Sunday, January 22, 2012

Suppressing volatility makes the world more dangerous

It's counterintuitive that suppressing volatility in human affairs would actually make the world a more dangerous place. But that is precisely the thesis of a recent article by Nassim Nicholas Taleb and Mark Blyth which appeared in Foreign Affairs.

Taleb, a former Wall Street trader, achieved fame with his book, The Black Swan: The Impact of the Highly Improbable. In it he was concerned with so-called "Black Swan events," rare, unforeseen, high-impact events that shape human history. His focus has been on markets though he has always tried to make the case that Black Swan events occur in nearly all fields of human endeavor. Now Taleb and his fellow author, Blyth, are extending this analysis to the so-called Arab Spring.

They point out that government policy is often explicitly designed to smooth out fluctuations. We prefer central bank intervention, fiscal stimulus and bailouts to sharp recessions. And likewise, in foreign policy America and Europe have preferred the seeming stability of dictators in the Arab world to the vagaries of democratic governance. But both the world economy and Arab society have now been shaken by events that were not supposed to happen, an economic crash and grassroots uprisings which deposed regime after regime.

Taleb has said again and again that suppressing volatility in markets and in society in general may work for a time. But instead of moderating volatility, it creates rigid systems that prove catastrophically unstable like dams which seem sound until they break.

We humans wrongly believe that by preventing frequent small setbacks, we will avoid any major setbacks. But, just the opposite has turned out to be true. By trying to avoid minor, but frequent recessions and by trying to avoid political unrest and gradual reform in the Arab world, we have unleashed major events that may yet prove far more damaging to our tranquility than if we had allowed more frequent, but smaller upsets.

I have summarized the reasoning in the previously cited Foreign Affairs article because I want to apply it much more broadly. Let's take agriculture. It has enabled humans to store food in large quantities and thus manage difficult times due to such events as a poor harvest or a war. But by smoothing out volatility in the food supply in this way, we have invited famines that result from heavy reliance on a few or even just one crop. That is, we've avoided small frequent failures by designing a system that will break down catastrophically once in a great while.

Modern farming has doubled down on this strategy by increasing yields tremendously at the cost of degrading soil, increasing monoculture farming based on fewer and fewer crops (meaning less genetic diversity to avoid disease), and heavy reliance on a far-flung complex supply chain for the necessary inputs of fertilizer and herbicides.

All the while, the very fossil-based fuels that make modern farming possible--to run the machinery, fertilize the crops, kill the pests and weeds and transport the harvest--these fuels are changing the climate in ways that already threaten harvests and will threaten them even more as our climate careens further and further into volatility--turning suddenly too wet in some places and suddenly too dry in others.

In the area of public health, we have traded natural immunity to diseases for that provided by vaccines. From a moral point of view we can do no less than offer effective vaccines for deadly or debilitating diseases to as many people as possible. Consequently, deaths from infectious diseases have declined dramatically. The volatility in population has essentially been suppressed.

But modern transportation now makes it more and more difficult to isolate deadly pathogens which can travel across the world in a matter of hours in an airliner. Dense urban populations linked by road and air transport make the next deadly worldwide epidemic all but inevitable. And, we must acknowledge that the current population is no longer being selected by natural factors for robustness in the face of disease; that means we can expect that such an epidemic will hit hard, perhaps harder than the one in 1918.

Told that we must eliminate possible disease-causing germs from our immediate environments, we use antibacterial cleaners in our kitchens and our bathrooms and even on our bodies and in our mouths in the form of antibacterial soap and toothpaste respectively.

But it turns out that such agents don't kill all the bacteria and, in fact, eventually select out those that are most robust against our antibacterial agents. We are making matters worse.

In addition, children who grow up in sanitized environments may not be developing proper immune systems and therefore may be more vulnerable to infectious diseases and allergies as they age.

I am not arguing that humans should never attempt to reduce volatility in their lives. I am making the case that not all such attempts will prove advisable or effective. We can take our desire to reduce volatility to such extremes that we achieve the opposite result: even greater volatility.

If we keep this in mind, we can at least ask whether our next attempt to reduce volatility will actually work in the long run or whether we would be better off adjusting to a certain amount of volatility in our lives in exchange for avoiding catastrophic failures when the dam of low volatility breaks. In more concrete terms, can we judge ourselves prudent if we save ourselves from a hangnail every day only to experience the loss of an arm later on because of our actions?


The Peak Oil Poet said...

Until about 65 million years ago dinosaurs filled every ecological niche imaginable. We poor mammals survived by our wits and tactics we evolved to protect our young for as long as possible. Not only us mammals but lots of other species evolved tactics that kept their young hidden - crocodiles, turtles, birds. They were not to know that a black swan event would turn these strategies to advantage. But that's how natural selection works - traits that aided survival for one reason can lead to survival for an altogether different reason.

The dinosaurs happily laid their eggs in the open and for tens of millions of years the balmy climate incubated them. Temperature volatility was unknown. Mom dinosaur need only be nearby to protect her clutch - the climate would do the rest.

Eggs can incubate in a very narrow temperature range. Vary outside of that range and nothing hatches. If by chance you were a species that evolved to hide eggs where how you did so also provided insulation or warming from the ocean or decomposing vegetable matter your eggs would still hatch. If you were carrying your young around inside they too were protected by your high metabolism (developed to better run from hungry dinosaurs).

Came an unforeseen event - a meteor impact that lowered global temperatures by more than eggs could tolerate and lo - there were no longer any dinosaurs (other than the few that survived in some remote isolated warm places that became dwindling islands of last refuge against the explosion of other species that survived - like us).

I sometimes wonder if by blanket inoculation against all disease there will come a time that, because of collapse of our infrastructure, vaccines will no longer be available nor insulin, nor plentiful clean water.

Of course, Murphy always being ready to do his best (worst), such a collapse will come when there are no books left anywhere - we all depend on google for everything and with it gone not only will we not have access to vaccines and modern medicine but we'd not have access to information with which we might recover. We could go from 9 billion to 90 in a matter of decades. Whatever species had been suppressed by us would then be let loose - from viruses and bacteria to everything you can imagine - rats, cockroaches.....

Safety is a two edged sword - one day we too might find ourselves like the dinosaurs - dependent on a very narrow set of conditions.

But then, all species have their life cycle.


Iaato said...

Great post, Kurt. I like the long term large scale perspective on agriculture and what it might mean for us. Cyclical pulsation is the normal, adaptive mechanism for maximum power in systems. If we suppress the pulses, we optimize the very short term, but increase the future risks and problems. The maxim "pay now or pay later" was popular for a reason? Too much pulsing is a system with small storages on the edge of chaos; too little pulsing means you're close to dead. Pulsation cleanses the system, tidies things up, makes the denizens hardy, etc. etc. As you say.