Black Swan Book Review: Crop Failures & Market Crashes, Randomness, Technology & Beyond

Fritz Haber and Carl Bosch (Nobel 1918 and 1931), through a very energy dependent process, created the process for artificial industrial fertilizer and perfected its mass production. The use of Monoculture production for crops vs. less profitable yet highly diversified Polyculture, the side effect of that industriousness and hyper-profit is the exposure to massive failure due to undiversified crops and farming methods. One could tie this in to the economic meltdown that's happened since 2007.

Nassim Taleb, knowingly or unknowingly, speaks of Monoculture vs. Polyculture in his correct predictions about market crashes and other harbingers of financial misfortune he calls Black Swans.  He predicted and applies this to the 1987 oil crash, the 2000 tech market crash, and, also, presciently the 2007 mother of all market crashes (including NASDAQ) long before it happened.  Growth might be geometric, but so is loss with undiversified vehicles. He introduces some of his concecepts in his book Fooled by Randomness and expands it greatly in his current book Black Swans.

Haber-Bosch Background - The Haber-Bosch process is often called one of the most important inventions of the 20th century.  In Europe, for example, it took one farmer to feed 2.5 people in 1900, currently the ratio s/he will feed well over 100. Yara  The Haber-Bosch could be said to be responsible for the world's population going from from 1.6 billion in 1900 to 6 billion in 2000. IDSIA

The figures sound amazing, but at the same time we're still working with 100 year old technology. Nothing has come close to what Haber/Bosch originally created.

Fritz Haber & Carl Bosch (Nobel Peace Prize 1918 & 1931)

Currently, production is at 500 million tons produced per year, and it sustains about 40% of the population.  That's 2.4 billion people who exist because of that, and in turn, need energy to make the fertilizer to get food on the table...and our dependence will only increase as the global count moves well beyond 6 billion people.

In developing markets where cost of production takes a much bigger proportion of their capital expenditures than it would a farmer's in a developed country, it is a process that is not sustainable for subsistence farmers.  Add to that the pollution problem brought on by industrial fertilizer and the Monoculture mentality to which it's inextricably tied.  The creation of industrial fertilizer created this massive world population that is unsustainable without it.  The big question is will there be a breakthrough that is less energy and environmentally intensive to be able to meet fast growing population's demand for food.

Nassim Taleb in his book the Black Swan warns of anything that smacks of a sure thing.  A Black Swan is a highly improbable event with three characteristics: unpredictability; it has massive impact as in chain reaction; and, after the fact, there are explanations that makes it appear less random and more predictable - usually through modeling by plotting historical numbers or saying I knew it all along. People don't want to admit that most things can be unknowable, uncertainty is involved in anything.  It's too scary and humans don't look very smart when they're proven completely wrong.  He gets into more detail about this, but the take away is that there are many more people in this world wired to be artisans than there are people wired to be architects. People don't see the forest.  They read the tea leaves and extrapolate out from that.

Nassim Taleb, Author & Philosopher

Nassim Taleb touches upon ecology and Monoculture often in his work.  He does make sweeping statements of applicability of Randomness and The Black Swan from the Macro to the Micro and it fits very well into Monoculture.  The central premise is that you are left vulnerable because you define your parameters too narrowly (one crop), either through lack of foresight and/or design for increased efficiency and/or leverage increasing cost savings and profit returns.

Monoculture is the practice of producing or growing one single crop over a wide area.  The term is mostly used in agriculture planting crops with the same patterns of growth resulting from genetic similarity and uniformity i.e. corn fields, forests or orchards. They are uniform in requirements (asset classes) and results in greater yields due to higher efficiency through standardization. This also includes the use of synthesized fertilizers (derivatives), which boost returns even more. What makes Monoculture so great is also its Achilles heel. It applies to financial markets as well e.g. CDOs, leverage, and floating complicated financial instruments on financial markets that are inherently unstable.  Sagefield Post

This kind of dependence tends to lead to catastrophic failures when a crop is susceptible to a pathogen or there's a change in weather. The important lesson to learn is not to replace the crop with another variant that might be completely immune to the original pathogen, but has absolutely no resistance to exactly one unknown pathogen, The Black Swan.

A remedy to avoid Black Swans would be in cultivating biodiversity or Polyculture in financial markets and as an extension, within the realm of technology.  The argument might be that technology is ever rapidly evolving and therefore would be impossible for it to fail on such a mass scale, but if one looks at underlying structures of technologies, vulnerabilities reveal themselves.  With modern societies' love of bigger, better, faster, cheaper, and highly leveraged, the preconditions are set for new Black Swans to occur.  The architecture of the internet could lead to vulnerabilities and massive failures due to increasing dependence on a single paradigm.  Mass server outages could happen even though there are an infinite number of them because of their similar make up can carry the same kind of "pathogen" that could wipe them all out.

In a Polyculture system, there would still be vulnerabilities to pathogens/Black Swans, but the impact would be muted compared to a Monoculture system. Polyculture can be less "efficient" and may have a lower return, but it is robust and very difficult to wipe out due to a modular and diversified architecture.  Ideas to transplant from would be Crop Rotation, varying varieties of the same plant, Permaculture (includes Polyculture), and Reconciliation Ecology.  We'll explore some of these concepts in later articles.

There are underlying structures and paradigms that have to be looked at and reworked for highly complex societies and technological systems to continue to evolve and grow. The structures, like crops should be diversified and not dependent on a single process for production.  Doing so leaves massive vulnerabilities that lead to catastrophic events.

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