Global Guerrillas

JOURNAL: Some Final Observations

One of the most interesting aspects of this crisis is that it is truly a global crisis. This is arguably a first. In historical crises, wars or catastrophes, there is always a large external environment of relative normalcy. Our first real global event will directly impact all economic activity from Botswana to Albany at a relatively granular level. It's even more interesting since the impact of this event is occurring simultaneously in all places at once.

This is a very bad thing. Not only is the information globally dispersed, but it is likely to recast world's economic psychology nearly overnight. Fear, uncertainty, and doubt spread at the speed of light. This has/will cause a substantial decline in demand as people and companies become cautious. Since it is all simultaneous in effect, the cumulative impact will be seen as a comprehensive demand shock (as in rapidly declining demand for goods and services).

If it occurs, this demand shock would quickly hit the global information systems that run the world's companies (they run everything on a just in time basis from finance to inventory). A rapid fall of in demand would likely rapidly translate into a quickly executed -- information technology enabled, so what used to take many months will now take days -- change in corporate behavior. This change in corporate behavior will force cut backs across the board from jobs to purchases to investments. Since it will occur nearly simultaneously (within weeks) of the initial fall of in demand, these cutbacks will be seen as another demand shock and so on.

Since there isn't any stable external environment untouched by the crisis, this may become a uncorrectable and self-reinforcing feedback loop. Also, since most economic statistics have substantial lag, we may not even know it is occurring until we reach the next big tipping point.

Hopefully, the global system isn't as efficient as we designed it to be.

NOTE: Here's an interesting academic paper that looked at whether the great depression of the 20th Century could have been forecast using modern economic techniques/analysis (remember, the depression looked like it was merely a recession when it began). It concludes that it couldn't have been anticipated. It was a black swan.

JOURNAL: TURBULENCE

A short PBS interview with Benoit Mandelbrot and my compatriot, Nassim Taleb, on the current financial/economic crisis.

It underlines my ongoing fear that this crisis will recast the world at a fundamental level. Why? Our simplistic, slow, and fractured 20th Century control system isn't capable of stabilizing a financial/economic system of this complexity/speed/size once it becomes very turbulent. As a result, the global system will follow its own course, dictated by its hypercomplex internal dynamics and feedback loops, destroying everything that gets in its way.

Like Nassim, I hope I'm wrong.

For the engineers and pilots out there, our current situation is akin to trying to fly an F-22 at the edge of its performance envelope with only cables and pulleys for control inputs. NOTE: cables and pulleys are the classic control system for 20th Century aircraft. The pilot inputs a control movement on a pedal or the stick and the cable/pulley system translates the input into a movement of the control surface (elevator, etc.). Direct pilot control is possible because the plane wants to fly -- i.e. is stable. In contrast, in order to get high performance, modern designs are made to be unstable. As a result, modern aircraft require control system inputs every 1/32 of a second or more, all of it done automatically. If these control inputs aren't made, the plane will rapidly exceed its design capacity and lose structural integrity.

One way to look at it: We are all Iceland now.

PACKAGED COMMUNITY RESILIENCE?

In my book, Brave New War, I made the case that we would face a series of global systemic shocks of increasing scope, frequency and amplitude. However, unfortunately, we wouldn't be able to anticipate (at a societal level) with any certainty what these shocks will be (they will be Black Swans). Further, I believed that the decline(not collapse, since there isn't an alternative system that will replace it) of the nation-state as an organization, would mean that the will, means, and flexibility necessary to respond to these challenges would be increasingly insufficient. In other words, the big "Manhattan" projects or "Marshall" plans to respond to these challenges not only won't be launched, they are unlikely to work (they only seem to exist in the reality distortion fields generated by writers like Tom Friedman). What is in the realm of possibility and will work is to invent, construct, and implement solutions that provide resilience at the community level. These solutions must be:

• Fast.
  
• Cheap.
  
• Sustainable.

One of the best ways to seed these early efforts is through Pentagon funding, particularly since community resilience plays a decisive role in counter-insurgency, disaster relief, and deep/remote deployments. Until recently, there hasn't been any movement towards packaging community resilience. Now there is. Lin Wells (I've had the pleasure to meet Lin on numerous occasions), a professor at the NDU (National Defense University), has taken it upon himself to coordinate a project called STAR-TIDES (Sustainable Technologies, Accelerated Research-Transportable Infrastructures for Development and Emergency Support). It's already produced some interesting results however MUCH more needs to be done. It needs some funding (millions and not billions). Here's an idea: eliminate the purchase of a single conventional weapon that will only gather dust (great power war is going the way of the Dodo) and put it into something that will become a critical element in nearly every DoD mission over the next 20 years: packaged community resilience.

BTW: I'd be more than happy to manage this effort if it does get funded. Fairly sure my demonstrated expertise in everything from military theory to technical innovation to hyper-efficient/fast project management is likely perfect for that slot.

BTW2: Of course, there is absolutely NO chance this offer will ever be capitalized upon. The DoD would never 1) invest in something so innovative nor 2) put someone in charge that isn't politically connected. I just made the offer to show I am really willing to help, even though it is almost certainly futile.

GG RADAR: Late October 2008

Some mind food:

• "All safe deposit boxes in banks or financial institutions have been sealed... and may only be opened in the presence of an agent of the I.R.S."- President F.D. Roosevelt, 1933 Here's some amazing quotes from US economic elites during the last depression.
  
• Attacks on EnCanada's gas pipelines in British Colombia. Early stirrings.
  
• Red Team Journal is running an essay contest. "In their submissions, essayists should describe a national security issue of future concern from a traditional perspective and then reconsider the same issue from an unconventional or alternative perspective."
  
• P2P TV via Joost. Now client free.
  
• "The Great Crash of China" by Brian Klein.
  
• "Permablitz" An informal gathering involving a day on which a group of at least two people come together to achieve the following: 1) create or add to edible gardens where someone lives 2) share skills related to permaculture and sustainable living 3) build community networks 4) have fun
  
• Bringing Down the House, by Anne Applebaum in Slate. How even unsubstantiated rumors about the financial health of companies/banks can be used as a weapon of destabilization in this crisis. I've been thinking about this for quite a while too, since it is an excellent GG tactic (however, she wrote it up).
  

JOURNAL: The Descent of the West

There are already significant signs that October's massive multi-government bail-out of the global financial system has failed (in less than a week). Worse, the fundamentals of the tangible economy are also showing signs of rapid onset failure. We are now headed towards a severe global recession (potentially depression) that will last years (or worse, a decade or more). Here's some potential headlines for articles we may read in the near to mid term (this crisis is moving quickly, so they may come sooner than later):

"The Zombie Nation-State" Financially fragile nation-states, depleted by numerous and massive bail-outs, now dominate the global landscape. What happened?

"The American Consumer RIP" Massive debt and diminishing incomes have killed the American consumer. We explain why the death of the American consumer will remake the global economy.

"The Incredible Shrinking DoD" How the US Department of Defense, which once controlled a budget as big as the rest of the world combined, will soon be less than half of its previous size.

"Why Did China Fail?" The collapse and subsequent split up of China caught the entire world by surprise. In this article, we explore the connection between the end of American consumerism and political failure in China.

GG RADAR: Early October 2008

Interesting mind food:

• Nassim Taleb (The Black Swan) gets angry with economists and other types of financial quants (the know nothing, well compensated establishment that drove us off the financial cliff). I'm on board with him, although I also have the same problem with the weak thinking upon which US security is based. Here's an excellent audio show on the financial crisis from NPR, for those that want to spool up.
  
• Defensive strategies for communities: slow foreclosures/evictions (currently running at 250,000 foreclosures a month and rapidly rising). Chicago has a watered down version of this. Philly is in the lead. The key factor: drive as deep a wedge between the dysfunctional global economy and your community as possible. Keep people in their homes as long as possible. If you don't, you risk hollowing out your community.
  
• Games for learning. Superstruct, a new massively multiplayer game that explores solutions to global catastrophe. CNA's "Wargaming the Fourth Generation" (and old link). I would suggest modeling 4GW in virtual worlds to allow more complex behavior.

JOURNAL: Cascading Bubbles

One way to view our current situation is as a cascading collapse in bubbles of faith/legitimacy. Here are the bubbles:

• Small. A belief in the US consumer. US subprime mortgates collapse. US prime mortgages and US commercial real-estate and consumer credit follow.
  
• Big. A belief in the Shadow Banking system. The investment banking system implodes. Hedge funds liquidate. Money markets/commercial paper seize up. Financial insurance evaporates.
  
• Bigger. A belief in the global banking and market system. Systemic bank failures. Global markets crunch.
  
• Huge. A belief in the US as a global economic power. US treasuries and the dollar crash. Numerous national bankruptcies.

We are now at the last stage. Watch the price of treasuries and the dollar.

RC JOURNAL: Towards Supempowered Homes

The value of a home today is based on location (commute distance, school quality, neighborhood, etc.), size, and quality/amenities. However, those metrics are likely to change markedly in the near future, mainly due to the recognition of the rising risks and uncertainties of living a globally connected world. This realization will generate new metrics by which we value a home -- the most important of which may be a home's (whether it be an apartment building or a single family home) ability to retain and produce energy. Homes that don't have high scores in this area (which unfortunately will be the majority) put their owners at risk of financial ruin, dislocation, and deprivation.

NOTE: Excess production will likely be electricity (a premium energy product), which is shared/sold with/to community members.

RESILIENT COMMUNITY: Micropower

Centralized electricity production made sense in the 20th Century. Here's why:

• Energy was cheap so it could be wasted. 80% of the energy used in electricity production and transmission is lost as heat. However, that isn't true anymore (either in absolute cost or costs relative to income).
  
• Transmission capacity was on the rise. Unfortunately, investments in transmission haven't grown in 30 years and NIMBY is preventing any improvement. Transmission lines are already saturated.
  
• Little chance of disruption. Systems disruption as a means of warfare is on the rise. Also, breakdowns in an overtaxed transmission system cause $100 billion a year in damage, due to dirty power, in end-user equipment.

Micropower
Fortunately, new technologies now make it possible to generate electricity at the level of the home, business, or urban building. This technology, called Combined Heat Power (CHP) or cogeneration (lots of resources are available on this topic). In microCHP systems, you either generate electricity as a byproduct of heating or heating as a byproduct of electricity generation. It does the following:

• It allows production of electricity within the structure it will be used. Eliminating transmission losses.
  
• Waste heat generated by the production of electricity can be used to heat water or the home/building. That means the 80% of the energy that would have been lost is now put to use.
  
• It makes electricity both resilient and clean. Transmission breakdowns have zero effect on the end-user. Further, the power is clean/smooth, generating little damage to connected equipment.
  

Gaps in the Marketplace
Unfortunately, despite the advantages, there are significant gaps in the marketplace for products that are truly resilient. This is a significant opportunity for commercial entrepreneurs and DIY developers. Truly resilient products would provide:

• Biomass (pellets, etc.) burning. Existing commercial microCHP systems use natural gas. Residential biomass CHPs are the next step and would likely sell like hot cakes (pellet stoves are).
  
• Generic stirling CHP systems. These systems would allow you to switch the source of heating from natural gas to biomass to concentrated solar. In short, you could optimize depending on costs/availability.
  

Network Effects on Resilience
Micropower becomes extremely interesting when combined with Microgrids (see the brief: Microgrids for more). Connectivity to a Microgrid would ensure that a community continues to have power even if the national grid is inoperative. Further, if the community Microgrid is smart (meaning it carries data on pricing, etc in addition to power), it would allow local markets to develop. Not only would the individual producer be paid for the production (at end-user rates minus a small transmission charge), they would be incentivized to optimize/grow.

RESILIENT COMMUNITY: Community Geothermal

For those of you that don't know, I'm working on a book entitled "The Resilient Community." Essentially, it's about how a shift to local production and distribution of nearly everything can create a stable place to live, work, and raise a family (seen from the top down, it is a self-organizing alternative to a dysfunctional global system). The one problem that has plagued me over the last two years is how do we build local platforms that make resilience possible when communities are in financial distress -- proliferation of foreclosures (gutting the community), incomes in decline to the global lowest common denominator/norm (which is a likely equilibrium point for this crisis), and negative cash flow (debt >> income). One solution I have formulated is to use of volunteers to build platforms that can radically reduce ongoing expenses for community members (it's community judo). A potential candidate that fits this is a community geothermal effort.

Geothermal Heating/Cooling

More than half of all energy usage (not cars and not electricity) is dedicated to heating and cooling of structures (homes and businesses). This expense can be radically reduced by using geothermal heat (50-70 percent). Here's how it works:

• The ground below ~6 feet stays at a relatively constant temperature between 40 degrees and 60 degrees F, depending on the area in which you live.
  
• If you drill a well (the most efficient method to tap geothermal), you can insert a plastic pipe that allows you to pump anti-freeze fluid into the hole. This system, which costs VERY little to operate, uses the earth's energy to either heat or cool the fluid to the geographies standard temperature. The system is nearly maintenance free.
  
• Warmed water from the geothermal system can be used to make heat-pumps very efficient. Cooled water from the system can be used, with a forced air fan, to cool a home.

How it works

The biggest expense in any geothermal system is drilling the wells. Costs are excessive (and can run to $10,000 a home). Fortunately, a volunteer effort very much like a local fire department can accomplish this at a small fraction of this cost. Elements include:

• Drilling rig. Excellent used drilling trucks sell between $50-100 thousand. Leases are much less. There are open source alternatives that can cost MUCH less in the works.
  
• Training. For most communities, the level of training necessary to run drilling equipment fast and efficiently isn't difficult.
  
• Financing of in-house heating/cooling equipment to connect to ground loop stub. Relatively low cost. Community discounts possible. Payback in measured in a handful of years.
  

Where to start?

The best place to start with a community geothermal effort is with a community property, most likely K-12 schools. This focus would allow the community to generate the funds required to purchase the equipment and train the volunteers as well as pay back the expense quickly. After that common effort is accomplished, volunteer properties (with requirements for contribution) would be the first beneficiaries of drilling efforts, the follow-ons would be based on lottery and so on until all participatory homes/buildings are brought online. Small ongoing contributions from participatory homes, with volunteers exempt, would pay ongoing expenses.

RC JOURNAL: Splits

NOTE; The post below is a fairly sloppy. I have a terrible cold and my head feels like it is ensconced in cotton. However, it's close enough to the mark that I'll let it stand.

What happens when a state become hollow and the global market takes control? People find ways to get by. How? They fall back on primary loyalties -- groups and organizations that will help them survive. Those that cling to individualism quickly find themselves outmaneuvered, cornered and fleeced. In the modern context, three major categories of primary loyalties (filled to the brim with many superempowered individuals) will emerge within a hollow state. They are:

• Government/corporate loyalties. Becomes highly corrupt. Only small group and/or strong leaders get benefits (concentrated wealth). Control over police/military power to ensure wealth/survival. Globally networked.
  
• Street loyalties. To family, neighborhood, gang, church, etc. A large segment turns to crime/smuggling. Another segment focuses on protection fees generated by militias. Violent open source warfare. Systems disruption to coerce the hollow state and its corporate allies. Globally networked.
  
• Community loyalty (resilient communities). This is the newest segment and still in its infancy. Very democratic and egalitarian. Focus on local production of everything from food to energy to products. Collective action for group survival at the local level. Globally networked.

NOTE: Mass protest to force governmental response? Mass protest is very unlikely to create any meaningful improvement since there isn't a functional state left to influence.

JOURNAL: Tightly Coupled Futures

The global financial and economic system is in broad failure. Hoarding, at least among the wealthy and the corporate, is rampant. Trust has evaporated. Worse, western nation-states (from the US to Ireland to Russia) are following historical patterns of response -- massive bail-outs of the financial sector. Unfortunately, this crisis is ahistorical (a black swan). Why? The global financial system is much LARGER, FASTER, and COMPLEX than the nation-states that are trying to bail them out. As a result, nation-state intervention won't return things to the status quo. What it will do, however, is tightly couple western nation-states to the now inevitable failure in the financial system (this is akin to lashing a dingy to the Titanic to prevent it from sinking). The rampant proliferation of bankrupt and hollow states is now likely inevitable.

JOURNAL: Early Thinking

From my March 2006 brief entitled "Big Bangs" that is an exact description of the current global crisis (although in the financial context it would have been called "Big Bubbles"):

To increase performance (of a system) you have to ADD instability to the system's design. Unfortunately, this means that a high performance aircraft with a large percentage of instability built into its design occasionally wants to careen into oblivion -- the feedback from the system's interaction with the environment can create feedback loops that tend towards infinity (which of course means catastrophic failure). To compensate for this, dynamically unstable systems have computer augmented control systems that dampen these feedback loops. For example, a plane of this type of design has computers (with double back-up) that constantly compensate for instability by moving control surfaces (at a much faster rate than the pilot can). Without compensation, a plane like the F-16 will go catastrophic in 3 seconds. With some of the forward swept wing designs, the time to instability is measured in fractions of seconds...

If we look at today's global environment we see a relatively high performance system driven by real-time global markets and rapid technological progress. Its performance explains why it is spreading so quickly. However, it is also moderately unstable. In our drive towards higher levels of performance we pursued a path of rampant global interconnectivity that has quickly outpaced our ability to dampen excess. The old dampening functions of borders, distance, government, etc are quickly fading. The result is a system vulnerable to rogue feedback. Even a small amount of it can cause global reverberations....

This conclusion also calls into question the efficacy of the idea that merely increasing connectivity is an answer to our problems. Increasing connectivity too fast, in a system without intrinsic dampening or control systems that work, will only accelerate the chaos (human nature doesn't change as fast as technology).... Also, the complexity of this system puts the lie to the idea that we know how to actively dampen its behavior through centralized systems of control. We neither have the scale nor the collective intelligence to pull it off. The only real solution rests on redesigning the system itself, to enable it to become more tolerant of rogue feedback...

From Brave New War on the potential success of government solutions to a systemic crisis in the global system:

The common thread that dooms these “solutions” to failure is that they both rely upon the nation-state as the primary actor. Given the speed and complexity posed by the black swans we face, the nation-state would need instantaneous responsiveness, infinite resources, and God-like insight in order to be effective. It has none of these attributes.

RC JOURNAL: Trend Line Assumptions

Here are some assumptions that underly all current activities related to the global financial crises:

• Optimistic long term outcomes. Things are going to get better. Pollyanna mindsets.
  
• The system, as it is currently configured, is the best possible or the only possible system. Faith in ideology.
  
• Nation-states, singularly or collectively, are bigger and stronger than the financial/market system. The US is the guardian of this system. 20th Century legacy thinking.

The above assumptions lead to offensive (all we need to do is find the right leader) or reactive (whack a mole) mindset/policy. If you reverse them, you develop a defensive and opportunistic mindset/policy.

THE 2008 BOYD CONFERENCE

One of the most important events this year will be the 2008 Boyd Conference (named after the best military strategist America has produced to date). Frankly, no other venue is going to come even remotely close to providing you with the insight necessary to navigate the future successfully.

This year's conference is on Prince Edward Island (PEI) in Canada on December 6th and 7th. I'm going to give the keynote for the conference (on "The Resilient Community") and will be at the conference for both days. It should be a great time to talk at length about resilience, Boyd's ideas, and much more. This is going to be a small (and very smart) group, so there are only a few slots available. Act quickly.

RC JOURNAL: Contagion of Brittleness

Here's an excellent animated graphic depicting the spread of Walmart across the US. It shows how globalization spread at the local level. We are likely going to see a reverse of this process as resilient communities spread. Note that unlike the centralized network of Walmart, these communities will be connected through a myriad of open source networks (online) that will enable rapid technological tinkering (from fabrication to agriculture), security, trading, and financing (thanks Jamais).

NOTE: Resilient communities are a self-organizing response to global system failure. In thermodynamic terms, for those that like this model, RCs are a high evolved dissipative structure that replaces a closed thermodynamic system on its way to equilibrium (heat death).

SYSTEMIC SHOCKS

A top-level conclusion from my book Brave New War is that security in the future, from economic to physical to environmental to social, will be measured by our responses to a never-ending series of global systemic shocks derived from a plethora of sources. Unfortunately, we are likely to fare badly. The reasons for this are simple, the global system is:

• Too Big. Simply, the system's scale is far beyond the ability of nation-states, or a community of nation-states, to manage when it suffers a breakdown. In the case of the current financial collapse, the global shadow banking system (a globally inter-networked collection of unregulated financial products) is approximately $450 trillion, as compared to a US GDP of $15 trillion or a global GDP of ~$60 trillion. Put another way, the financial liabilities of the highly leveraged Deutsche Bank are 80% of Germany's GDP and Barclay's liabilities are 100% of the UK's GDP. As the leverage underlying the shadow banking system unwinds and more banks fail, the scale of the loses experienced will rapidly exceed nation-state budgets.

• Too Fast. The speed at which shocks spread in this globally interconnected system is faster than the response time of governmental institutions (tight coupling). In this financial crisis, the cascade of failure in the system spreads at the speed of information networks and computer automation in trillion dollar increments. The upshot is that the government's impacted will likely take hasty measures, like the 3 page Paulson plan in the US, without the analysis, orientation, or synthesis necessary to produce high quality results.

• Too Complex. The system's function is beyond understanding. This is due to a lack of data (opacity either due to the nature of the system or by design as in the shadow banking system), the number of variables or connected systems, a lack of long term historical data on its operation in its current configuration, etc. The result is that efforts to mitigate the system's excesses produces pyrrhic victories (where the corrective action produces negative outcomes, like how efforts to ramp biofuel production impacted food prices). Worse, due to the system's complexity and the lack of an effective means to address its excesses, we are reduced to treating symptoms of failure (as with the Paulson plan) and even then under violent debate.

Epilogue

The inevitable outcome of systemic shocks at this magnitude will be an inevitable delegitimization of the nation-state as our trust in the ability of leaders to take effective corrective action evaporates. Further, nation-states will expend the majority of their resources on hasty and relatively ineffective corrective actions, which will make them collectively more prone to damage in the future and which will preclude the investments required to mitigate future crises. The cycle of delegitimization and resource depletion will continue until the nation-state is unable to respond at all to future calamity (the scale of this financial crisis is such, we may as well forget about any chance of early action to delay or prevent global warming, peak oil, water scarcity, food shortfalls, pandemics, etc.). In short, we will see a proliferation of hollow states.

NOTE: Due to the networked design of our global system, small events can be amplified into global shocks -- either through unmitigated positive feedback loops or a breakdown in the system's core assumptions.