Sunday, July 24, 2011

We Need more Robustness - Nassim Taleb

This is an interview with author of the Black Swan and Fooled by Randomness Nassim Taleb. Taleb talks about risk of specialization and the need for a oil shock to force the recognition for more robustness in society.

A few select parts from the transcript:

Taleb: I think that an oil shock would be very good because we need to be trained to finally give up on these stupid cars. We have so many alternative sources, and people are too lazy. We need to enhance anti-fragility in this area. You can move from wild randomness into mild randomness by creating some. It is like hormesis: You give someone a little bit of poison and they get stronger. Economic life gets stronger not with bailouts, but with bankruptcies.

Evolution works not with bailouts -- there are no bailouts in nature -- but with competition and natural selection. So you need to have some stressors and to use stressors to strengthen the system. We have not been stressed enough about the oil crisis, and it has led to a horrible situation in which the U.S. government is playing a hypocritical role driven by humanitarian forces in Libya, but at the same time supporting the Saudi royal family, essentially one tribe running a place -- even giving its name to it. It is the most unstable place and the most backward of regimes in the world -- all in the name of oil security.

So you realize that you have some schizophrenia as far as how a lot of Western governments are behaving. So we need a little bit of oil shock....

Herring: It requires more than a shock, doesn't it? Because we have had those before.... In fact, the price of oil in real terms was even lower than just after the OPEC increase. So the motives for making substitutions just were not there.

Taleb: I see. But do you think that we will eventually wean ourselves from that nasty dark product from the ground?

Herring: One hopes. But it is hard to see how given the reality of the way we have built our society, with remote suburbs and interstate highways linking everything. We cannot make a very quick substitution out of the petroleum-based economy. But you are absolutely right. It has got to be faced.

Taleb: This is the fragility of having dependence on one source -- one product -- rather than more than one.... It is optimal to use oil visibly. But it is more dangerous. In my new book, I focus on optimization; almost 99 cases out of 100 optimizations make you vulnerable and fragile.

Herring: Yes. That's the darker side of Adam Smith's pin factory. You become more efficient by becoming more specialized, but you also become more vulnerable to some kinds of shocks.

Monday, May 9, 2011

United States Joint Forces Command acknowledges Peak Oil

This is a little old now, but deserves more attention

Energy Summary

To generate the energy required worldwide by the 2030s would require us to find an additional 1.4 MBD every year until then.

During the next twenty-five years, coal, oil, and natural gas will remain indispensable to meet energy requirements. The discovery rate for new petroleum and gas fields over the past two decades (with the possible exception of Brazil) provides little reason for optimism that future efforts will find major new

At present, investment in oil production is only beginning to pick up, with the result that production could reach a prolonged plateau. By 2030, the world will require production of 118 MBD, but energy producers may only be producing 100 MBD unless there are major changes in current investment and drilling capacity.

By 2012, surplus oil production capacity could entirely disappear, and as early as 2015, the shortfall in output could reach nearly 10 MBD.

Energy production and distribution infrastructure must see significant new investment if energy demand is to be satisfied at a cost compatible with economic growth and prosperity. Efficient hybrid, electric, and flex-fuel vehicles will likely dominate light-duty vehicle sales by 2035 and much of the growth in gasoline demand may be met through increases in biofuels production. Renewed interest in nuclear power and green energy sources such as solar power, wind, or geothermal may blunt rising prices for fossil fuels should business interest become actual investment. However, capital costs in some power-generation and distribution sectors are also rising, reflecting global demand for alternative energy sources and hindering their ability to compete effectively with relatively cheap fossil fuels. Fossil fuels will very likely remain the predominant energy source going forward.