Musings Report #25 6-23-13 Are There Solutions to the Really Big Problems?
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Are There Solutions to the Really Big Problems?
I was delighted to receive a copy of the short book Immoderate Greatness: Why Civilizations Fail from its author, William Ophuls. In a mere 69 pages of text (supported by 34 pages of notes and an extensive bibliography), Ophuls encapsulates the arguments of many thinkers and historians you may be familiar with: Jared Diamond (Collapse), Thomas Homer-Dixon (The Upside of Down: Catastrophe, Creativity and the Renewal of Civilization), Michael Grant (The Fall of the Roman Empire), David Hackett Fisher (The Great Wave), William Catton (Overshoot), Joseph Tainter (The Collapse of Complex Societies), Nassim Taleb (The Black Swan), John Michael Greer (The Long Descent) and Chris Martenson (The Crash Course).
Ophuls distills the causes of social, political and economic collapse into six core drivers:
1. ecological exhaustion
2. exponential growth
3. expidited entropy
4. excessive complexity
5. moral decay
6. practical failure
The key to understanding these forces is to grasp their systemic nature: they cannot be countered or revoked with a few policy tweaks. They are also inter-connected and self-reinforcing.
Take credit/debt expansion for example: as debt expands annually, it follows an exponential curve. At some point this trend runs out of oxygen and collapses. The moral degradation of society (i.e. a status quo power structure dominated by self-interest and cronyism) renders the machinery of government incapable of acting forcefully enough to change this trajectory. Adding layers of complexity to financial regulations as a "fix" merely speeds this process (excessive complexity adds cost but provides no gain in transparency, efficiency, etc).
This is why so many observers are pessimistic about the odds that the status quo can endure: not only are these drivers not recognized, nothing is being done to counter them; indeed, the status quo is wired to resist systemic change.
Many see a cycle in the history of nations and empires: dissolution and collapse is in effect ordained as prosperity and security drain societies of their ability to make realistic assessments and take bold actions.
If you are familiar with the literature listed above, you understand this pessimism, as there is precious little evidence that self-interested Elites competing for a destabilizing pie have the wherewithal to risk their own status and wealth on a bold plan of renewal that must unmake the very power structure that feeds their self-aggrandizement.
This might be called the psychological explanation of collapse: those with the power to change the course are reluctant to do so, as any real change threatens the very power and prestige they hold so dear.
This is why thinkers such as Homer-Dixon see collapse of the status quo as a necessary step in the march to renewal.
Writers such as James Howard Kunstler believe that collapse will take with it the ability to renew a technological society; all the easy energy sources have been consumed, and so the next iteration will lack the ability to bootstrap the infrastructure needed to create advanced energy sources as such solar panels. Writers such as Dmitry Orlov and John Michael Greer see a localized path to survival and resilience, and I am in this camp myself (why else would I title my longest book Survival+?)
In my view (and I am not alone in this), the central driver of collapse is centralization. Centralization of wealth and power in governments and corporations provided hundreds of years of higher yields resulting from economies of scale and the rationalization of industrial processes.
Interestingly, with rationalization comes fragility and a loss of resilience. Increasing gains come at the expense of resiliency, which is intrinsically costly and messy, as one of its primary features is non-linearity, i.e. bounded chaos.
Nassim Taleb characterizes resilient systems as those that tolerate high levels of low-intensity volatility. In Taleb's analysis, this volatility is a form of critical information. The high-yield system increases its yield by eliminating this signal noise and costly, messy redundancy via centralization.
In other words, centralization inevitably creates fragility that leads to inevitable collapse. Centralization served a purpose but has now entered marginal returns; it has outlived its purpose. This is its essential teleology: centralization ends in collapse.
The only real solution is decentralization and a system that not only tolerates low-intensity volatility but actively promotes and conserves this volatility (for it is a form of necessary information and feedback). Anything else is phantom reform, a simulacra designed to convince us that the reform will fix what is broken. Alas, facsimile reforms won't fix anything.
Market Musings
Having been an avid student of financial markets for over 15 years, I would hazard that the one of the greatest challenges to becoming a successful trader is to embrace ambiguity and uncertainty.
What I mean by this is that as traders, we are constantly attempting to project current data to predict where a market will be at day's end, week's end, at month's end, etc., so we can bet that X will go up and Y will decline, and thereby profit from our prediction.
This feeds a natural preoccupation with making accurate predictions, and a search for tools that are more accurate than chance or randomness.
The alternative view--the one I observe held by successful traders--is that all we have is probabilities, and that we must be willing to change our assessment of probabilities if the market tells us to do so. We must accept an intrinsic ambiguity in everything, including price, for the price of the Nikkei last September did not telegraph the Nikkei's 75% rise.
Uncertainty is the one permanent feature of all markets, and so we attempt to eliminate uncertainty with various conceptual schemes (Elliott Wave Theory, cycles, etc.) and indicators (money flow, stochastics, etc.).
Alternatively, we can embrace uncertainty and accept that we really don't know what markets will do in the future. As traders, we are ultimately betting on two dynamics which recur in all markets: extremes are reversed and trends continue or erode into instability.
Right now, gold, coffee and a variety of other commodities have been declining precipitously for months. Traders have two basic choices: either bet the trend continues or bet it reverses because it has reached extremes.
As I noted in Musings 22, there are three basic patterns that have played out since 2010: a sharp waterfall decline, a multi-month head-and-shoulders topping or a multi-week topping pattern. There is nothing magic about these possibilities; all traders can do is trace out various possibilities and assess the shifting probabilities that one or the other is playing out.
In other words, U.S. stock indices could go over a waterfall for a 20+% decline here, they could pop back up to form a double top or right shoulder and then decline sharply, or they could reach up (as in April 2012) and hit a new high before declining.
Rather than attempt to predict the outcome and bet accordingly, the experienced traders will look for clues that one pattern or another is becoming a higher probability bet before building a position.
Right now, the odds favor a bounce in U.S. markets for at least a week. If the Chinese credit bubble described in links below blows up, however, that could send global markets over the waterfall in a hurry.
The best thing that happened to me this week
I am finally recovering from a stomach flu that laid me nauseously low. One of the great ironies of human life is that we find it nearly impossible to appreciate what we take for granted, i.e. being mobile, able to speak, eat, etc. As the song lyric so aptly noted, "you don't know what you got til it's gone." If you are healthy today, celebrate!
From Left Field
Priced out of Paris: global cities pricing out the upper-middle class -- the poor get subsidized housing, the rich have their enclaves and the middle-class is gone. Is that a healthy trend? Read the comments, many are interesting.
What’s Your ONE Thing? -- interesting point about the stultifying influence of the Factory Model of Education, i.e. the status quo.
"All tyranny needs to gain a foothold is for people of good conscience to remain silent." (Thomas Jefferson)
Thanks for reading--
charles
