Locally Grown is Antifragile
In June, I did my annual salmon impersonation and swam upstream from FL to my spawning grounds of New England. During my visit, I spent some time with dear friends in Peterborough, NH and discovered a new book in “the throne room” that their son was reading. It was Anti Fragile by Nassem Taleb. Initially I thought it belonged to my friend John but I was impressed to see his son was the owner. I read one of Taleb’s previous books, the best-seller The Black Swan and it was pretty darn good, so I bought a copy and dove in. What I found was a more elegant explanation and confirmation of some of the key concepts in my own book, Locally Grown: The Art of Sustainable Government published in 2019, six years later than the 2012 Antifragile. Little did I know it but I was recognizing the same evolution of our society towards fragility and away from antifragility. Spoiler alert: This is not a good thing. The book left enough of an impression on me that I wanted to share some of its insights and how they apply to building better government and better economic outcomes for each of us.
So, let’s start with explaining what “antifragile” means.
When you do an internet search on the word “antifragile”, it points you towards Taleb’s book. Not to Merriam Webster’s dictionary as is the case with the word “fragile.” In fact, he states in his book that he invented the word antifragile. This is just one example of Taleb displaying the kind of confidence of a man sure of his ideas. He may go a bit too far with his mockery of elites in academia and government, but he doesn’t seem to care about the criticism he has received by those very elites. This isn’t surprising coming from folks defending their turf but it does help that the author made serious “F**k You” money betting against Fannie Mae during the 2008 Financial Crisis. He is also a smart guy who is a Wharton graduate and a student of philosophy, history and mathematics who has been obsessed with the study of randomness, probability and uncertainty. His earlier book, The Black Swan, is all about the limitations of statistics in predicting rare events.
So, according to the author, Antifragility is a property of systems that thrive as a result of stressors, shocks, volatility, noise, mistakes, faults, attacks, or failures. It is fundamentally different from resiliency (the ability to recover from failure) and robustness (the ability to resist failure). The concept has been applied in risk analysis, physics, molecular biology, transportation planning, engineering, Aerospace and computer science.
In contrast, fragile things break under stress. We can simplify the relationships between fragility, errors, and antifragility as follows. When you are fragile, you depend on things following the exact planned course, with as little deviation as possible—for deviations are more harmful than helpful. This is why the fragile needs to be very predictive in its approach, and, conversely, why predictive systems cause fragility. When you want deviations, and you don’t care about the possible outcomes that the future can bring, since most will be helpful, you are antifragile. The relationship between fragility and disorder is mathematical, described by a theorem, not derived from empirical data mining, statistics or some historical narrative. It is a priori. As I posit in my book, it is “natural law” put in place by the Creator. IT JUST IS.
Taleb proposes a simple formula for measuring fragility. Just take a variable “a”, acceleration, and a function of “a”, say the force generated by a marble against the stress point of a pane of glass, then take the average outcome of adjust the model input higher and lower. Fragility exists when the result of the formula is <0, robustness when the results =0, and antifragility when the result is > 0. Here’s the actual formula.
Result =[f(a-Delta )+f(a+Delta )] / 2 - f(a)
Let’s apply this theorem to bone density in humans. We know weightlifting helps increase bone density which is why I continue to lift weights at 60 years old. Nobody wants osteoporosis. In contrast, when astronauts spend time in space, where there is no gravity, they lose bone density. This phenomenon is called “Spaceflight osteopenia.” Astronauts lose an average of more than 1% bone mass per month spent in space. NASA studies have shown that, on average, astronauts on the International Space Station lost 11% of their bone density per mission. It only begins to restore itself once the stressor of gravity takes hold again. Data from the study showed that crewmembers lost as much bone mass in one month in orbit as an elderly woman loses in an entire year. This suggest a 12:1 ratio between gravity and bone density
Returning to Taleb’s antifragility formula, think of bone density as “a” and gravity as the “function of a”. The function of “a” at normal earth gravity is our baseline so we can set that to “1.” Thus, the antifragility of bones = (12-1) /2 -1 = 5. This is greater than 0 so bones are antifragile meaning they get stronger under stress.
Now lets look at a glass. For a marble with a mass of 2 kg accelerating at 5 cm per second it generates a Force = 10. Glass has an allowable stress of 18 force units per one square centimeter so a force of 10 is not enough to break the glass. Increasing the acceleration to 10 cm/s, generates a Force= 20 which breaks the glass. The antifragility formula is: (10-20)/2 – 1= -5. So glass has a negative “antifragility” factor which makes it fragile.
Luckily, we don’t need a math equation to know that glass is fragile. Heck, we write the word fragile on those boxes full of glass when we move. However, we don’t’ write “fragile” on the box full of your kids stuffed toys. That same marble acceleration that breaks the glass bounces off the teddy bear, who laughs at the impotence of the marble. The teddy bear isn’t fragile, but neither is it antifragile. Rather it is robust, meaning it can withstand a great amount of force and not be physically destroyed. Teddy maintains his properties under stress which is a lot better than being fragile, but it doesn’t get stronger with the stress. Teddy scoffs at the marble while the Glass shudders with fear.
So, what are some other examples of antifragility? Remember the ancient Greek myth where the multi-headed Hydra monster grew back two heads if you cut off one of its heads? The Hydra was antifragile. In like manner so are most species in the plant kingdom where if you cut a part of a plant, several new shoots grow in its place. Suspension bridges work because the weight of the heavy road makes the structure stronger. The woman who lifts the car off her child trapped underneath gains incredible strength from the stress of her child potentially dying.
In fact, Nature is the ultimate antifragile system. Evolution itself benefits from randomness, volatility, and stress. A member of a species doesn’t get to pass on its genes if it cannot withstand the rigors of existence. This is epitomized in the old adage, “What doesn’t kill you makes you stronger.” Evolution is a trial and error process of producing stronger members of a species. When we get sick with a virus and survive, nature creates antibodies which immunize us from getting the virus again, at least for a while. Our bodies get stronger with stress. Likewise, human innovation is a trial and error process that uses error as a source of information. If every trial provides you with information about what does not work, you start zooming in on a solution—so every attempt becomes more valuable, more like an expense than an error. And of course, you make discoveries along the way.
Look around you; at your life, at objects, at relationships, businesses and companies. Volatility, pain, time and failure are forms of stress that create clarity. You learn from it. True knowledge likes disorder; label-driven education hates disorder. Some things break because of error, others do not. Some theories fall apart, not others. Innovation gains from uncertainty: Some people sit around waiting for uncertainty to use as raw material, while others hide in their holes waiting for the dust to clear. We can evaluate the antifragility of people based on exposure to disorder and their appetite for it.
In my book, I spend the first few chapters describing the natural laws governing the universe that humans discovered through science, philosophy, religion and good old-fashioned tinkering. Before I changed it, Chapter 4 was named, “The Shapes of Power”, and I discussed the shapes that nature uses to express itself. I discuss the pyramid, sine waves and circles and the least understood shape, the exponential curve. Most people use “exponential” as a synonym for “a lot” or very fast. Actually, exponential is a function describing natural phenomenon that grows or decays in a non-linear way. Something that doubles, triples or more with each iteration.
There are many examples of exponential growth and decay in our universe. Take Prokaryotes bacteria. If we put 100 bacteria in a petri dish and recorded the size of the population each hour, we’d measure 200 after the first hour, 400 after two hours, 800 after three hours, and so on. The bacteria population doubles each hour. This is exponential growth. Eventually the growth tails off because the environment is no longer able to support the massive bacteria colony. This constraint of exponential growth is in an important natural law in biology. You cannot be larger than your container.
Another example of exponential growth is Moore’s Law, named after Gordon Moore, a cofounder of Intel Corporation. Moore first published what later became known as Moore’s Law in a 1965 Electronics Magazine article called “Cramming More Components onto Integrated Circuits.” Basically, Moore’s Law states that CPU processing power doubles about every two years for the price of $1,000. Over the last 50 years, Moore’s Law has proven to be amazingly accurate. Our mobile phones are many times more powerful, less expensive, and smaller than the most powerful computers available when I started my career 38 years ago. Moore’s Law has increased the processing power of microchips exponentially and allowed technology to permeate nearly every aspect of modern life. Microsoft, Facebook, Amazon, Apple, Netflix, Google would not be possible without the power of Moore’s Law. Despite it being one of the main forces driving our history, most people fail to comprehend the profound implications of this exponential function.
Taleb also talks much about the exponential function through its corresponding shapes of convexity and concavity. Think of convexity as a smile and concavity as a frown. Convex phenomena curves up and to the right, signaling every accelerating growth whereas concavity is ever accelerating decay. Convexity is the response by a thing that likes disorder while concavity is the response that hates disorder. The author explains that we should be far less concerned about trying to predict the future, always a futile effort, and instead focus on building convexity into systems that don’t care about rare catastrophic events because they benefit exponentially from them. Convexity scoffs at Black Swans.
Assymetry
Another feature of antifragility is that it takes advantage of asymmetry. An easy way to understand this is through the illegal but highly effective practice of insider trading in the stock market. Rather than trying to predict how a company’s quarterly earnings will be, some folks simply make it a sure thing by bribing the company’s CFO to disclose earnings to them before they are made public. The insider has better information than the public which makes him favorably asymmetrical to the law abiding public who must wait for the earnings announcement. Please don’t mistake this as me condoning insider trading. We see the same asymmetry in negotiation where one party who has better information through hard diligence work cuts a more favorable deal than the counter party who didn’t do his leg work. When someone has more upside than downside in a certain situation, they are antifragile and tend to gain from volatility, randomness, errors, stressors and time. Stock options are a great example of this where you risk a relatively small amount of money called a risk premium but have the disproportionately higher gains.
Optionality
This ability to switch from one course of action to another is optionality. Having options is what makes you antifragile and allows you to benefit from the positive side of uncertainty, without corresponding serious harm from the negative side. The person with many skills and experiences is less concerned about losing their job than the person who might be an expert in a narrow field of work. In case you didn’t know, The “jack of all trades” is the most valuable person in the zombie apocalypse.
It is optionality that makes things work and grow—but it takes a certain type of person for that. Many people keep deploring the low level of formal education in the United States as defined by, say, math grades. Yet these people fail to realize that new stuff usually comes from the United States and gets imitated everywhere else. And it is not thanks to academia, which claims more credit than it deserves. Innovation comes from the tinkerers, not from college professors.
Like Britain in the Industrial Revolution, America’s asset is “risk taking” and the use of optionality, that remarkable ability to engage in rational forms of trial and error where there is no shame in failing, starting again, and repeating failure. In modern Japan, by contrast, failure comes with shame, which causes people to hide risks under the rug, financial or nuclear. They are contents with making small benefits while sitting on dynamite, an attitude that strangely contrasts with Japan’s traditional respect for fallen heroes and the so-called nobility of failure.
Optionality doesn’t care about average either. It seeks dispersion and volatility. Example A: stock market goes up 50% and then crashes back down to where it began. Example B: the market goes up 5% then down 5% then back up 5% to where it began. In both cases the average is the same but our stock trader far prefers the volatility of Example A to make money.
Iatrogenics – First Do No Harm
At the beginning of their careers, doctors swear the ancient Hippocratic Oath to work in the best interest of their patients. It is one of longest surviving code of ethics that exists to this day. At the core of the oath is “First Do No Harm.” And yet we see harm occurring regularly over history and right up to the present. Whether it was the ancient practice of “blood-letting”, the frequency of unnecessary surgeries, the over-prescription of opioids or forcing New York nursing homes to accept COVID patients, the damage from treatment in excess of the benefits, is rereferred to as “iatrogenics” literally, “caused by the healer,” in Greek. Healthcare represents about 30% of our entire GDP and it is mostly run by the government. Its rapidly escalating costs may bankrupt our country but are we healthier for it?
Nearly 37% of American adults are obese, another 32.5% are overweight, and most sadly, 17% of children are obese. We know obesity is the root cause of so many illnesses such as heart disease, diabetes and cancer. Obesity indirectly causes 10 times more death annually than COVID has this year, but we don’t shut down the entire economy because of it. Instead people take medication to control blood pressure, cholesterol, diabetes when they should really just get more exercise and lose weight. But that’s too hard right? So, we have an entire multi-trillion dollar industry geared to almost encourage bad behavior. Good medicine starts with “First do no harm” which is removing, not adding. Remove the bad behavior, don’t default to a pill. Good medicine must weigh the costs and benefits of potential treatments. Less Equals More is a very antifragile concept.
Iatrogenics is compounded by the “agency problem” which emerges when one party (the agent) has personal interests that are divorced from those of the one using his services (the client or constituent). An agency problem exists with the real estate agent, stockbroker and the doctor, whose ultimate interest is their own checking account, not you. If your realtor begs you to lower the price of your $500,000 house by 20% so that it will sell, it means you lose out on $100,000. But with his 5% commission he still gets $20,000 commission versus the $25,000. He doesn’t own your house, so he has no skin in the game. His “profit” is still infinite against a cost-basis of 0 whereas the $100,000 may represent the entire profit of the homeowner. Agency is not necessarily a bad thing, but it does create the possibility for moral hazard. No offense to my realtor friends who I know work hard for their clients interest.
The most concentrated version of the agency problem exists with politicians and bureaucrats, especially at the federal level. Politicians with no skin in the game are not personally hurt by their bad decisions. They don’t live under the same rules as you and I. Their salaries keep flowing even when the rest of the economy is shut down. Their healthcare insurance is absolutely a Cadillac plan that isn’t even available to the public at any price. They want to take away your right to bear arms or defund the police, even while their rhetoric encourages rioting in the streets. Doesn’t affect them, however. Federal agents protect them in their gated communities.
Maybe the idea behind capitalism is an inverse-iatrogenic effect, the unintended-but-not-so-unintended consequences: the system facilitates the conversion of self-interest at the individual level into benefit for the collective. Imagine that.
The Problem with Modernity
Mr. Taleb’s definition of modernity is humans’ large-scale domination of the environment, the systematic smoothing of the world’s jaggedness, and eliminating volatility and stressors. Modernity is not just the post-medieval, post-agrarian, and post-feudal historical period as defined in sociology and history textbooks. It is rather the spirit of an age marked by naïve rationalization and the idea that society is understandable, hence must be designed, by humans. With it was born statistical theory, linear science and the notion of efficiency and optimization.
Most of you are probably thinking, Modernity is a good thing, and you would be partially correct. Anyone who has visited a third-world country appreciates the clean water and efficient sewer systems that we take for granted in the United States. Nobody pines for rat infested cities, the Black Plague, short life-expectancies, slavery or the inferior role of women.
But I think many of us deep-down are starting to realize the downside of modernity. We know that the elimination of stressors creates fragility. Imagine how helpless the vast majority of us would be if the electrical grid went down for a month. No internet, no cell phones, no air conditioning, no mass transit. I think “Life in the time of COVID” is showing how fragile we have really become when a virus that will NOT kill 99.5% of humans shuts down the entire modern global economy.
With Modernity, there is a dependence on narratives, an intellectualization of actions and ventures. Public enterprises and functionaries—even employees of large corporations—can only do things that seem to fit some narrative, unlike businesses that can just follow profits, with or without a good-sounding story. Modernity has amplified the sensational at the expense of the relevant.
With Modernity has also emerged the nation-state which concentrates and magnifies human errors. Modernity starts with the state monopoly on violence, and ends with the state’s monopoly on fiscal irresponsibility.
Switzerland is Locally Grown
Switzerland is an incredible place. I’ve had several visits over the years, usually to ski. It always amazes me how diverse it is, especially being so small. When I say “diverse” I don’t mean in the “racial” way that America defines diversity, but diverse in a broader way like with different languages, culture and geography. Switzerland's history as a confederacy of autonomous cantons, or states, for more than 700 years, puts it among the world's oldest surviving republics. Like the United States, it is was founded as a bottom-up society where nearly all government happens at the local level. Unlike the United States, Switzerland has remained a true locally grown government.
Its laws that have strong privacy protections, have attracted wealthy immigrants and political refugees for centuries. Its currency is based on gold, and not debased by rampant money printing like some other countries we know. It has stayed neutral in wars for more than two centuries. Simply put, it’s one the best safe havens for the geopolitical storms that have ravaged European landscape for millennia. While some political people may prefer to hide from the risks of their national regime in France or England, more exciting places on Saturday night, it is certainly in Switzerland that their checking account wants to be. It is economically the most robust place on the planet—and has been so for quite a few centuries.
This great variety of people and their wallets come to Switzerland, for its shelter, safety, and stability. But all these refugees don’t notice the obvious: the most stable country in the world does not have a government. And it is stable because it does not have one. Ask random Swiss citizens to name their president. They can usually name the presidents of France or the United States but not their own. Its currency is a global benchmark for safety, yet its central bank is tiny, even relative to its size.
It is not really true that the Swiss do not have a government. What they do not have is a large central government but rather a confederation of near-sovereign mini-states with plenty of volatility between residents that stay at the level of fights over public parks and the like. This “local division” can be annoying since neighbors are transformed into busybodies. But this bottom-up dictatorship provides protection against the romanticism of utopias, since no big ideas can be generated that will have any power in the neighboring cantons. Spend some time in cafés in the old section of Geneva to understand that the process is highly unintellectual, devoid of any sense of the grandiose. There is a famous line about how the greatest accomplishment of the Swiss was inventing the cuckoo clock while other nations produced great works. But the system produces boring stability at every possible level.
Finally, it’s interesting to note that Switzerland is the last major country that is not a nation-state, but rather a collection of small municipalities left to their own devices. Bottom-Line? Switzerland gets stronger when there is crisis in the world. It is the definition of antifragile.
Well, to quote the former host of the PBS radio show, A Prairie Home Companion, Garrison Keilor: “That's the news from Lake Wobegon, where all the women are strong, all the men are good-looking, and all the children are above average.”
Epilogue
Folks, I hope you’ve been enjoying my Podcasts and blog posts over the past several months. It is both gratifying and strange to have launched these during an unprecedented time in our history. This pandemic and subsequent shut down of our economy presents challenges that America hasn’t seen in a century or more. As a nation we have risen to the challenges that have presented themselves. In the past, Americans have been united in facing the challenge whether it was a global pandemic, world wars or financial crises. Unfortunately, this time feels different. We are divided in ways we haven’t seen since the runup to the great Civil War. It shakes me to even utter this analogy but, here we are. In my book, Locally Grown: The Art of Sustainable Government, I talk lots about the risks of unsustainability and how to right the ship by returning to our roots as a constitutional bottom-up republic. The book was published nearly a year ago which now seems a lifetime since COVID. The dangers I warned that I thought were still years away, are now at our doorstep. I am optimistic we can triumph over this great challenge but only if we change course, and I don’t mean adding to the already too powerful government.
I urge you to grab a copy of my book to learn about a radical plan to save our bacon. Radical in a good way. You can pick up my book at Amazon and, preferably, your locally grown bookstore. But for now I want to give you a signed copy of my book if you just go to my website, http://www.jimfini.com, and register. As a subscriber, you will get my regular email updates and blog posts as well opportunities for cool Locally Grown premiums as we release them. Thanks for listening.