Prediction: where only fools and angels dare to tread

I'm reading a wonderful book at the moment: "The Black Swan: the Impact of the Highly Improbable" by Nassim Nicholas Taleb. Lots of academics and bureaucrats hate him, and no wonder. Like one of my other heroes, John Kenneth Galbraith, he is an expert at pricking the pomposities of experts and other overpaid drones, especially those suffering from anxieties caused by their suppressed fear of their own basic fraudulence and incompetence.

Let me quote:

There are those people who produce forecasts uncritically. When asked why they forecast, they answer, "Well, that's what we're paid to do here."

My suggestion: get another job.

This suggestion is not too demanding: unless you are a slave, I assume you have some control over your job selection. Otherwise this becomes a problem of ethics, and a grave one at that. People who are trapped in their jobs who simply forecast because "that's my job", knowing pretty well their forecast is ineffectual, are not what I would call ethical. What they do is no different from repeating lies simply because "it's my job".

Anyone who causes harm by forecasting should be treated as either a fool or a liar. Some forecasters cause more damage to society than criminals. Please, don't drive a school bus blindfolded.

With this in mind, recall my recent comments about Glenn Stevens, Governor of the Reserve Bank of Australia. Is he a fool, or a liar? I invite you to judge. Remember that this man and others like him are presently controlling your destiny.

I wish I had read this book in 1980. It would have saved me a great deal of angst. In fact I spent some time trying to develop some sort of algorithm or model to help me forecast risks when building complicated scientific models in a business which I've been operating for many years, and which has on more than one occasion brought me badly undone. "The Black Swan" is about precisely these types of problems. Unfortunately the book was not published until 2007!

He talks about a very difficult subject but manages to give us some simple tools and concepts to help manage it. For me, one of his key ideas is the division of our world into two sections, which he names Mediocristan and Extremistan. Mediocristan is where most of us live: it's where you need to turn up and do a fair days work to get paid, and where rewards will always be modest but reasonably predictable. Extremistan is the country inhabited by the sorts of people you read about in magazines while waiting to see the doctor. The super-rich: Nicole Kidman, Donald Trump, Mick Jagger, Eddie McGuire. And a whole lot of other people who are less visible but no less extreme in their wealth or power. What he discusses are the characteristics of these two worlds and how they interpenetrate and interact with each other. Extremistan has the characteristic that there are many, many more losers than winners, but the winners may reap astronomical rewards.

Some professions may move from one world to the other. This is what happened to musicians when recording was invented: the majority of musicians lost their livelihood or it became very precarious, while the lucky few became incredibly rich.

But in a certain sense we inhabitants of the modern world are all inhabitants of Extremistan, with its huge rewards and equally huge risks. The present financial crisis comes precisely from this cause, and is the outcome of large numbers of people confusing one world for the other and believing it was possible to get something for nothing. That's what trading on the stock market is all about. That is why asset bubbles occur. That is the basis of gambling.

Anyway I recommend you read this book if what I've said so far intrigues you.

An interesting post by Dmitry Orlov after quite a long lull on his blog. I haven't been posting of late, mostly because I feel that my job is more or less done. I called it as I saw it, and, unfortunately, I seem to have called it correctly. The US is collapsing before our eyes. Stage 1 collapse is very advanced now; stages 2 and 3 are picking up momentum.

I have a similar sense that there will come a time when I feel no further purpose will be served by riffing on the same old themes. I had an interesting experience yesterday where a very young girl, perhaps seven or eight years old, came into our shop to look at our aquarium fish. She began talking about the financial situation in the US (I can't remember what triggered this!) and started by saying "the depression in America" and then corrected herself, "I mean it's only a recession now, but it might turn into a depression". I asked her where she had heard about all this and she said something vague about school. Some time later my former bookeeper came in and told me her bookeeping guru had said the coming downturn could last forty years.

When two unrelated people from such wildly different backgrounds have some grasp of what the situation facing us could entail, there's no need for me to use a megaphone. On the other hand the practicalities of how we're going to deal with all this are still of interest, and perhaps this blog may serve some function in that regard.

In fact my task for the next couple of weeks is to sit down and produce a new business plan for our nursery, something which we have to do if we're to face up to the reality of what's coming towards us. There is no guarantee I'll get it right but failure is guaranteed if I don't do it at all.

Finally, the conclusion of Jim Kuntsler's latest post:

The big theme for 2009 economically will be contraction. The end of the cheap energy era will announce itself as the end of conventional "growth" and the shrinking back of activity, wealth, and populations. Contraction will come as a great shock to a world of conventionally programmed economists. They will toil and sweat to account for it, and they will probably be wrong. Unfortunately, this contraction will do its work in unpleasant ways, driving down standards of living, shearing away hopes and expectations for a particular life of comfort, and introducing disorder to so many of the systems we have depended on for so long. People will starve, lose their homes, lose incomes and status, and lose the security of living in peaceful societies. It will become clear that the Long Emergency is underway.
My hope for the year, at least for my own society, is that we will transition away from being a nation of complacent, distracted, over-fed clowns, to become a purposeful and responsible people willing to put their shoulders to the wheel to get some things done. My motto for the new year: "no more crybabies!"

Read the whole thing if you haven't got time to read The Long Emergency. It's a lengthy and comprehensive examination which may seem excessively dire until you realise how accurate he's been so far.

Less balance, less nuance, just a fine old rant

From Amanda Kovattana, an aha! moment...The implications of this suddenly hit me. We are under contract to fleece the planet! The fractional reserve banking system is designed so that it must keep on giving out loans just to stay solvent, but there aren't enough resources in the world to be sold for all the money that needs to be paid back...

All over the planet, people are suddenly waking up to reality. We may or may not have seen it coming, but we know it has arrived. And the oddest people are starting to talk about it. Take Jeremy Clarkson, host of the BBC show Top Gear, here posted on Rob Windt's The Naked Mechanic...I was in Dublin last weekend, and had a very real sense I'd been invited to the last days of the Roman empire. As far as I could work out, everyone had a Rolls-Royce Phantom and a coat made from something that's now extinct...how could the Irish ever have generated the cash for so many trips to the hairdressers, so many lobsters and so many Rollers? And how, now, as they become the first country in Europe to go officially into recession, can they not see the financial meteorite coming? Why are they not all at home, singing mournful songs?

Read the whole article. It's a hoot in the inimitable Clarkson style.

It's a temptation — for me at least — to get angry at the blindness of those who should have known better, and who've led us into this mess. Or maybe they just shuffled along at the head of the crowd, walking backwards reading the polls. But what about Glenn Stevens, Governor of the Reserve Bank of Australia..."I do not know anyone who predicted this course of events"...oh for chrissakes, if some insignificant shitkicker like myself loading potting mix into cars for little old ladies in an obscure country town saw this coming years ago and you didn't, why the hell have my taxes been paying your wages, you turkey? If this is the standard of leadership and governance in this country, we are in serious, serious trouble folks. Because morons like this are now supposed to solve the problem which they didn't see coming.

At least in America, they were crooks and liars, real red blooded devils. Here in Australia they are, to quote Joseph Conrad, "flabby, weak-eyed devils"... bureaucratic place-holders, masters of the morning flight to Canberra, the etiolated white-shirted eunuchs of state. And the Head Eunuch is of course our Kevin. Another weak-eyed devil? Or will he astonish me and say something real? Oh yes I know, he's way up in the polls, beating the tripe out of rich boy Malcolm, but how much of the public's comfortable perception of him comes from his resemblance, as Philip Adams puts it, to a suburban dentist? Will he develop the sombre reserve needed to deal with what comes next? Or will he melt down in private or worse, spectacularly in public, when the complete disjunction between the reality we are facing and the bureaucratic fantasy world he inhabits becomes impossible for his focused-on-detail-and-process mind to deal with. I invite you all to send me your opinion.

Opportunity

I had a meeting the other day with my friend Linda who has been asked by the local Shire Council to come up with some ideas to help address some of the intractable unemployment and poverty in several communities in our district. Now it occurs to me that in times of change, it's people with the least to lose who are often in the best position to try something new. Yes I know, those at the bottom of the heap often have major personal issues which prevent them functioning very well, and sometimes these dysfunctions become generational and are handed on as a culture of failure. How else can you explain how some parts of our district have been mired in poverty seemingly forever?

All the same, I also know how those of us whose lives generally run smoothly tend to get stuck in our rut and can find a changed reality difficult to accept, let alone coming up with responses to take advantage of it. That's natural — we humans are innately conservative. Those of us who do experience major disjunctions in our lives often are often disabled by them for some time, sometimes permanently. But sometimes we learn things we never expected, and humility can be one lesson. We learn how even the most confident and seemingly solid personality can crumble, and we get some inkling of how well those who perhaps we have looked down on in the past deal with things day to day which we might find overwhelming even for a brief period.

This is why I am wary of the habit of seeing society being divided into winners and losers, or victims and perpetrators. Life deals us a hand of cards and we must play them as best we can. Which is my roundabout way of coming to the point: opportunity is most present in times of change or threat. And those most open to opportunity are those not imprisoned by their prior investments, be it social, financial or mental. So I see this initiative by the Council as a great opportunity to kick-start some new thinking about our local economy, at a time when big change is coming for us all whether we are ready or not.

Now as a battled-scarred small business person of long standing, I'm under no illusions as to the success rate of innovative ideas, especially in a time of flux and possibly with participants with little prior experience. So my idea is that ideas and talk are cheap and provide the seed stock if you like, general skills are universally useful, and specific projects should involve more of a journey of discovery and learning than any dependency for measurable success on a definite final outcome. If ideas are planted, what does it matter if they take some time to mature and sprout? And if the skills needed to carry them out have already been learned, away we go.

What ideas do I have in mind for projects? For a start I think every town should have a community garden, for all kinds of reasons. First, food is going to get more expensive and many if not most of us will get used to the idea of growing at least some of our own. Second, for people suffering some degree of social isolation, working on their own plot in a community garden is a very healthy and helpful thing. Thirdly, you get top quality fresh produce. And fourthly, you do it in an environment where help and advice is close at hand.

Linda and I thought metal and wood-working skills are always good things to learn. And it occurred to me that traditional boat-building is a great one for a number of reasons. First, it teaches a high degree of wood-working skill. Second, the materials, wood, nails and a bit of other metal and paint are relatively cheap. Third, anyone can do it. And finally you get something at the end which is beautiful, useful and marketable. And while we've had a great excursion into building boats with all sorts of exotic, high-tech high-performance materials, boats built in the traditional way will almost certainly come back as the most common type in the future when we become more dependent on local resources for manufacture. It's also relevant that one of the target communities for the Council's scheme is Port Welshpool, where as a kid I remember on several occasions visiting Charley Norling with my Dad, when Charley was building a new fishing boat for himself next to his house.

Linda and I discussed lots of similar things, and I'm sure all of you could contribute quite a few more ideas (please do!). I will keep posting any new information (and your suggestions) about this scheme as it comes to hand.

Lots of parallel events

Sharon Astyk has a disturbing post on the use of credit cards in the US: "McDonalds is now the second-largest merchant vendor on credit cards - that is, people are now buying their Big Macs on plastic - in part because they don’t have the cash. Credit card balances have risen enormously in the last few weeks, as people attempt to keep going through the holidays".

And this: Commodity Online: The man who predicted the 1987 stock market crash and the fall of the Soviet Union is now forecasting revolution in America, food riots and tax rebellions - all within four years, while cautioning that putting food on the table will be a more pressing concern than buying Christmas gifts by 2012.

Gerald Celente, the CEO of Trends Research Institute, is renowned for his accuracy in predicting future world and economic events, which will send a chill down your spine considering what he told Fox News this week.

Celente says that by 2012 America will become an undeveloped nation, that there will be a revolution marked by food riots, squatter rebellions, tax revolts and job marches, and that holidays will be more about obtaining food, not gifts.

"We're going to see the end of the retail Christmas....we're going to see a fundamental shift take place....putting food on the table is going to be more important that putting gifts under the Christmas tree," said Celente, adding that the situation would be "worse than the great depression". Read the rest of the article.

What is going on? Could any of this happen here, and how could it happen so quickly anyway? Consider the many parallel events which point to the unraveling of the world we have so laboriously built up over the past six decades. Piracy: critical points of the world's shipping routes are vulnerable and this is pushing up the price of shipping and slowing it down. Oil production will fall next year and is unlikely to rise in response to future demand for intractable technical and financial reasons. Terrorism: the Mumbai attacks are unfortunately the shape of things to come in crowded world with huge numbers of alienated young men and women, whose lack of connectedness and community makes them easy prey for movements which promise immediate power and significance through violence. And it only requires a tiny, statistically insignificant number with cheap and easily available weapons and well-known tactics to bring a city to its knees.

Couple this with the financial crisis and you have a perfect storm of events which are to say the very least, adverse to any further extension of our current system. How much energy we waste on trying to save the irrevocably doomed depends mainly on us: our ability to face the facts and let go of those unproductive activities and turn our focus to those which will better suit the new situations which are rapidly coming up over the horizon.

It also depends on the quality of our leadership. A lot of hope is being invested in Obama, and while he is to a huge extent hemmed in by the legacies of the system of which he will soon be President, his demeanor as leader will matter at least as much as his acts. As for our own Prime Minister, the most generous assessment I can make of him is that he means well. But to me, most of his actions smack of folly: trying to stimulate spending when overspending has been the cause of the current crisis, clinging to the absurd notion that we along with the armed forces of other nations can impose a political system on the Afghans, when that country has been the graveyard of countless imperial dreams. Rudds Blairite/Bushite dream of "Western" liberal democracy being exported to the rest of the world at the point of a gun died in Iraq but he doesn't seen to have noticed. In any case, the money to run these schemes to "improve" the lives of those with browner skins and different shaped noses will soon no longer be available.

His mistake is thinking he can act as the Chief Executive Officer of the country when what we need is a leader with the vision of a Churchill or Roosevelt, someone with a sense of the great tragedy which is unfolding around us.

Well, there's not much we can do about that now. Best to get on with doing what we can and need to do.

It's happened...we're past Peak, courtesy of the credit crisis

Gail the Actuary (Gail Tverberg) has made a post on the Oil Drum which lists many oil and gas projects which will now not go ahead due to credit availability problems. From now on it is highly unlikely there will be increases in world total liquid fuel production year on year. While demand is undoubtedly falling due to the onset of the world-wide recession, if there is any increase in demand in the future it will not be possible to meet it from here on out. So now we are post Peak Oil.

The implications of this, coupled with the precipitous decline in manufacturing both here and elsewhere due to the financial crisis, are profound. Whatever economy and society we rebuild in the years ahead will begin to diverge radically from the one we've all been used to for the past sixty years. This will not stop our leaders and many of us from trying to resuscitate the drowning body of industrial civilisation, but such efforts will almost certainly be wasted.

There are arguments for ameliorating the distress of those most affected by the changes coming down the line, but how do you subsidise the pending insolvency of the majority of the population in an industrial civilisation?