Saturday, April 9, 2011

Russia's Energy Resources Give it What Nassim Taleb Calls "Anti-fragility"

Nassim Taleb, the author of Fooled by Randomness and The Black Swan has a concept called antifragility, meaning the opposite of fragility. (See his discussion and draft chapter for antifragility book.)

Taleb's concept is that the opposite of "fragile" is not "robust," because robustness denotes resistance to shocks but not the property of benefiting from shocks. He asks us to imagine a package marked "antifragile" instead of "fragile":

"The contents of such package are not just unbreakable, but benefit from shocks. Let us coin the appellation "antifragile" for such a package; a neologism is necessary for there is no simple, noncompound word in the Oxford English Dictionary that expresses the point of reverse fragility."
It occurred to me that the United States (and other countries like Japan) are very fragile to the extent that they rely on imported oil, and can be brought to their knees by supply shocks. In contrast, Russia is robust because it has already been through a collapse that resulted in resilient institutions with a lower level of complexity (but also lower productivity). Dmitry Orlov calls this the "collapse gap." As one Credit Bubble Stocks correspondent puts it,
Russians own their own houses, such as they are, free and clear because the state that owned them went out of business and left no one else with a stronger claim on the houses. Compare that with the % of Americans underwater on their houses, in debt to lenders who are simply unworthy of payment. Americans would have to repudiate their mortgage debt just to draw even with the Russians.

Americans would have to repudiate federal, state and local debt, too, just to draw even with the Russians, for the Russians do not have a debt-based currency.

Also, Russia has a public transportation network--trains, buses, trucks. Nothing like it exists here. So we have to spend thousands and thousands of dollars a year to maintain private transport

Russians, even when they live in the cities, get part of their food from their own plots of land. We have very little of that here.

A lot of our GDP is vapor. Beauty contests, TV shows, financial manipulations.
But Russia is also anti-fragile to the extent that it benefits from higher energy and commodity prices. They are making money off of the Libya events by selling more natural gas at higher prices to western Europe.

Maybe there is no word for anti-fragility because it rarely exists in nature. As I mentioned in my Conquer the Crash review, "The different parts of economic cycles occur so infrequently that the intervals between them exceed the working lifespans of investors."

It is hard to plan for, let alone benefit from, rare events, because your competitors can use the "What, me worry?" strategy to grow by taking stupid risks. They can be the fastest growing bank for a decade by making really bad loans, and you will look obtuse for refusing to participate. They will only get their comeuppance when the downturn finally rolls around, and that may not even happen during the careers of the executives involved!

It is just dumb luck that Russia has so much natural gas. If the communists could have sold it all in one slug to the west at any point, they would have. But they didn't and these resources have now conferred an anti-fragility on Russia.


Taylor Conant said...

How is the Russian ruble not debt-based? I don't know anything about it and the Wiki article didn't shed any light on it. I am trying to understand how a fiat currency would not be debt-based.

CP said...

I don't think that paragraph is accurate. But the larger point about Russian robustness is.