow. Why would we need to measure growth at all? We could simply count diversity instead.
Reflections on technology
What kind of 'accidents' do I remember for 2013 already? Crash of Boeing 777 on San Franciso airport, Landing gear collapse of Boeing 737 at La Guardia, Spanish high speed train crash, London Vauxhall helicopter crash, Explosion at West Fertilizer Plant Registers as Magnitude 2.1 Earthquake, Explosion at Louisiana chemical plant kills 1, injures 73, Tragedy in Lac M'gantic.
And many people would say: that is a demonstration of how fragile technology is. But in nature these kinds of accidents are occuring continuously. Yours cells are dying by the thousands as you are reading this. But nowbody is reporting. There are also many, many accidents happening right now where only a few unkown individuals are involved. And nobody is interested (which by the way shows that BIG news is broadcasted mainly for entertainment). It is just normal that in this many-body world things do not work according to plan. People may forget the rules or the design-specs of a technology may be violated. Although we still believe that the underlying laws of physics are symmetric with regard to time a many-body system can behave in an irreversible manner. The beauty of cells or an ant colony is that there are so many individual participants which make appear the whole system antifragile. There may be people around who point to the risks of technology citing above's examples. Yet from a global perspective these accidents are as unimportant as are a few dead cells in your body.
The sun tanned fragilistas
German defence minister shot down the 'Euro Hawk' and now blames his ministry's staff for inadequate risk management. Don't you remember? All big technical projects are full of small details which have the potential to kill the mission like Apollo 13. Why are these suntanned managers not willing to accept that there are lots of risks and that lots of things can go wrong? That is just how technology works.
Then a 'scandal' of bigger dimensions: some spy agencies in the US seem to systematically access and log telephone and email traffic. And the president justifies it as a necessary means to protect the nation. What worries me most is that precious tax payer money is spent on billions worth of high-tech equipment in a fruitless effort to prevent anything. They seem to have learned nothing from the fate of former East Germany. Bad things will happen regardless of the sophistication of the surveillance program. It is much better to be prepared for the worst and to have a plan B than to solely rely on the prevention of an alternative path of history. That is a sucker strategy and is called the Turkey problem.
Aren't tech people just genetic machines
Nice episode 06.04.2013. IT people are just normal human beings. Why are people so obsessed with a politcally correct facade? Being a gentic machine we are just programmed to ignore social norms and do what our emotions tell us to do. I prefer an honest, authentic offender who says what he or she thinks to somebody who is hiding behind a facade of empty talk. Facebook and twitter are just tools which help us to reveal what people are actually thinking and doing. What is so bad about that? It simply demonstrates that the world which is presented to us in official meetings, on TV and in the business literature is more like a dream world.
Forecasting seems to be an addiction
Some people cannot restrain themselves from trying to predict the future. Don't you remember: the future of a many body systen is inherently unpredictable! And wise is the man who knows that he cannot foresee the future... Nevertheless there is a study running where people can try to reflect how bad they are in predicting. Probably a dumb random number generator is as good -- unless crowds of human beings have some "herded like cattle" properties.
Another example how difficult it is to make predictions can be found here from the Los Angeles Times. It published on 03.04.1988 a prediction how the world might look in 2013. Not quite so.
Energiewende
When you want to imagine how the future looks like it is sometimes better to try to think of all those dreams that will not be there instead of extrapolating that the latest fashion will come to dominate, i.e. via negativa.
Coal is known to have been used for heating since the cave man. There is also evidence that the Romans in England used it as early as 100 AD. Compared to that, photovoltaic cells based on wafer-based silicon are a very new innovation. Panemone windmills are assumed to have been invented around 500 AD in Sistan. Therefore it is safe to assume that energy generation both from coal and wind will be there for at least another couple of decades. This property was described by Benoit Mandelbrot as the "Lindy effect": the longer a technology has been there the more likely it is that it will be there for another, similar period.
In contrast to that the German "Energiewende" is merely a couple of years old. It is of very speculative nature since there is no viable electricity storage technology available at the moment which could absorb excess production from renewable energy generation. There is also no cheap way to transport offshore electricity to Germany's industrial centres. And there is not yet a cheap and proven grid technology to control the electricity generation from thousands of individual household generators. Therefore the success of the "Energiewende" is very fragile if these innovations do not happen soon.
Fragile things can be over-proportionally damaged the higher the uncertainty is. Many start-ups in Silicon Valley fail not because their value proposition doesn't make sense but because they cannot achieve sufficient momentum to replace the incumbent technologies. And the "Energiewende" needs a high dose of luck since it tries to undo one of the pillars of the Industrial Revolution: abolish the use of compact energy sources such as coal. Its utilisation helped back in the 1800s to achieve economies of scale and scope in transportation, manufacturing and electricity generation. It is highly uncertain if these benefits can be preserved or even improved by the "Energiewende". This project is as fragile as a Californian start-up which has to offer much more and at much lower prices than its established competitors.
One important success factor of the industrial revolution starting in 1800 was about using compact sources of energy generation in order to facilitate economies of scale and scope. The "Energiewende" is something in reverse: it aims to spread out electricity production to many small producers. This decreases overall efficiency of power production and increases transportation losses through a densely interconnected grid.
Many supporters of the "Energiewende" cite the internet of electricity as their vision for the future. This comparison is not convincing. The internet as we know it is a means of information exchange. Information can be stored and retrieved when needed. Communication of information does not incur losses of information.
Not so with electricity. The origins of the internet date back to the 1960s and only with the event of cheap communication during the internet boom of the 1990s and with the event of massive, cheap storage of the 2000s the internet became a household name.
By spreading out electricity production into many small generation units there cannot be economies of scale and scope. Overall efficiency of power production decreases due to increasing losses by transmission, through losses by electricity storage facilities and by administrative and service overheads. It is doubtful if the "Energiewende" can compete in terms of price with modes of electricity production which utilize large scale facilities.
It is correct that electricity from wind appears almost competitive to other traditional sources at the moment. This is only so because of a lack of incentives to improve traditional methods of electricity generation. The evolution of coal, gas, oil and nuclear is far from over.
Then there is the issue of the planning fallacy. Even much smaller, recent projects did take much longer and proved to be much more difficult than initial overconfidence suggested. The channel tunnel between England and France was about twice as expensive as planned, the F-35 jet per unit costs also have almost doubled and the new Hamburg opera house "Elbphilharmonie" will be almost four times as expensive as originally planned and probably seven years late.
So far the Energiewende has no capacity built into it to allow failure. It bets or predicts that a couple of technologies are around the corner and or it is assumed that they can be ordered in a top-down manner. There is no plan B for the "Energiewende" if Germany's offshore wind-farms more than 18 miles off the coast prove too costly to maintain and too difficult to service reliably. Until now they produce only 2% of the power which was scheduled to be online by 2020. There is no plan C what will happen when nuclear power plants will have shut down in 2022 and no sufficient grid capacity exists to transport electricity to Germany's industrial south. And there is no plan D what will be done if cheap electricity storage will let us wait for another 100 years before being discovered.
It is therefore highly likely that coal and wind will coexist for another millennium.
Eons
Some interesting scandals came out late last year and at the beginning of this year. There is the Jimmy Savile scandal or the new insights into the life of Klaus Kinski. Then the fallen hero Lance Armstrong comes to mind. These events are practically unbearable. Why do we tend to worship people for their successes while totally neglecting their potential downsides for a while? People obviously just like or need to be fooled to make life on this planet more bearable. This again shows that successful people are very fragile: all human beings have upsides and downsides (more or less equally distributed) and "successful" people have the luck that the rest of the human cohort just tends to ignore the downsides for a while... So when somebody is worshiped for his or her success then they need to pay attention like hell in order that their bad sides are not revealed.
Also in the new year people cannot resist making predictions. Here is a nice example from BBC. The Boston Consulting Group came out with a nice scenario analysis about what would happen if we do not stop the current age of Ponzi finance. So what should we do with these predictions? Do we need to change our life now or is this just entertainment?
Interesting article about Stoic thinking in the WSJ. Many people are obsessed about if it is "safe" to live on this planet. Is nuclear power safe?, is genetically modified food safe? etc. Just take your telescope and watch the stars. Every year you can observe hundreds of Supernovea events. So why do you worry so much about safety on this planet?
Think about the many different eons the earth already went through: Hadean, Archean, Proterozoic, Phanerozoic, Cenozoic and then about eras like Paleoproterozoic, Mesoproterozoic, Neoproterozoic, ..., Paleogene, Neogene and periods like Cambrian, Ordovician, Silurian, Devonian, Carboniferous, Permian, Triassic, Jurassic, Cretaceous, Paleocene, Eocene, Oligocene, Miocene,...
So why should we believe that any company or state is here forever? There exists an abundance of literature about "good to great", "great by choice", "built to last" etc. The prevailing corporate philosophy is all about identifying the "optimal" way of doing business. This is a frappant contradiction to the ideas of antifragility and the metaphor of black swans.
Linear thinking in modern corporations is everywhere. Discounted cash flow calculations are done covering the next 10 years. Personnel is hired through "assessmenet centres" where the "best" employee is hired. Investment plans are made based on expected growth data from organisations like the OECD. Commoditiy prices are calculated based on predictions from the IEA. Pension schemes are made based on predictions of GDP growth for the next 20 years.
There are also many examples from project management how bad linear thinking is. The channel tunnel and other major infrastructure projects in recent history turned out to be much more expensive than planned. Instead of recognizing the fault in our way of thinking linearily, the complexity is even more increased by inventions of tools like "plant design management software", "project management software" and positions like "project directors", "project engineering managers", "project commercial managers" etc. So how was it possible to build the pyramids or the Cathedral St. Michel in Brussels?
Can it be that today we happily ignore all potential difficulties and belief that we can realize our plans 1:1? The earth's eons show us that changes come and go simply by the laws of nature. The control over how the future may look like is minimal. So what may be good today may turn out useless tomorrow. This calls for redundancies and a set of diverse tools to be available to realize our plans.
Fragilistas
What is a Fragilista?
These are people who profit by exploiting the weaknesses of others.
The weakness of a high-tech industry is that its complexity does not fulfill society's dream of a paradise machine.
Energy storage
Why Energy Storage Systems are the Death of Renewable Energies.
Many advocates of renewable energy sources claim that suitable storage capacities for excess electricity from wind turbines and solar panels are the last, necessary step to finally solve mankind's problem of safe and sustainable energy supply. And of course they suggest that "the" solution is just around the corner if and only if enough research attention is focussed on the storage problem. Maybe those people do not understand what the difference between electricity and energy is.
Electricity is the movement of charge carriers driven by electrical potential differences. In order to sustain that movement or to uphold the potential difference energy is needed. The movement of electrons cannot be "stored". Energy is needed at exactly the moment when we need moving electrons in our computers or washing machines. Therefore the electricity produced by wind turbines or solar panels principally cannot be stored. The moving electrons can only be used to convert one form of energy into another form. For example the kinetic energy of wind can be converted through the electricity from the wind turbines into chemical energy by generating hydrogen gas through electrolysis or into mechanical potential energy by pumping water uphill.
Now assume that the perfect converter and storage system of renewable energy sources is invented, i.e. a system that can release the energy when we need it. Perfect means that there are almost no losses in the conversion process and that the storage system is lightweight, mobile and compact in order to transport the stored energy to locations where it is needed.
This invention would immediately attract arbitrage energy traders: they would use much cheaper energy sources from coal, gas and nuclear to load the "perfect" storage system and supply it to those regions which have banned these conventional energy sources from their territories. Since stored energy is stateless import bans or trade tariffs would be ineffective. It is principally impossible by inspection to distinguish which original energy source loaded the "perfect" device. That would ultimately render wind and solar energy uncompetitive.
Electric cars
Are car makers betting on the wrong technology with electric vehicles?
Just a few days ago a Bavarian premium car maker unveiled its first electrical vehicle for series production. Its weight is comparable to that of a conventional car in its class but in order to make good on the huge weight of the battery pack much of the rest of the car's structure is made of lightweight carbon fibres. And its range is a mere 160km. So what are the underlying physical principles that electric cars are so much hampered by the weight of their batteries?
Electricity cannot be stored - only energy can. Stored energy comes in the form of potential energy of the four natural forces: the strong force holding nuclei together, the electromagnetic forces binding atoms and molecules together, the gravitational force attracting the planets and the weak force which manifests itself in radioactive decay. The four fundamental forces act on different length scales: gravity is relevant on distances measured in astronomical units while strong forces act on the femtometer scale. Electromagnetic forces between molecules have a range of about a few angstroms.
Conventional energy storage in the form of coal and diesel is just about potential energy on the angstrom scale. Energy can be released by rearranging the molecular configurations. Part of the excitement of nuclear power generation was that is was proven possible to harness potential energy stored on the femtometer scale. With nuclear energy mankind can utilize the smallest and most compact source of stored energy. Uranium 235 has a spectacular energy density of about 19 TJ/mol.
So what about batteries? They basically consist in their classic design of so called electrochemical cells. The electrochemical potential measures the energy needed to add or remove a chemical species to or from a location. It is the measure of work necessary to bring one mole of an ion from a standard state to a specified concentration and electrical potential.
Species from one electrochemical cell lose electrons (oxidation) to their electrode while species from the other electrochemical cell gain electrons (reduction) from their electrode resulting in movement of electrons from one cell to the other. In essence this process is about the electromagnetic reaction between electrons and two different ions. The electrical potential of a typical electrochemical cell is a few Volts. This leads to a Gibbs free energy of about 200kJ/mol.
The energy density of this process is small compared to the energy available through the combustion of liquid hydrocarbons, for example. The energy which is released when valence electrons of light diesel hydrocarbons react with oxygen to form CO2 is of the order of 7000 kJ/mol. That makes all the difference. And it is unlikely that mankind can invent a "super" battery in a few years when nature has had time for the last few million years to figure it out.
National security
Don't the national security agency understand antifragility?
What does it reveal about a society if billions of dollars have to be spent to 'protect' the nation? To protect it from whom? Today the enemies are a few children from Yemen or Afghanistan. Tomorrow the enemies are home-grown and dissatisfied voters which want to change the 'system' which does not provide sufficient health care, education and retirement funds. One of the cornerstones of Western democracies has always been to intentionally ensure a low-profile role of the state in order that no big central government is tempted to use its powers against its own citizens or to prevent some potential would-be dictator to abuse the government's statutory powers.
So what does it mean of the status of the soul of a society when it seems to be paranoid about surveillance? Record every communication. Store all movements of its citizens. If the technology would exist they would beam agents into every home to search it and record its inventories. If thoughts could be read they would probably record what is on each citizen's mind every second in the country. What the hell is this society afraid of?
It may be the fear of loosing control. During the cold war the script of the world was deterministic. Now it is chaotic. India, China, emergent markets et al. are becoming economic power houses, too. No single superpower will exist any more. The more the country tries to control the situation the more it looses control. Resistance to control is one of the most antifragile properties of mankind. Human beings hate control. Human beings are like trees which grow around obstacles. You build up a control here and instantaneously another way to beat the system emerges.
One of the country's attractions has always been the opportunity for unparalleled personal freedoms. People liked the country. Antifragility means that you do not prevent bad events by trying to control the situation but that you have enough resources to survive them. If the majority of people love their country they will rebuild it after bad things have happened.
There is no need to prevent bad events. Rebuilding offers the opportunity to correct and optimize the system and make it stronger. On the other hand paranoid control means that you freeze current vulnerabilities and anxiously waiting for somebody to detect the weaknesses and strike. All the resources spent on control could be used to make the country more attractive and desirable for more immigrants to join and love it.
To conclude: the country must get rid of its angst, get out of its rabbit hole and plan for its future.
Linear science
Physics is not a linear science. Many of the fundamental laws like the Navier-Stokes equation or the Einstein field equations are non-linear. It is okay to say that in order to understand the equation's basic principles physicists usually use a linear approximation. But that does not mean that physics is linear or that physicists generally believe in nature as behaving linearly.
It is not necessary to define fragility or antifragility in terms of the non-linear response to a bigger and bigger stressor. Comparing the effect of 10 small excitations of unit 1 with the effect of a big excitation with unit 100 does not always make sense. If you do 10 small compressions of a spring and then do one compression of 100 units in magnitude, you probably will incur a plastic deformation of the material which did not happen at the smaller excitation levels. But why should I call the spring fragile with regard to compression, then? All systems have their limits. You can compress or elongate the spring further and you suddenly will arrive at the yield point and the spring will break. To a physicist this is no surprise.
I believe that fragility or antifragility is not an intrinsic quality of objects or systems but an extrinsic one, i.e. how we as human beings think about something. Of course society is a highly non-linear system and printing and printing money with no effect does not mean that we can do that forever without incurring hyperinflation. Our thinking is fragile because we behave as if the system in linear. And the main lessons from NNT's books is that we know actually very little about how the economy or the dynamics of our society works - so we fool ourselves by relying on linear predictions of the future.
So when we do our stress testing to determine fragility we really do a stress testing of our thinking of the world. Can we really expect to stretch that spring 100-fold without incurring failure? If a system has a memory effect then wanting to do something 10 times may be equally dangerous - if that device was only designed for single use like a fire extinguisher.
Therefore I like the idea of the empirical scepticist. Antifragility is in my opinion about being paranoid about what surprises the future may hold in store. When we talk about things that benefit from volatility it is hard to understand that that should be an intrinsic quality of something. Rather it should mean that we prepare ourselves and our thinking for these unknown surprises; that we make sure that we have the ability to heal the damages the future may inflict upon us or to benefit from opportunities the future may create for us.
Size itself does not mean that something is fragile per se. Because there is no absolute measure of size. If we would discover 10 new earth-like planets and create an intergalactic union then the size of today's banks would probably be considered as "small". Size only becomes a problem if no preparation is taken for same-order-of-magnitude damages. Banks of today are too big in size because they are not required to hold sufficient emergency capital for worst-kind events. It is our thinking which is fragile: we don't prepare for future surprises good or bad.
What can we see?
As the saying goes: the future ain't what it used to be.
Recently there has been a particular interpretation of the race to the South Pole. Amundsen is depicted as a "leader" who has followed a particular strategy well suited to lead his team to success through chaotic boundary conditions. And Scott's strategy is described as a looser's path. The success strategy is about "discipline": don't exhaust yourself during good weather but stick to SMART objectives regardless of what goes on around you. The looser went "all in" in good conditions and stopped activities altogether during bad weather.
We human beings love story telling - but a single success story does help little to draw conclusions for how to deal with chaos. Both Amundsen and Scott should have acknowledged that a big part of their potential success depends on mere luck. And since we only have limited knowledge about the circumstances they faced it is not clear that this or that strategy was the best one. We would have to repeat the competition a hundred times in order to find statistical evidence that Amundsen's approach indeed gives a higher probability to succeed in a race to the South Pole.
There is no evidence that under chaotic boundary conditions a particular strategy is more valuable than another one. A "valuable" strategy would mean that it gives you a higher chance of success - but that means that the chaos would be somehow foreseeable which is a contradiction. The only insight here is that luck plays a big role in the creation of history. Nature would have created a big cohort of Amundsen and Scotts in order to get somebody to the South Pole. Survival is not about A's or S's strategy but about "survival probability" times "cohort size".
Story telling... Mankind is obsessed with story-telling: fooling us to believe that the path of history has had a unique explanation. The reality is that there would have been many histories possible and we simply live through one of them. Since we can't see the other histories we make us fool to believe that last week's lottery draw result inevitably had to be 3, 13, 14, 24, 44, 47.
The 2008 Crisis
Introduction
This project started around 2008. Something profoundly disturbing had happened: house prices did not rise any more but fell. People had become so accustomed to believing in ever growing prices that they had forgotten to think about a downturn at all.
How did it happen?
The financial crisis of 2008 is the prime example how linear planning and expectations can go wrong. In essence people with almost no money and without any down payments could buy houses worth hundreds of thousands of dollars. Just based on the expectation that house prices would rise forever.
In hindsight it is difficult to explain why such foul thinking could have prevailed for so long? Did the banks have too much influence? Has Wall Street a corrupt culture? Did politics pitch the dream of homeownership too strongly by backing Fannie and Freddie? Did the Federal Reserve Bank for too long keep interest rates too low? Were people too greedy? Is the consumption culture responsible? Have people become too lazy to work hard? As the saying goes: it is difficult to predict the past and even more difficult to make prediction about the future. All these questions just demonstrate how difficult it is to understand the behavior of a many body system.
And there is also another twist. Many people these days explain that "too big too fail" is one cause of the crisis. But if many small institutions do stupid things then that is not much different if one big institution makes the same mistake. If many small hedge funds would suddenly discover a systematic error in their calculations then the whole system would also crash. And it could even be more difficult to intervene because of the sheer number of sick patients.
Learning something from the behavior of a many body system is very difficult. Since these systems are inherently unpredictable over long time scales it is almost impossible to draw some definitive conclusions that could prevent similar things in the future. It may even be a waste of time to unearth every detail which contributed to the crisis. It should simply be recongnized that some big groupthinking has happend across corporations, government agencies and individuals. The same groupthinking takes place today in the form of believing that the huge government deficits can somehow peacefully be resolved.
And how are we going to leave the crisis behind us? In the sense of antifragility only time will heal the wounds. If you made stupid things at the poker table there is no way to recoup your losses. Only the discipline of doing smart bets can help you to gradually recover. Instead some people tend to double down: Jerome Kervil et. al. Therefore the consequences of the 2008 crisis will be with us for quite a long time.
The bulls and bears at the front of many stock exchanges have a deeper meaning than most people think. In essence they reflect the inherent difficulty to predict the behavior of a many body system. Our human brain likes the availability heuristic: we look at one detail of the many body system and interpret this as a sign of going long. Another person observes another detail and concludes that we have to go short. This can be constanlty observed during the interviews on Bloomberg or CNBC. This is just the mechanism of evolution. All the noise is necessary to test out the manifold corners of phase space. It is the "wisdom" of the crowd trying to survive. And the crowd will survive: not the individual participants.
So today we are arguing if austerity or more money printing is good. Are we really so silly to believe that one or another way will bring immediate healing? Some contries may survive by money printing, others may go bust through money printing, some countries will heal under austerity, others will break apart under austerity. Black and white painting is another fallacy of our human prediction machine. So one advice is simply: every country should follow the way it likes. The cohort of countries will survive, but some will no longer exist afterwards. That is simple evolution. You can sleep much more peaceful if you just accept that change is inevitable.
Smart people?
Hugh Hendry did a nice interview at the Buttonwood Gathering in 2012. At one point in the interview he claims that something very very profound needs to happen if we are going to see hyperinflation. Obviously the money which was pumped into the system until now won't do the job. Yet this is exactly what Nassim Taleb would call the Turkey problem. For every day until Thanksgiving the turkey would conclude that everything is fine and would feel even more certain so until the butcher arrives. Money printing in Nassim's opinion would simply increase tail risks while seducing us to believe that everything is fine. David Einhorn at the same conference made an interview which much more reflects these concerns. One donut maybe okay but 35 of them are certainly unhealthy... He rightly mentioned that any new crisis could hit in the meantime and if the Fed then would need to raise interest rates it would immediately blow up under the debt burden. That is fragility. A method may work fine under static circumstances. But what may happen if some unexpected events occur? That is what a trader like David is worrying all the time.
Constructor Theory
The constructor theory of antifragility: the idea of antifragility and black swans is dismissed by many people as nothing new. These concepts are hated by many whose business it is to predict economic numbers. Yet N.N. Taleb simply tells us who we are and that can be quite painful, sobering and worth repeating many times.
When water is heated up over 0C it undergoes a phase transition. Below that temperature the water molecules in the ice crystal just steadily pick up more kinetic energy as the thermal energy grows. Then suddenly a surprise: the ice melts. Does this mean that ice is fragile with regard to melting? Or is it rather our thinking that makes us fragile with respect of extrapolating that an ice cube stays an ice cube forever?
Due to physical reasons the neural network we human creatures carry in our heads can only be a mirror image of past experiences. It principally cannot be a looking glass into the future. And the way we construct the world in our heads makes things either appear fragile or antifragile. These twins are extrinsic qualities of things. If some creatures would live on a planet that only had had temperatures below 0C then liquid water would be a black swan. There is no way the neural network of these creatures could imagine another state of phase.
One disturbing consequence of NNT's thoughts is the concept of skin in the game and Hammurabi's law. From constructor theory this is fairly obvious. If a single architect builds a house then the way the job is done would solely depend on the mental construct the architect carries in his or her mind: focussing on the handsome profits by cutting corners, by saving on this and that, by thinking of the next sports car and mansion he or she can buy when the project is finished. There is no way to prevent the mental machinery of the architect to ignore adverse consequences for the future owners of the house. The constructor has the physical freedom to extrapolate from the present world a rosy future as he or she likes.
Hammurabi's law is quite logical: force all the constructors in our heads to take possible adverse consequences into account by establishing a direct connection between two or more constructors. Skin in the game is like a proxy network connection between two constructors with the aim that one constructor cannot ignore the other constructor and vice versa.
The Lindy effect
The "Lindy effect" has been coined by Benoit Mandelbrot through his insight that the longer a technology has been there the more likely it is that it will be there for another, similar period. Therefore the principle of government spending as our main engine to spur economic growth is a very likely candidate for bringing the U.K. economy back on track. Yet the prime minister seems determined to break the addiction this time. It is a very daunting challenge to overcome the laws of probability.
If the government is not willing to spend money it would consequently have to make sure that the private sector does. But it seems that nobody is in the mood right now. Think for a moment of the UK economy as a huge honeybee colony - it simply has become addicted and overspecialized in feeding on government nectar instead of finding new sources of nutrients. In terms of the Lindy effect this means that the addiction to government nutrients is the "winner takes all" effect, i.e. since the government has had such a prominent role in the past it has acted as a filter which led to a monoculture of overspecialized bees.
To overcome the Lindy effect the prime minister consequently has to find a new breed of bees which will be more competitive than the prevailing ones in the absence of government nectar. That can only be done by tinkering. Nobody can foresee today how this new bee species might look like. Via negativa (i.e. removing government spending) is a necessary but not a sufficient way to get the UK back to growth. Huge amounts of genetic variations have to be created and tested in order to find a new breed which does the job.
What breeding options does the government have without having to put too much money on the table? The usual suspects are: allow exploitation of cheap energy sources such as shale gas, guarantee long term minimum rate of return for private investment in infrastructure, support the special needs of new technology clusters like the Silicon Roundabout, set highest standards in education and allow free access to engineering and scientific information, set best-in-class product quality standards, create efficient institutions and transparent and simple regulations, etc.
Will that be enough? Certainly not. Japan has been mired in zero growth for years. Bees have become accustomed to it. The current state is self reinforcing because it acts as a filter for those who are satisfied with the status quo. Change is about creating a social movement in order to break out of the deadlock. Traditionally wars have been used by governments to create sufficient momentum for change. Every business leader knows that change is mainly a human resource issue. Abstract instruments and re-organisations accomplish nothing unless the attitude and motivation of people changes.
This time we have the opportunity to use social media to create a critical mass for peaceful purposes. Instead of realizing change by military mobilization we can build momentum by bringing equally minded people together via the WWW - easier and cheaper than ever before. The government should use this opportunity to build colonies of bees which thrive on different nectars. Maybe Facebook, Google & Co have built the foundation of something which they themselves have not yet realized: a platform for rapid social tinkering. To overcome the inertia dictated by the Lindy effect we need to find new solutions with high speed trial and error.
The 2015 Crisis
Is there a storm out there?
As of writting these lines in August 2015 signs of a new crisis accumulate: Chinese stock market had a bad crash, German DAX stock index is already in bear market and heavy losses on Wall Street. What does it mean?
Is it just a hick-up? Some explain it with the uncertainty over a Fed rate hike this year. But why isn't such a rate hike not already included in stock prices? Why has the German stock market fallen more than 20% from it's peak in April when the a small rate hike is to be expected? And although there are many signs of a crisis the Gold price has not moved much. Then there is the steep fall of oil prices. Why should that be bad? In recent years this would have been considered good for consumers and consumer stocks.
When prices fall this means that there are some money managers around who want to sell desparately. Who can this be? Oil price dependent nations trying to improve their cash flow? Absence of Chinese buyers? Or are money managers on Wall Street expecting a steep economic downturn? Nobody seems to know at the moment.
Genetically Modified Organisms
Are we sleepwalkers?
When you watch NNT's twitter account per 2015 you see that there is a hot discussion about the desaster potential of genetically modified food and what the appropriate precautionary strategy is. The desaster potential is that in principle only small changes are made to the DNA of the plants and that the review time is maybe 3 or 5 years to estimate if it is safe or not. Then companies are allowed to use this new plant breed to grow it practically on a global scale. The consequences of small scale changes may on the other hand not be visible for 20 or 40 years - the butterfly effect. Since the new plants are already spread over the whole planet by then we may be sitting on a global time bomb.
Compared to the above scenario nuclear power can to less harm. There may be a spectacular failure of a plant once in a while but these events have not the potential to whipe out civilisation. On the other hand no company would develop GMOs if it need to wait a couple of decades to find out if this is safe or not. So it is very hard to find a good balance between caution and innovation for GMOs.
Climate Change
Precautionary Actions
It is clear that we are affecting the climate with our behavior. Every species on this planet does. And there are many dire predictions about how the planet will look like if we continue burning CO2 at 2015 levels. This topic has really the potential of a make-it or break-it tipping point. Many scientists assume now that the consequences will not be linear and will not appear gradually but that more or less suddenly the climate will change violently.
If climate change turns out to be happening according to worst case scenarios we really have a sucker problem here. Counting pennies in front of a steamroller. On the other hand some of us may also remember the dire predictions in the 1980s about "Waldsterben" in Germany, i.e. the preceived destruction of the German forrest by acid rain. Nothing like this happened. Technology got better and today we still have lots of trees.
The problem of climate change discussions is that they most of the time focus on administrative solutions: curbing CO2 emissions by a tax, by installing a trading system, by giving incentives for electric cars etc. This is a dream of controlling the life of billions of people which didn't even work effectively in the Soviet Union. If you are an engineer you would want to think about with what kind of technology you can engineer the climate. Ice ages and warm periods will also come in the future regardless of what we are doing. Therefore we need tools to get intro control of the climate.
EU Exit
Brexit
The European Union for sure needs an update. But will this happen by leaving it? If the Brits would live on a big oil platform which could be moved to the shores of Singapore then a bright future might be ahead. But now the UK will isolate itself from its most important neighbours. How could this happen?
First of all we need to remind ourselves that the vote had much to do with luck. There was no clear majority for an hard exit. Neither will anybody belief that the UK earnestly thinks that the EU has been harmful for its destiny. The referendum and its interpretation is a political theather.
Much like the German chancellor Merkel abruptly phased out nuclear power not because anybody was afraid of nuclear power but because it was a brilliant political maneuver to wound the Green party. Parts of the British conservative elite liked the Leave campaingn because it gave them the prospect of gaining more power and influence.
Brexit is absurd. It sacrifices all the benefits of a stable, post World War 2 Europe. Brexit might happen formally but with all kinds of provisions that it not really is an exit. It is a political theather without substance.
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