Recently a chorus of voices from various backgrounds have been pointing to the patterns found in nature as holding the keys to the future security and ultimately survival of an increasingly fragile globalized world.

The argument goes something like this: globalization has exponentially increased the complexity of modern civilization and eliminated many of its redundancies (inefficiencies?) based on the pursuit of specialization and comparative advantage.  While many praise, and duly so, the various benefits of globalization, few understand or acknowledge the fragile state it has created in its campaign for greater efficiency.

The stripping away of redundancies and growing interconnectedness of nations and markets now makes a “butterfly in Brazil” scenario more likely as the global system has become much more sensitive to change and less robust.  To secure ourselves from future doomsday scenarios we should model nature and trade back some of our efficiency for increased redundancy and robustness.

Nassim Nicholas Taleb has been hammering on this theme for years now, adding a new updated section to “The Black Swan” on Robustness and Fragility,

First, Mother Nature likes redundancies, three different types of redundancies.  The first, the simplest to understand, is defensive redundancy, the insurance type of redundancy that allows you to survive under adversity, thanks to the availability of spare parts.  Look at the human body.  We have two eyes, two lungs, two kidneys, even two brains (with the possible exception of corporate executives)—and each has more capacity than needed in ordinary circumstances.  So redundancy equals insurance, and the apparent inefficiencies are associated with the costs of maintaining these spare parts and the energy needed to keep them around in spite of their idleness.

The exact opposite of redundancy is naïve optimization.  I tell everyone to avoid attending (orthodox) economics classes and say that economics will fail us and blow us up (and, as we will see, we have proofs that it failed us; but, as I kept saying in the original text, we did not need them; all we needed was to look at the lack of scientific rigor—and of ethics).  The reason is the following: It is largely based on notions of naïve optimization, mathematized (poorly) by Paul Samuelson—and this mathematics contributed massively to the construction of an error-prone society.  An economist would find it inefficient to maintain two lungs and two kidneys: consider the costs involved in transporting these heavy items across the savannah.  Such optimization would, eventually, kill you, after the first accident, the first “outlier.”  Also, consider that if we gave Mother Nature to economists, it would dispense with individual kidneys: since we do not need them all the time, it would be more “efficient” if we sold ours and used a central kidney on a time-share basis.  You could also lend your eyes at night since you do not need them to dream.

In an e-mail discussion with Timothy Thompson he drilled down the objections of many in this growing crowd to a more specific risk,

…the whole globalized economy relies on just one critical element: cheap transportation. And cheap transportation means cheap transoceanic container shipping, which in turn relies on just one critical factor: cheap oil. The world economic system can be disrupted at any time by simply increasing the price of marine fuel.

So, an entire global economic system has become dependent on the price of just a single commodity, crude oil.

From a security standpoint, the anti-globalization crew also write that any terrorist or military threat that stops transoceanic container cargo also stops most of the world economy.  So just one big terrorist bomb arriving in just one shipping container in just one port can cripple the whole global economy.

In coming up with solutions, John Robb is making a good go of it with his study and writings on resilient communities, also modeled in Suarez’s “Freedom.” He believes one of the answers to the potential problem of long-distance production and shipping is the use of 3D fabrication technologies to manufacture tools and products locally.   In his own words, “Localize Production.  Virtualize everything else.”

Concerning food, we can already see a glimpse of this ethos  in the rise of urban farming and local farmer’s markets.  It’s very possible that this will spill over into manufacturing (See Etsy) as the technology becomes cheaper and more readily available.

So, what to do as an individual?  Well, globalization is not going anywhere for now.  Rather than fighting its advance or holing up in a cabin in Alaska, the best stance may be to skeptically embrace its benefits, rebuffing naive claims of global utopia, while doing more to safeguard ourselves against its weaknesses.  It’s a balance of course.

Here are some links to articles and videos discussing the themes of efficiency, redundancy, nature and security:

Nassim Nicholas Taleb on Robustness

http://www.isegoria.net/2010/06/natural-security/

http://www.foreignpolicy.com/articles/2003/09/01/adapt_or_die?page=full

http://www.physorg.com/news193586040.html

http://fora.tv/2008/08/08/Daniel_Suarez_Daemon_Bot-Mediated_Reality

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There’s no doubt that globalization has its benefits, but we often ignore the fact that it has also exponentially increased the complexity of the world markets and has eliminated many of the redundancies (economists call these “inefficiencies”) and robustness that once made it so individual markets could withstand failures in other parts of the world.  Complex systems are very fragile.

See Nassim Nicholas Taleb’s Ten Principles for a Black-Swan Proof World

Here are a couple of my favorites:

1.  What is fragile should break early while it is still small. Nothing should ever become too big to fail.  Evolution in economic life helps those with the maximum amount of hidden risks – and hence the most fragile – become the biggest.

8.  Do not give an addict more drugs if he has withdrawal pains. Using leverage to cure the problems of too much leverage is not homeopathy, it is denial.  The debt crisis is not a temporary problem, it is a structural one.  We need rehab.

9.  Citizens should not depend on financial assets or fallible “expert” advice for their retirement.   Economic life should be definancialised.  We should learn not to use markets as storehouses of value: they do not harbour the certainties that normal citizens require.  Citizens should experience anxiety about their own businesses (which they control), not their investments (which they do not control).

For more Taleb see here.  (h/t John Robb)

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Joshua Keating writes that the world is about to become filled with lots of really old people,

More than half the babies born since 2000 in France, Germany, Italy, Britain, Canada, Japan, and the United States will live past 100, according to a recent study in The Lancet, the British medical journal, charting the astronomical increase in life expectancy experienced since 1840 in developed countries. By midcentury there will be nearly 6 million people over 100 in the world, compared with just 340,000 today, according to the U.S. National Institute on Aging.

The article points out that one major issue to be tackled will be raising the age of retirement. One organization that is going to be SLAMMED by this demographic shift is the U.S. military who currently doles out full-retirement for life to anyone that serves 20 years of active duty.

The DoD is going to have to change it’s retirement plans soon, pushing back the age that one begins receiving benefits as it can no longer afford to pay hundreds of thousands of military retirees full-retirement for 50+ years (assuming they retire at age 44 and live to age 94). One day quite soon (last week) we will have to decide if we want to buy a bullet or another dental exam for a retiree…bye, bye grandpa.

Oh yeah and if you think you’re safe because you’re not in the military. Social security which was long estimated to go into deficit somewhere between 2016 and 2020 went into deficit this year.

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On Afghanistan, waterboarding and COIN:

1) A fascinating paragraph from Robert Kaplan’s latest article on Afghanistan in The Atlantic (h/t Andrew Sullivan):

The very prospect of some success by July 2011 increases the likelihood that U.S. forces will be in Afghanistan in substantial numbers for years. In effect, the proficiency of the American military causes it to be overextended. British Major General Richard Barrons, a veteran of the Balkans and Iraq now serving in Afghanistan, told me he learned during the most depressing days in Baghdad that “the long view is the primary weapon against fate.” If you are willing to stay, you can turn any situation around for the good. But that is an imperial mind-set, with its assumption of a near-permanent presence, which today’s Washington cannot abide, even as its own strategy drives toward that outcome.

2)  On Waterboarding: here and here (caution: disturbing)

3) Getting Close to the Afghans:

Our distance from the population, and the enemy’s proximity, encourage the people to alert the insurgents when our troops approach. They encourage the people to keep quiet about IEDs, which are now powerful enough to kill passengers in our best armored vehicles. Force protection measures thus result in less protection for our troops.

The risk aversion among American commanders has many sources. Fear of casualties and doubts about our purpose in Afghanistan cause segments of American society to pillory units that sustain large casualties, and to ignore units that cling to large bases and accomplish little. Talk of troop withdrawal dates discourages leaders from taking short-term risks for long-term gain.

Part of the blame lies within the military, which has often promoted risk-avoiders ahead of risk-takers, and has undervalued other attributes of vital importance in counterinsurgency such as creativity, sociability and empathy. The extent to which American units collaborate with Afghan security forces and obtain assistance from the population depends primarily on these attributes, and it varies widely.

On millenials, the economy and the coming anarchy (light reading, I know, sorry Linda):

1) The Dropout Economy a.k.a. when Millenials get tired of paying for the broken system created by the baby boomers and decide to opt-out. (h/t Shlok Vaidya)

Look at the projections of fiscal doom emanating from the federal government, and consider the possibility that things could prove both worse and better. Worse because the jobless recovery we all expect could be severe enough to starve the New Deal social programs on which we base our life plans. Better because the millennial generation could prove to be more resilient and creative than its predecessors, abandoning old, familiar and broken institutions in favor of new, strange and flourishing ones.

Imagine a future in which millions of families live off the grid, powering their homes and vehicles with dirt-cheap portable fuel cells. As industrial agriculture sputters under the strain of the spiraling costs of water, gasoline and fertilizer, networks of farmers using sophisticated techniques that combine cutting-edge green technologies with ancient Mayan know-how build an alternative food-distribution system. Faced with the burden of financing the decades-long retirement of aging boomers, many of the young embrace a new underground economy, a largely untaxed archipelago of communes, co-ops, and kibbutzim that passively resist the power of the granny state while building their own little utopias.

2) Britain ‘four meals away from anarchy’ (h/t John Robb)

…at least there’s always music, check out this sweet visualization - Rock ‘N Roll Metro Map

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Here’s an excellent photo essay showing the human costs of war (h/t The Strategist)

AND…

Here’s how much Iraq and Afghanistan have cost us according to a few different sources:

The Congressional Research Service estimates the total cost of both wars to be just over $1trillion.

CostofWar.com estimates Iraq at over $700billion and Afghanistan at $255billion for a total of just under $1trillion dollars.

To give you better perspective that’s $1,000,000,000,000.00

Nobel prize winning economist Joseph Stiglitz and Linda Bilmes say the official costs are actually quite deceiving and estimate that the total costs of Iraq alone are closer to $3trillion dollars. He talks about it here at Big Think.

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Economist Jeff Rubin discusses the future of oil (peak oil) in an entertaining way that doesn’t take a PhD to understand. If you are a regular reader of Schaefer’s Blog this is a must-watch, even if you just watch the first 10 minutes.  Basically, Rubin lays out a convincing argument why triple digit oil, translating to $6-$7 per gallon at the pump is all, but inevitable and will probably come sooner than we think.  HT to Paul Kedrosky for this find.

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In a recent Washington Independent article, Spencer Ackerman asked the all-important, but seldom asked question, “Why Should Defense Spending Be Sacrosanct?”

It’s not popular to ask this question, especially if you’re a congressman because in doing so you’re bound to be labeled as not supportive of the troops.  However, the present course of the DOD is completely unsustainable. And in our current economic state ($12 trillion in debt and counting) I, like Ackerman and others, find it odd that there has been no serious talk of freezing the gargantuan DoD budget. In 2008, the US military spent more than the next 46 highest spending countries in the world combined (see here).

The spending problems come from personnel costs on one side — full retirement benefits for members who serve 20 years of active duty (most retire in their 40′s and now live well into their 80′s and beyond, a.k.a. 40 years of retirement pay), rising healthcare costs, salaries, housing pay, etc.  Equipment costs on the other — planes, bullets, tanks, UAV’s and an aging fleet of …well, almost every weapon system you can think of.  Just to send one combat troop to Afghanistan costs the taxpayer $1 million a year.

Almost everyone close to the organization knows we’re plowing ahead like a drunk driver headed for the cliff, but no one seems up to the task of fixing it.  Worse yet, much of the leadership seems bent on simply increasing spending rather than fixing a broken system.

Defense Secretary Robert Gates is making a noble effort, but the military-industrial complex is a three-headed monster, devouring every plan formed against it through strategic lobbying, creative bookkeeping and a view of the world based more on fantasy than reality.

Ackerman cites an October assessment from the CSBA’s Todd Harrison who compares the DoD to GM, explaining (emphasis mine),

Another similarity between the two is that both organizations are in a period of disruptive change in the competitive environment. In GM’s case, its market share rapidly eroded as gas prices climbed higher, the economy slowed, and consumers turned to smaller, more fuel-efficient vehicles. GM found itself building a fleet of SUVs and trucks that consumers did not want and could not afford. Similarly, DoD now finds itself saddled with a number of weapon programs whose capabilities are ill-suited for the types of conflict the military currently faces and whose costs have risen beyond what the Department can afford. Many of the new weapons being funded today are optimized for middle-of-the- spectrum conflicts—that is, conventional, military-on-military conflicts such as Operation Desert Storm in 1991. But adversaries are well aware of the United States’ overwhelming advantage in the middle and are instead moving to either end of the spectrum: irregular warfare on one end and high-end, asymmetric warfare on the other. The challenge for DoD, as it was for GM, is that the competition is adapting faster than it can keep up.

The last sentence is key, “…the competition is adapting faster than it can keep up.” Much of it has to do with the huge, inflexible, bureaucratic organizational structure of the DoD as compared the nimble, decentralized, open-source structure embodied by al-Qaeda and affiliate organizations. One bans twitter, facebook and gmail while the other uses the internet train to organize its cells all over the world.

Changing the DOD’s organizational structure is one thing, putting a freeze on the defense budget is another and one that may be a bit more realistic. However, none of this is bound to change anytime soon if we insist on keeping our country in a state of perpetual war.

Of all the enemies to public liberty war is, perhaps, the most to be dreaded because it comprises and develops the germ of every other. War is the parent of armies; from these proceed debts and taxes … known instruments for bringing the many under the domination of the few.… No nation could preserve its freedom in the midst of continual warfare. – James Madison, Political Observations, 1795

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Economist Paul Krugman presents an alternative view on the falling US dollar in his piece, “Misguided Monetary Mentalities,” (hat tip Fabius Maximus) saying,

The truth is that the falling dollar is good news. For one thing, it’s mainly the result of rising confidence: the dollar rose at the height of the financial crisis as panicked investors sought safe haven in America, and it’s falling again now that the fear is subsiding. And a lower dollar is good for U.S. exporters, helping us make the transition away from huge trade deficits to a more sustainable international position.

I agree that shrinking our trade deficit is a definite plus, but there have to be better ways to get rid of it than a falling dollar.  Right?

**What say you readers?  Is Krugman right or is he off his rocker?**

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Last week Susie Gharib of PBS interviewed Warren Buffett, the following was an answer of his I found interesting.  Not necessarily because I agree that the government should intervene, but more because it shows a candor and the admission that we don’t know what’s going to happen when we start tweaking a free, or semi-free market.  Hat tip to Marginal Revolution.

SG: But there is debate about whether there should be fiscal stimulus, whether tax cuts work or not. There is all of this academic debate among economists. What do you think? Is that the right way to go with stimulus and tax cuts?

WB: The answer is nobody knows. The economists don’t know. All you know is you throw everything at it and whether it’s more effective if you’re fighting a fire to be concentrating the water flow on this part or that part. You’re going to use every weapon you have in fighting it. And people, they do not know exactly what the effects are. Economists like to talk about it, but in the end they’ve been very, very wrong and most of them in recent years on this. We don’t know the perfect answers on it. What we do know is to stand by and do nothing is a terrible mistake or to follow Hoover-like policies would be a mistake and we don’t know how effective in the short run we don’t know how effective this will be and how quickly things will right themselves. We do know over time the American machine works wonderfully and it will work wonderfully again.

SG: But are we creating new problems?

WB: Always

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“Life’s about choices,” said a college professor of mine.  He taught finance and would impart to my classmates and me the importance of the decisions we all have as to how we use our money, time and resources.  It was his mantra and something that he passed on, not only to his students, but his children as well.

For instance, he recalled an experience when his 8-year-old daughter and him were going on a walk around the neighborhood.  He had told her to take her jacket because it was cold outside. “No, I don’t need it,” she proclaimed.  He explained to her that she would get cold if she didn’t have her jacket, yet she still insisted she didn’t need it.  “O.K.,” he said and they went on the walk.

A few blocks in she began grumbling about how cold it was and rubbing her arms.  What did my professor do?  Did he cut the walk off short?  Did he take off his jacket and lovingly place it around his daughter?  No, he made her walk the rest of the way home freezing her butt off.  “Life’s about choices,” he explained to his daughter.

60 years ago people reading this article would say of this example, “Well done, he taught his daughter a valuable lesson.”  But today, many reading this would cry, “Child Abuse!”  “It was the father’s fault for not making her take her jacket!”  “You can’t blame the daughter, she didn’t know, she can’t be held responsible!”

This is what’s wrong with our society.  We’ve become a people that hold everyone responsible, but ourselves.

Never before have I seen so much blame being placed on everyone, but the person in the mirror.  People waving angry fingers at big oil companies for high gas prices rather than blaming themselves for owning two S.U.V.’s and a boat.  They completely ignore the law of supply and demand expecting that somehow prices will remain stagnant as consumption drastically increases.

This is like writing an angry letter to Hostess snack foods complaining about your recent weight gain while shoving 30 Twinkies in your gullet.  Life’s about choices.

Or how about the debt-ridden homeowner’s shouting about the foul play of mortgage lenders who “deceived them” (code for I didn’t do my homework) and gave them their houses much too easily then DEMANDING government bail out for a house they had no business purchasing in the first place.  Since when is your poor financial planning and decision making the government’s problem.

As Justice Casey Percell said, “It is not the responsibility of the government or the legal system to protect a citizen from himself.“  You made a poor choice, take your lumps and move on.

Is the economy in a slump, yes.  But, who is really to blame?  “Most of our economic wounds are self-inflicted, stemming from our inability to live within our means,” says Knight Kiplinger, Editor in Chief of Kiplinger’s Personal Finance magazine.

Many Americans live in a house — and drive a car — that eats up too much of their monthly budget. They dine out when they could be eating at home, and they indulge their children with trendy clothes. They mistake wants for needs.

Now don’t get me wrong, I love America.  I believe in America and what it stands for.  This is why something needs to change – and instead of demanding it from everyone else it has to start with us.  Government bailout is not the answer, it will only prolong and maybe even exacerbate the problem.

As Herbert Spencer aptly spoke, “The ultimate result of shielding men from the effects of folly is to fill the world with fools.”

Punishing corporations for their profits is not the answer, this will only send the message that in America you can try to be successful, but if you are too successful we’ll start taking your money.  The answer lies in doing our homework and making the right choices.  After all, at the end of the day it’s about taking a coat when it looks like it’s chilly outside.  You can choose not to, it’s true, but don’t whine when you get cold.  Life’s about choices.

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