Friday, February 23, 2007

Extended Futures

Just a quick thought: lots of non-conventional oil reserves and other alternative liquid fuel processes are claimed to be very possible and profitable--but only, companies say, if they can count on oil prices of at least $30, $40, or $50/gallon. This is really a red herring. Oil prices are currently over $60/barrel. NYMEX futures only trade out about 5 years, which is not a sufficient time frame to assure a profitable price when these alternative projects begin production (often a 7+ year lead in from funding to significant production). But this ignores that, while NYMEX may not trade futures out beyond 5 years, there is plenty of availability to sell forward contracts, even the potential to sell forward contracts on futures contracts. Airlines will gobble up all the forwards they can at $45/barrel for 2015--and so will almost any other industrial user with half a brain. So there is PLENTY of opportunity to lock in these high prices well into the future. Which makes one wonder why oil shale, tar sands, gas-to-liquid, and other non-conventional projects aren't proceeding ahead at breakneck pace. It doesn't matter if oil prices do plunge back to $10/barrel, since the profitability of these projects can be locked in for their lifetime with forwards sold today. There is NO REASON why these kind of locked-in 10%-20% returns should be passed up--they can even be repackaged and sold off for a huge gain right away, just as mortgages are.

Assuming, of course, that the technology works and isn't just being hyped. Time to put-up or shut-up.

Wednesday, February 21, 2007

War Story IV

Well, I did leave a bit of a cliff-hanger last time, so I'll just cut to the chase. World events seem to be expressing themselves to support what I'm about to say--witness the recent assassination attempt on Musharraf.

So, around Christmas of 2001, when the US military was heavily involved in the initial stages of our occupation of Afghanistan, there was still a great deal of talk about finding and killing Osama bin Laden. Don't hear much about that these days. The US operations in Tora Bora had recently concluded, and we knew that bin Laden had escaped and was somewhere north of the Khyber pass in the very same rugged, moutainous terrain that the Soviets never managed to control in their decade in Afghanistan.

I don't know all the details, but it seems we had good information about the location of bin Laden. He was meeting with a dozen or so important tribal elders in a mud-brick meeting house in a small, remote valley. My flight, which was performing reach-back targeting for US Air Force bombers flyin out of Diego Garcia, was assigned to create a targeting plan to facilitate an operation to get bin Laden. We couldn't just do what we normally did--place a pretty DMPI (desired mean point of impact) in the middle of the meeting house, mensurate the exact geocoordinates of that DMPI (a bit more complicated than it seems, because exact altitude is necessary as the bomb comes in at an angle, not straight down, so the imagery needs to be tied with several points to DTED--digital terrain elevation data), and send that off for entry into JDAMs (GPS guided bombs) that would soon be dropped over the site. Why couldn't we do that? Well, leadership decided that killing several important tribal chiefs might not be in our best interest--it could tilt sentiment in Pakistan against US operations, and even lend support to those factions within the ISID that wanted to overthrow Pervez Musharaff. So we had to prepare a fancy targeting plan--take out all roads leading out of the valley by targeting the most vulnerable points on hillsides and throwing in some gator mines to boot so that the meeting house could be isolated (from egress and reinforcements), allowing a small force to be choppered in to kill or capture bin Laden.

As I alluded to before, despite what I thought was a good targeting plan, the operation never went ahead because it was denied Presidential approval. Why would Bush deny approval for an operation that had a fair chance of getting bin Laden? Because the target area was inside Pakistan. I think that this is a little understood point: one of the most important pillars in the "War on Terror" is to ensure the stability of Pakistan under strongman Pervez Musharraf. We must not allow democracy to take hold there because if we did, then the people would overwhelmingly elect an islamist government, and then we would be in real trouble. Of course, I say that with a great deal of cynicism (if you take it as my voice), or complete doublespeak sincerity (if you take it as the back-room voice of the present administration).

So, if you're wondering why we aren't doing more to interdict terrorist training camps in Pakistan, or to get bin Laden (who is most likely still there), it's because our grand strategy demands that we keep the current power structure in Pakistan at all costs. The "islamic bomb" is a powerful motivator...

Friday, February 16, 2007

War Story III

This isn't like the past two war stories that I've written (1 & 2), mainly because there was no shooting war involved. None the less, here it goes... much as Mr. Scarborough recently commented on the Daily Show, we're all culture warriors in one way or another.

Years ago (it feels odd to say that, but this was 9 years ago) I applied and was selected to be the US Air Force Academy's representative to a three week program on "Austrian Economics" held in Prague, Czech, and hosted by the Fund For American Studies' "American Institute for Political and Economic Systems." It was a kind of "cultural outreach" for "young leaders." 200 top students from Eastern Europe (with a male:female ratio that made the Lexington Queen in Ropongi look normalized...), 10 Americans (including, in *truly* representative fashion, one Zoomie and three West Pointers). Three weeks in Prague with three hours of lectures a day. Good times. We were feted by the American Ambassador at her residence (I had never really be "feted" before--sorry, can't find the circumflex), had cocktails with the President of Slovenia, enjoyed a banquet reception in a rented castle, and generally spent the night hours roaming the back alleys and clubs of Prague, including all the locations features in such movies as "Mission Impossible" and "Triple X." There was even a road-trip to a forest outside Vienna to watch 'The Cure' perform brilliantly in a muddy clearing--a night which ended (memorably enough) with me trying to explain to a Czech police officer in our mutually poor German why our car was backwards on the freeway with every body panel thrashed (of course, it was still drivable, leading to a very Seinfeld-esque "we did pay extra for the full collision damage coverage, right? Good, here are the keys. Bye.") Dollars still went a pretty long way in rural Czech in '98. But I'll cut short my train-of-thought narrative before I get to the absinthe. There is a point.

I was a culture warrior. Yes, Joe Scarborough would have been proud. It was like an ongoing set of clips from the cheesy movie "Skull & Bones," and in similar fashion the money financing these escapades was certainly not mine. You can lecture all day about the merits of free-market capitalism, but there is no better way to convince a few hundred of the future leaders of Eastern Europe than to send them to Prague, give them what was essentially an unlimited budget, and throw in a few Boy Scout leaders sent over from America just for good measure. I can't say I was entirely oblivious to these motives at the time, but it was certainly far too much fun to pass up on philosophical grounds. I'm still not sure if the Air Force's clerical error was really a mistake--did I forget to mention? The program only lasted three weeks, but somehow the Air Force cleared my schedule for three months. I only claimed the per diem for the time I was actually in Prague, but I certainly didn't waste the free time and round trip ticket to Europe.

At the time I was inclined to say "file under fraud, waste, and abuse," but in truth it was no such thing. This was an operation of philosophical influence par excellence. It was a splendid way to waste the government's money--it just wasn't a waste from the perspective of the elite.

Next time: the story of how my targeting flight brilliantly targeted the roads surrounding a meeting house where Usama bin Laden was meeting, preventing his escape and facilitating his capture by special operations forces... except for one thing: the operation was denied Presidential approval--and, while you won't here it at the state of the union, it was an intelligent choice to deny permission.

Saturday, February 10, 2007

The Islanders


The Islanders


Idries shah

Once upon a time there lived an ideal community in a far-off land. Its members had no fears as we now know them. Instead of uncertainty and vacillation, they had a purposefulness and a fuller means of expressing themselves. Although there were none of its stresses and tensions which mankind now considers essential to its progress, their lives were richer, because other, better elements replaced these things. Theirs, therefore, was a slightly different mode of existence. We could almost say that our present perceptions are a crude, makeshift version of the real ones that this community possessed.

They had real lives, not semi-lives.

They had a leader, who discovered that their country was to become uninhabitable for a period of, shall we say, 20,000 years. He planned their escape, realizing that their descendants would be able to return home successfully, only after many trials.

He found for them a place of refuge, an island whose features were only roughly similar to those of the original homeland. Because of the difference in climate and situation, the immigrants had to undergo a transformation. This made them more physically and mentally adapted to the new circumstances: coarse perceptions, for instance, were substituted for finer ones, as when the manual laborer becomes toughened in response to the needs of his calling.

In order to reduce the pain which a comparison between the old and new states would bring, they were made to forget the past almost entirely. Only the most shadowy recollection of it remained, yet it was sufficient to be awakened when the time came.

The system was very complicated, but well arranged. The organs by means of which the people survived on the island were also made the organs of enjoyment, physical and mental. The organs which were really constructive in the old homeland were placed in a special form of abeyance, and linked with the shadowy memory, in preparation for its eventual activation.

Slowly and painfully the immigrants settled down, adjusting themselves to the local conditions. The resources of the island were such that, coupled with effort and a certain form of guidance, people would be able to escape to a further island on the way back to their original home. This was the first of a succession of islands upon which gradual acclimatization took place.

The responsibility of this “evolution” was vested in those individuals who could sustain it. These were necessarily only a few, because for the mass of the people the effort of keeping both sets of knowledge in their consciousness was virtually impossible. One of them seemed to conflict with the other. Certain specialists guarded the “special science.”

This “secret,” the method of effecting the transition, was nothing more or less than the knowledge of maritime skills and their application. The escape needed an instructor, raw materials, people, effort and understanding. Given these, people could learn to swim, and also to build ships.

The people who were originally in charge of the escape operation made it clear to everyone that a certain preparation was necessary before anyone could learn to swim or even take part in building a ship. For a time the process continued satisfactorily.

Then a man who had been found, for the time being, lacking in the necessary qualities rebelled against this order and managed to develop a masterly idea. He had observed that the effort to escape placed a heavy and often seemingly unwelcome burden upon the people. At the same time they were disposed to believe things which they were told about the escape operation. He realized that he could acquire power, and also revenge himself upon those who had undervalued him, as he though, by a simple exploitation of these two sets of facts.

He would merely offer to take away the burden, by affirming that there was no burden.

He made his announcement: “There is no need for man to integrate his mind and train it in the way which has been described to you. The human mind is already a stable and continuous, consistent thing. You have been told that you have to become a craftsman in order to build a ship. I say, not only do you not need to be a craftsman – you do not need a ship at all! An islander needs only to observe a few simple rules to survive and remain integrated into society. By the exercise of common sense, born into everyone, he can attain anything upon this island, our home, the common property and heritage of all.”

The tonguester, having gained a great deal of interest among the people, now “proved his message by saying: “If there is any reality in ships and swimming, show us ships which have made the journey, and swimmers who have come back!”

This was a challenge to the instructors which they could not meet. It was based upon an assumption of which the bemused herd could not now see the fallacy. You see, ships never returned from the other land. Swimmers, when they did come back, had undergone a fresh adaptation which made them invisible to the crowd.

The mob pressed for demonstrative proof.

“Shipbuilding,” said the escapers, in an attempt to reason with the revolt, “is an art and a craft. The learning and the exercise of this lore depends upon special techniques. These together make up a total activity, which cannot be examined piecemeal, as you demand. This activity has an impalpable element, called ‘baraka,’ from which the work ‘barque’ –a ship – is derived. This word means ‘the Subtlety,’ and cannot be shown to you.”

“Art, craft, total, baraka, nonsense!” shouted the revolutionaries.

And so they hanged as many shipbuilding craftsmen as they could find.

The new gospel was welcomed on all sides as one of liberation. Man had discovered that he was already mature! He felt, for the time at least, as if he had been released from responsibility.

Most other ways of thinking were soon swamped by the simplicity and comfort of the revolutionary concept. Soon it was considered to be a basic fact, which had never been challenged by any rational person. Rational, of course, meant anyone who harmonized with the general theory itself, upon which society was now based.

Ideas which opposed the new one were easily called irrational. Anything irrational was bad. Thereafter, even if he had doubts, the individual had to suppress them or divert them, because he must at all costs be thought rational.

It was not very difficult to be rational. One had only to adhere to the values of society. Further, evidence of the truth of rationality abounded—providing that one did not think beyond the life of the island.

Society had now temporarily equilibrated itself within the island, and seemed to provide a plausible completeness, if viewed by means of itself. It was based upon reason plus emotion, making both seem plausible. Cannibalism, for instance, was permitted on rational grounds. The human body was found to be edible. Edibility was a characteristic of food. Therefore the human body was food. In order to compensate for the shortcomings of this reasoning, a makeshift was arranged. Cannibalism was controlled, in the interests of society. Compromise was the trademark of temporary balance. Every now and again someone pointed out a new compromise, and the struggle between reason, ambition, and community produced some fresh social norm.

Since the skills of boatbuilding had no obvious application within this society, the effort could easily be considered absurd. Boats were not needed—there was nowhere to go. The consequences of certain assumptions can be made to “prove” those assumptions. This is what is called a pseudocertainty, the substitute for real certainty. It is what we deal in every day, when we assume that we will live another day. But our islanders applied it to everything.

The words “displeasing” and “unpleasant” were used on the island to indicate anything which conflicted with the new gospel, which was itself known as “Please.” The idea behind this was that people would now please themselves, within the general need to please the State. The State was taken to mean all the people.

It is hardly surprising that from quite early times the very thought of leaving the island filled most people with terror. Similarly, very real fear is to be seen in long-term prisoners who are about to be released. “Outside” the place of captivity is a vague, unknown, threatening world.

The island was not a prison. But it was a cage with invisible bars, more effective than obvious ones ever could be.

The insular society became more and more complex, and we can look at only a few of its outstanding features. Its literature was a rich one. In addition to cultural compositions, there were numerous books which explained the values and achievements of the nation. There was also a system of allegorical fiction, which portrayed how terrible life might have been, had society not arranged itself in the present reassuring pattern.

From time to time instructors tried to help the whole community to escape. Captains sacrificed themselves for the reestablishment of a climate in which the now concealed shipbuilders could continue their work. All these efforts were interpreted by historians and sociologists with reference to conditions on the island, without thought for any contact outside this closed society. Plausible explanations of almost anything were comparatively easy to produce. No principle of ethics was involved, because scholars continued to study with genuine dedication what seemed to be true. “What more can we do?” they asked, implying by the word “more” that the alternative might be an effort of quantity. Or they asked each other, “What else can we do?” assuming that the answer might be “else”—something different. Their real problem was that they assumed themselves able to formulate the questions, and ignored the fact that the questions were every bit as important as the answers.

Of course the islanders had plenty of scope for thought and action within their own small domain. The variations of ideas and differences of opinion gave the impression of freedom of thought. Thought was encouraged, providing that it was not “absurd.”

Freedom of speech was allowed. It was of little use without the development of understanding, which was not pursued.

The work and the emphasis of the navigators had to take on different aspects in accordance with the changes in the community. This made their reality even more baffling to the students who tried to follow them from the island point of view.

Amid all the confusion, even the capacity to remember the possibility of escape could at times become an obstacle. The stirring consciousness of escape potential was not very discriminating. More often than not the eager would-be escapers settled for any kind of substitute. A vague concept of navigation cannot become useful without orientation. Even the most eager potential shipbuilders had been trained to believe that they already had that orientation. They were already mature. They hated anyone who pointed out that they might need a preparation.

Bizarre versions of swimming or shipbuilding often crowded out possibilities of real progress. Very much to blame were the advocates of pseudoswimming or allegorical ships, mere hucksters, who offered lessons to those as yet too weak to swim, or passages on ships which they could not build.

They needs of the society had originally made necessary certain forms of efficiency and thinking which developed into what was known as science. This admirable approach, so essential in the fields where it had application, finally outran its real meaning. The approach called “scientific,” soon after the “Please” revolution, became stretched until it covered all manner of ideas. Eventually things which could not be brought within its bounds became known as “unscientific,” another convenient synonym for “bad.” Words were unknowingly taken prisoner and then automatically enslaved.

In the absence of a suitable attitude, like people who, thrown upon their own resources in a waiting room, feverishly read magazines, the islanders absorbed themselves in finding substitutes for the fulfillment which was the original (and indeed the final) purpose of this community’s exile.

Some were able to diver their attention more or less successfully into mainly emotional commitments. There were different ranges of emotion, but no adequate scale for measuring them. All emotion was considered to be “deep” or “profound”—at any rate more profound than non-emotion. Emotion, which was seen to move people to the most extreme physical and mental acts known, was automatically termed “deep.”

The majority of people set themselves targets, or allowed others to set them for them. They might pursue one cult after another, or money, or social prominence. Some worshipped some things and felt themselves superior to all the rest. Some, by repudiating what they thought worship was, thought that they had no idols, and could therefore safely sneer at all the rest.

As the centuries passed, the island was littered with the debris of these cults. Worse than ordinary debris, it was self-perpetuating. Well-meaning and other people combined the cults and recombined them, and they spread anew. For the amateur and intellectual, this constituted a mine of academic or “initiatory” material, giving a comforting sense of variety. Magnificent facilities for the indulging of limited “satisfactions” proliferated. Palaces and monuments, museums and universities, institutes of learning, theater and sports stadiums almost filled the island. The people naturally prided themselves on these endowments, many of which they considered to be linked in a general way with ultimate truth, though exactly how this was so escaped almost all of them.

Shipbuilding was connected with some dimensions of this activity, but in a way unknown to almost everyone.

Clandestinely the ships raised their sails, the swimmers continued to teach swimming…

The conditions on the island did not entirely fill these dedicated people with dismay. After all, they too had originated in the very same community, and had indissoluble bonds with it, and with its destiny.

But they very often had to preserve themselves from the attentions of their fellow citizens. Some “normal” islanders tried to save them from themselves. Others tried to kill them, for an equally sublime reason. Some even sought their help eagerly, but could not find them.

All these reactions to the existence of the swimmers were the result of the same cause, filtered through different kinds of minds. This cause was that hardly anyone now knew what a swimmer really was, what he was doing, or where he could be found.

As the life of the island became more and more civilized, a strange but logical industry grew up. It was devoted to ascribing doubts to the validity of the system under which the society lived. It succeeded in absorbing doubts about social values by laughing at them or satirizing them. The activity could wear a sad or happy face, but it really became a repetitious ritual. A potentially valuable industry, it was often prevented from exercising its really creative function.

People felt that, having allowed their doubts to have temporary expression, they would in some way assuage them, exorcise them, almost propitiate them. Satire passed for meaningful allegory; allegory was accepted but not digested. Plays, books, films, poems, lampoons were the usual media for this development, though there was a strong section o it in more academic fields. For many islanders it seemed more emancipated, more modern or progressive, to follows this cult rather than the older ones.

Here and there a candidate still represented himself to a swimming instructor, to make his bargain. Usually what amounted to a stereotyped conversation took place.

“I want to learn to swim.”

“Do you want to make a bargain about it?”

“No. I only have to take my ton of cabbage.”

“What cabbage?”

“The food which I will need on the other island.”

“There is better food there.”

“I don’t know what you mean. I cannot be sure. I must take my cabbage.”

“You cannot swim, for one thing, with a ton of cabbage.”

“Then I cannot go. You call it a load. I call it my essential nutrition.”

“Suppose, as an allegory, we say not ‘cabbage’ but ‘assumptions,’ or ‘destructive ideas’?”

“I am going to take my cabbage to some instructor who understands my needs.”

Tuesday, February 06, 2007

Learning From Chaco: P2P Risk Networks?

Here's a longer potential title, for what may one day become a white paper: "Peer-to-Peer Risk Allocation Strategies: Learning From the Failure of Chaco Canyon to Improve the Resiliency of the Modern Financial System"

For those not familiar with what I mean by "risk-allocation," see my previous post "Financial Wizardry & Collapse."

In Brief:

- Chaco Canyon developed as a centralized marketplace to facilitate the distribution of the risk of crop failure among a system of producers

- The Chacoan System (as best understood) failed for two reasons: 1) The maintenance costs of the central structure created excessive inefficiency in the risk-allocation mechanism, and 2) The centralized and hierarchical topology of the system reduced its resiliency to recover from systemic shock

- The risk allocation mechanisms within our modern financial system (hedge funds, credit default swaps, volatility indeces, etc.) exhibit the same vunerabilities to systemic collapse as the Chacoan System.

- High-maintenance, hierarchical systems for centrally pooling and re-allocating risk developed because centralization allows for the accumulation of surpluses by an elite, who then protected that system against alternatives.

- Today, the legal and communications framework exists to facilitate the development of an alternative risk allocation system based on a peer-to-peer topology.

- Peer-to-peer risk allocation can enhance systemic resiliency by elminating the potential for central place failure.

- Peer-to-peer risk allocation can further enhance systemic resiliency by reducing the rent on transactions extracted to maintained a centralized structure.

- This reduction in transaction costs further enhances systemic resiliency by 1) Decreasing barriers to entry, thereby expanding hte breadth of the risk allocation network to directly include "retail" consumers, and 2) Expanding the depth of the network to new kinds of risk allocation such as exposure to fluctuating energy costs, healthcare needs, life insurance, littigation risk, etc.

So, there's the theory: our financial system primarily performs two functions: matching supply with demand and allocation of risk. The matching of supply and demand is already fully engaged on peer-to-peer topology, but will not move away from centralized production and consumerism until energy costs and diminishing marginal returns force such a move. Risk allocation, however, has yet to make this conceptual move--this represents a huge opportunity, both to lay a rhizomatic grid over the top of our current hierarchical system, and, potentially, to make a fortune as the next "Napster" or equivalent. It really is the kind of situation where a young internet whiz coupled with a few well schooled financial theorists could take down the Wall Street and City (of London) elite, much as Shawn Fanning sent shock waves through the recording labels.

Why would you want to do this? Doesn't it just prop up our current system? Maybe not. What I think it would do is create a "diagonal" market structure. A market structure that could survive dramatic, systemic shocks that will knock down the remnants of hierarchy. It will survive market shocks like the transition away from high-energy consumption to localized consumption. A sufficienty dynamic risk-allocation network (e.g. one not burdened by an invested elite) could survive the decline of the internet and telecommunications if it comes to that--the peer-to-peer topology is quite well suited to festival-based information processing.

Just a thought. It also raises another issue: while it may call into question what definition of "complexity" that one uses, does investment in flat-topology complexity (rhizome) lead to diminishing marginal returns in the same way that investment in peak-topology complexity (hierarchy) does?

Thursday, February 01, 2007

Schema, Neural Circuitry, and Creating an Enemy From Iran

In 1932, Frederic Bartlett developed the concept of "schema." Take the classic school-game "telephone" (which I used to illustrate the introduction of error in information processing in Chapter 9 of "A Theory of Power") , but now, rather than passing a verbal message, consider passing along a picture. The first person in a chain is given a very unique drawing of a human face--say something that Pablo Picasso may have drawn--and told to quickly copy the drawing and pass their copy on to the next person. Each person down the line is only given the sketch of produced by the prior person, not the original drawing. What happens is that the "uniqueness" of the original drawing is lost. Unlike the relatives "flat" linguistic topography of a verbal message, the errors in information processing introduced in this exercise trend the developing image toward a norm for what humans consider to be a generic face. This generic face is an example of Bartlett's "schema." It is an example of when the errors introduced into information processing converge on an ontogenically established norm (because of a "valley" topography of our neural circuitry) rather than diverging randomly.

Another example of schema is the categorization of enemy/friend. This schema has been defined by our ontogeny and hardwired to a large degree into our neural circuitry by observed similarities between "us" an "them" (a theme that, on a side note, was borrowed from Robert Anton Wilson by the writers of the series "Lost"). This creates an interesting epiphenomenon in our modern connectivity society: talking about any group that is different than "us," especially talking about those differences, leads to the schematic categorization of "enemy." This is even true to the point that talking *about* any group, rather than *with* that group is autonomically interpreted by human brains as instruction to categorize that group as "enemy." Of course, the context of "enemy" varies, from social competitors to military opponents, but the basic categorization preempts rationality.

So, if--hypothetically--you want to polarize the American people against Iran by identifying them as "our" enemy, all that is necessary is to leverage the neural circuitry underlying this schema by starting a discussion about them. It really doesn't matter what we say about "them," as long as the entire discussion is framed in the context of "us" and "them." Long hard-wired neural circuitry that we all share, that preempts rationality, and that *did* work quite well for us on the African savannas assures that "they" become the enemy.