"Unprecedented" by Michael Anton

Link:

If forced to bet, I would have to place my chips somewhere between imminent collapse and drawn-out decline. I occasionally read theories of triple bank-shots and four-dimensional chess—they really know what they’re doing!—only to marvel. Our regime cannot, at present, unload a cargo ship, stock a store shelf, run a clean election, handle parental complaints at a school board meeting, pass a budget bill, treat a cold variant, keep order in the streets, defeat a third world country, or even evacuate said country cleanly. And that’s to say nothing of all the things it should be doing, that all non-joke countries do, that it refuses to do. If our ruling class has a plan, it would seem to be to destroy the society and institutions from which they, at present, are the largest—one is tempted to say only—beneficiaries. Do they think they can benefit more from the wreckage? Or are they driven by hatreds that blind them to self-interest? Perhaps they’re simply insane?

Whatever the case, couple all this unprecedentedness with all this incompetence, and going long on Wokemerica seems a sucker bet. But, to end where we began, the very unprecedentedness of our situation means that all bets are off.

"What should a Bayesian infer from the Antikythera Mechanism?"

This was a fascinating MR post:

"The alternative possibility is that antiquity had many more such exotic devices, which have remained unreported, at least in the manuscripts which have come down to us. That would imply, essentially, that we don’t have a very good idea of what antiquity was like. In my view that is the more rational Bayesian conclusion."

One of the commenters mentions a book called How Science Was Born in 300 BC and Why it Had to Be Reborn:

"it was in the age of Archimedes and Euclid that science as we know it was born, and gave rise to sophisticated technology that would not be seen again until the 18th century"

Sandro Graffi, professor of mathematical physics, writes a review:

"[I]n the same way that the Renaissance was based on the recovery of classical culture, the post-Renaissance scientific revolution of the seventeenth century was basically due to the conscious recovery of the Hellenistic science.

This book shows how complex and unstable the preservation of science is when the unit of time of historical observation is the millennium. The epilogue contains the (rather pessimistic) views of the author on the future of science, threatened by the apparent triumph of today’s vogue of irrationality even in leading institutions

[T]he present scientific revolution will in time be forgotten, and new Dark Ages are awaiting our descendants."

Thoughts From A Correspondent On Living In A Declining Empire

A correspondent writes in:

One reason for the collapse of empires is that the knowledge needed for maintenance of the empire is closely held and actively suppressed because it is in the short-run interest of an oligarchy to suppress it. For example, only a small circle of the Russian Communist Party had access to economic reports. It was the same in China. It could be dangerous to have certain kinds of knowledge, and yet things could fall apart without that it being widely diffused in the right hands.

Our public discourse is choked with lies:

"you end up with an entire society in an hallucinatory state, and behaving like people who hallucinate will: we’ll respond to things that aren’t there, and fail to see the ones that are[...]" [link]

Things to do to compensate for these lies are to:

• Withdraw respect and consent.
• Get interested in epistemology, i.e., the study of how we know what we know.
• Listen for contradictions.
• Listen for admissions against interest.
• Be widely educated in science and technology so as to see contradictions between manipulative lies and well-established scientific principals.
• Throw your TV away.
• Cancel your newspaper.
• Turn your radio off, except for music.
• Watch for contradictions between manipulative lies and your own direct experience.
• Listen to a liar's story change as his motive's change.
• Depend on the life experience of smart old people who have no conflict of interest with you.
• Shun any news medium, person or definable interest group that you catch in a lie.
• Shorten your supply chains. The longer your supply chain, the bigger the proportion of people at the other end who don't care if you are dead
• Get as much of your food as possible from people you know. Grow the rest.
• Realize that medicine is a business that makes money by selling drugs and procedures. It is not your mom.
• Rely on plants, fatty acids, amino acids, vitamins and minerals for healing.
• Eat right and stay fit to stay well.
• Stay out of restaurants to get the best ingredients and the cook with the cleanest hands. 
• Avoid surgeons and hospitals.
• Avoid prescription drugs. Find natural substitutes
• Grow as much of your medicine as you can.
• Avoid depending on the truthfulness of strangers.
• Stay away from crowds to stay away from trouble. Use amenities in off hours.

Real Construction Spending on Religious Buildings, Per Capita, Since 2000

This was pointed out by "Stagflationary Mark." I haven't seen any public comment on it.

More on Collapse

In response to our recent posts on collapse [one, two], a correspondent writes,

"Societies collapse because the elites spend the society's reserves for depreciation and innovation to get more power to steal more luxuries for themselves. The elite are cargo cultists. They do not understand the machine that brings them wealth, so they cannot maintain it. And they will kill or intimidate anyone who suggests a real solution. The result is that any solutions publicly offered are soothing non-solutions. Anyone who offers a real solution has to flee to exile. [Snowden himself says,] 'These [NSA] programs were never about terrorism: they're about economic spying, social control, and diplomatic manipulation. They're about power.'"

And, in response to the Augustine's Laws post,

There are two key reasons why the US still flies warplanes from the 50s, 60s and 70s. There will never be a bomber raid again on the capitol of a first-class power by a first-class power. As Vladimir Putin said, Russia would use nuclear weapons to respond to any attack on Russia. This demotes bombers and fighters to second-class weapons to attack fuzzie-wuzzies who have no air force.

The second reason is that there is no benefit to further improvements. It used to take six weeks for a tiny sailing ship to cross the Atlantic. Eventually, it took 14 days for a luxury liner to cross. Then it took 20 hours for the first multi-engine aircraft to cross. Next, it took 7 hours for a 747 to cross. Cutting the crossing time from 6 weeks to 7 hours was a 144-fold improvement, not counting the vast difference in death rate between sailing and riding a 747. The improvement from one to the other was like the improvement from cold, wet and staring to three hots and a cot. Any further improvement would be like the progression from a one-star restaurant to a four-star restaurant, in a region of the cost-benefit curve where the cost to benefit ratio approaches infinity.

Collapse of Complex Societies by Dr. Joseph Tainter

Tainter's theory of collapse is very important.



The example of Roman expansion: conquest phases usually don't last long. An expanding empire runs out of profitable conquests. Afterwards, an imperial structure built on the income of conquest had to sustain itself on yearly solar energy production.

Tainter also talks about economists and their belief in the principle of infinite sustainability, which is relevant to our earlier discussion of EROEI. Essentially, economists believe that as resources become scarce and rise in price, the market signals will always result in innovation and new technological substitutes.

Tainter's "major future challenges", which will need to be solved nearly simultaneously:

• funding retirements for the baby boom generation
• increasing cost of health care
• replacing old infrastructure
• adapting to climate change [dubious]
• developing new sources of energy
• [possibly] escalating military costs
• diminishing return on investment in innovation

"The Collapse of Complex Business Models"

Essay by Clay Shirky,

"Complex societies collapse because, when some stress comes, those societies have become too inflexible to respond. In retrospect, this can seem mystifying. Why didn’t these societies just re-tool in less complex ways? The answer Tainter gives is the simplest one: When societies fail to respond to reduced circumstances through orderly downsizing, it isn’t because they don’t want to, it’s because they can’t.

In such systems, there is no way to make things a little bit simpler – the whole edifice becomes a huge, interlocking system not readily amenable to change."

A correspondent writes,

"The capital-intensive, brick-and-mortar, spoke-and-wheel system that the elites use to distribute their propaganda is collapsing to a level of cheapness and simplicity that makes it possible for anyone with a competing viewpoint to distribute information. So the elites lack the information monopoly they needs to justify the complexity and expense of their other systems. As a result, the public learned that the Obamacare web site cost 600-million dollars, but was duplicated by three programmers in two weeks."

Be sure to ready Shirky's piece on the O'bamacare website.

WSJ: "John Lehman: More Bureaucrats, Fewer Jets and Ships"

First, read this piece from the WSJ last week by a former Secretary of the Navy,

"There is one great numerical advantage the U.S. has against potential adversaries, however. That is the size of our defense bureaucracy. While the fighting forces have steadily shrunk by more than half since the early 1990s, the civilian and uniformed bureaucracy has more than doubled. According to the latest figures, there are currently more than 1,500,000 full-time civilian employees in the Defense Department—800,000 civil servants and 700,000 contract employees. Today, more than half of our active-duty servicemen and women serve in offices on staffs. The number of various Joint Task Force staffs, for instance, has grown since 1987 from seven to more than 250, according to the Defense Business Board."

Second, read Joseph Tainter's book The Collapse of Complex Societies. If the fighting forces are half and the bureaucracy has doubled, it means there are now four times as many staff workers per line worker creating military "product".

New Turchin Article

A must read from Turchin:

"[L]ife was good for the upper-crust English around 1300. They drank more wine and spent their spare cash building or refurbishing castles, cathedrals, and monasteries. They didn’t just enjoy a better living standard; they also grew in number. For example, the number of knights and esquires tripled between 1200 and 1300. But disaster struck in 1348, when the Black Death removed the population surplus (and then some). By the 15th century, while the common people were enjoying their own Golden Age, the aristocracy had fallen on hard times. We can infer the severity of their financial straits from the amount of claret imported from France. Only the gentry drank wine, and around 1300, England imported 20,000 tuns or casks of it from France per year. By 1460, this declined to only 5,000. In the mid-15th century, there were simply fewer aristocrats and they were much poorer."

Turchin is the author of Secular Cycles.

"Will the F-35, the U.S. Military’s Flaw-Filled, Years-Overdue Joint Strike Fighter, Ever Actually Fly?"

Fascinating Vanity Fair article about the F-35 debacle.

"the F-35s that the Marines say they can take into combat in 2015 are not only ill equipped for combat but will likely require airborne protection by the very planes the F-35 is supposed to replace[...]

The political process that keeps the Joint Strike Fighter airborne has never stalled. The program was designed to spread money so far and so wide—at last count, among some 1,400 separate subcontractors, strategically dispersed among key congressional districts—that no matter how many cost overruns, blown deadlines, or serious design flaws, it would be immune to termination."

A correspondent writes in:

"Russia has a 5th generation fighter plane, the Sukhoi T-50. Notice that the T-50 rudders are farther from the center line of the aircraft than those of the F-35. That means they can be smaller, have smaller forces on them and be less of a visual barrier than F-35 rudders.

The US tried to develop a common fighter for the Air Force, Navy and Marines once before. It failed. It may have been the F-111. Anyhow, there seems to be no institutional memory of it.

The problem is that it generally is impossible to maximize more than one variable at once. So an aircraft optimized for carrier takeoff could not be optimized for close ground support or for deep, stealthy penetration.

Russia does not have to optimize an aircraft for carrier takeoff because it is defending a contiguous landmass with land-based planes, not projecting aggression across oceans. Freed of this requirement, Russia can make a superior fighter.

The requirement for concurrency worsens the problem of commonality. The requirement for commonality means there will be more errors during development. The problem of concurrency means the errors will be propagated through a larger number of aircraft before they are discovered. In effect, the development project has the cost of dozens of different prototypes at once, not just two or three at a time.

Engineering jobs such as aircraft design and production should use established principles. They should not be processes of discovery of unknown principles or limitations.

The F-35's pilot helmet violates this engineering principle. It ties a complex ergonomics research and software development project to the development of an otherwise simple aircraft development. The ergonomics knowledge is not there. The helmet is too complex for the human nervous system. the software is too big and complex to be bug-free. The result is dis-orienting and inferior to the naked eye.

What were the Soviets working on in the years before their empire collapsed?

"Do You Live In A Death Spiral State?"

Great Forbes article on "death spiral states," where "private sector workers are outnumbered by folks dependent on government".

"Eleven states make our list of danger spots for investors. They can look forward to a rising tax burden, deteriorating state finances and an exodus of employers. The list includes California, New York, Illinois and Ohio, along with some smaller states like New Mexico and Hawaii."

I wrote a post about this a few months ago. There's nothing stopping California and Illinois from entering the same positive feedback loop death spiral that killed Detroit, if they make bad enough decisions. If they do, so much better for the states that are lowering taxes and encouraging productive enterprise. Imagine having other states, besides Alaska, that pay dividends to residents?

Tonight's thought: consider a division of the country into zero income tax states with stingy welfare regimes that productive people flee to, and ultra high income tax states with crippling regulation that productive people flee from, in the context of Bill Bishop's Big Sort.

Which states' muni bonds do you want to own? Which states do you want to own property in? What if a group of these productive states issued a currency?

"Post-US world born in Phnom Penh"

Bearish,

"Where does the United States have a competitive advantage? Apart from commercial aircraft, power-generating equipment, and agriculture, it has few areas of real industrial pre-eminence. Cheap natural gas helps low-value-added industries such as fertilizer, but the US is lagging in the industrial space.[...]

The problem is that Americans have stopped investing in the sort of high-tech, high-value-added industries that produce the manufactures that Asia requires."

End of Growth?

Could the rate of economic growth permanently slow down?

"The headwinds include the end of the 'demographic dividend;' rising inequality; factor price equalisation stemming from the interplay between globalisation and the internet; the twin educational problems of cost inflation in higher education and poor secondary student performance; the consequences of environmental regulations and taxes that will make growth harder to achieve than a century ago; and the overhang of consumer and government debt.
[...]
The audacious idea that economic growth was a one-time-only event has no better illustration than transport speed. Until 1830 the speed of passenger and freight traffic was limited by that of 'the hoof and the sail' and increased steadily until the introduction of the Boeing 707 in 1958. Since then there has been no change in speed at all and in fact airplanes fly slower now than in 1958 because of the need to conserve fuel.

Other one-time-only changes included the transition from animal to machine propulsion that freed the city streets from disease-causing animal waste; from outhouses to indoor plumbing; from housewives carrying buckets of water, coal, and wood into the house to the modern world of running water and sewer systems; from interior cold and heat to uniform indoor temperatures made possible by central heating and air conditioning; and many more one-time-only inventions. This may seem obvious about horses, outhouses, speed, and temperature, but once you accept that, you’re drawn into the central theme of this paper: economic growth may not be a continuous longrun process that lasts forever."

Certainly, nothing can grow at 3.5% annually forever. It would be consuming all the energy in the universe after only a few thousand years. In fact, on a much shorter timeline the heat from the entropy related to that growth would boil the oceans!

"Does Ron Paul's Farewell Mean the Fight for Freedom Is Over"

"In a thinly-veiled reference to one of the primary debates when he was booed for suggesting that the US treat other countries with dignity, not violate their sovereignty, and avoid the use of sanctions, he said, 'A society that boos or ridicules the Golden Rule is not a moral society.'"

Taleb: "The 'Long Peace' is a Statistical Illusion"

From a new Taleb essay in response to the Pinker argument that the world is becoming less violent,

"I was confronted with ideas of 'great moderation,' by people who did not realize that the process was getting fatter and fatter tails (from operational and financial, leverage, complexity, interdependence, etc.), meaning fewer but deeper departures from the mean. The fact that nuclear bombs explode less often that regular shells does not make them safer."

E.O. Wilson says that if ants had nuclear weapons, they would end the world in a week. How long is that in human time? Is that the cause of the Great Filter?

"DNC delegates: Let’s ban corporate profits!"

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The Natural Gas/Oil BTU Spread In An Indeterminate World

These are Blake Masters' notes from the Peter Thiel CS183: Startup class.

"In a determinate world, there are lots of things that people can do. There are thus many things to invest in. You get a high investment rate. In an indeterminate world, the investment rate is much lower. It’s not clear where people should put their money, so they don’t invest. We have a very low rate of investment in U.S. [...]

Can things work out when no one is thinking of substantive things to do or adding new ideas into the system? The era of indefinite optimism is arguably coming to an end. Look at government bonds, which are essentially the purest version of money. Yields keep going down. People keep holding because they don’t know what else to do. Today you can earn 1.8% on a government bond. But expected inflation is 2.1%. The expected return over the next decade is -0.3%. You get negative returns when people run out of ideas."

I can think of some support for this view. If you think that natural gas is going to remain cheap forever, build a natural gas-to-liquids (GTL) plant. If you think that natural gas will converge with the BTU equivalent value of oil and go back to $10ish, buy Chesapeake. But those are the only two possible scenarios and each implies a very particular course of action.

In fact, you could buy Chesapeake, build your own GTL plants, and sell the liquids output forward to lock in the huge spread. Meanwhile, there were $22 billion of Facebook shares traded on the first day. Why do people watch CNBC and get excited about companies hanging paper on them when there are actually high ROI projects out there to be done. Something else worthwhile from the notes:

"Any company with a good secret plan will always be undervalued in a world where nobody believes in secrets and nobody believes in plans. The ability to execute against long-term secret plan is thus incredibly powerful and important."

This also makes me think about Chesapeake. See these comments from Aubrey during the third quarter conference call last year.

"Chesapeake single-handedly has generated almost half of the entire industry's growth in natural gas production. Said another way, a 2% gas market share company in 2000, which was us, grew its production 472% over the past decade, while the other 98% of the industry, 49x bigger than us and represented by more than 10,000 other companies, only grew its collective production 12% during the past decade.

As incredible as that is, it's even more incredible how most natural gas market observers fail to understand the impact of these numbers on future supply demand trends, because for the next 5 years, Chesapeake is planning to keep its gas production essentially flat. Please see Slide 18, which shows our projected annual 10% production increases coming almost entirely from liquids production growth from 2012 through 2015.

Said in the simplest way that I can, natural gas markets during the past 5 years were basically changed single-handedly by the efforts of 1 company. And now I'm telling you, during the next 5 years, it will be very different from now. And the futures curve is currently pricing natural gas, we believe, incorrectly because the same company that helped bring you the gas oversupply is now dedicated to increasing its liquids production, and its gas production will not increase much from here."

The parallel I see with the Thiel quote is that no one believes in the CHK plan. The company has an incredible track record of hedging gains, which implies an information edge on hydrocarbon prices. The natural gas futures are already rallying. It's strange that the market for NG producers is lagging so much.

It's also strange that people are giving Aubrey such a hard time regarding arcane governance and compensation issues. There are essentially two explanations for the negative publicity onslaught: the social mood explanation or a conspiratorial explanation. Either way, what fundamental concerns there are don't justify the public hand-wringing that took place for several weeks straight.

More Signs of Technological Decay

"[T]he number of civilian Earth-observing satellites flown by the United States government looks likely to fall from 23 today to just six in 2020, and the number of instruments in orbit could drop from 90 to 20."

Depressing: "Millennials and French Voters Agree: Gov Should Provide Everything"

From an article about the counterproductive "resurgence in public demand for socialism in response to a worsening crisis":

"The bear market in life, liberty, and property may still have some room to run – especially if today’s election in France is any indication.

[...C]urrent generations have completely forgotten the critical connection between the ability of humans to freely pursue their aspirations and economic progress."

This is sad. We are living in a darkening time for entrepreneurship. (By the way, the current venture capital nonsense is a parody of entrepreneurship.)

In my research, I focus on ways of protecting and compounding wealth. I have found that it is still reasonably possible to do this thanks to market inefficiencies.

If anything, the dark times will make the inefficiencies worse - and more profitable. No, what is scary are the possibilities for harsher taxation and regulation. As I mentioned, there is the heartening trend of high productivity states that are repealing income tax.

Do we really believe that can last, though, given the demographic and aging trends? Will broke California really leave Oklahoma and its five member Congressional delegation alone?

One thing we need to think about is other stores of value. This is something that John Robb is thinking about with his resilient community idea. I like a lot of what he has to say (and a lot of it is pretty scary), but I think that 3D printing is kind of a joke.

One of the most important forms of wealth you can have is people you know who don't watch television. Obviously, that applies to your hedge fund manager.

The good news is that the people who are using socialism to crush entrepreneurs aren't having many children, because they expect other people to do that too.  So, we can hope for some of those traits to wither away by the end of the century.