23 thoughts on “Monday Message Board

  1. Imagine a multi-stage delivery network for some good in which somewhere in the middle of the network the inventory manager must model the variation in queue size. Given random arrival times of customers at the entry points, there has been no reasonable method to estimate a Markov like process of queue size in the middle of the network. Such a network would very soon collapse.

    How do we do it? By cooperation of the transaction agents at each stage of the chain. Each agent in the chain has to monitor the queue and adjust their inventory during the transaction to keep the queue within inventory capacity.

    Give the user a second good, one in which the transaction times along its distribution network are much faster than transaction times of the slower goods. Now the second good gives each agent a signal about the inventory build up of all other goods in a multi good model. But there can only be on rapidly adapting good, and that good, to be effective, must match the inventory distribution of all goods.

    The way the complex system can match all inventory distributions to the one is to change the ratio of a particular good to the fast adapting good. Hence, one has price theory and we sense that at equilibrium all goods must have the same inventory distribution across its network, must have the same rank in its supply chain, I think.

    Each agent in the chain has a fixed measurement uncertainty in matching the fast good to the slow ones, the ratio is only known to a certain error.
    And [further work is barely within my capacity].

    I suggest economists take this approach and scrap supply/demand models.

  2. There is another solution to the multi-stage delivery network and that is to get rid of the multi-stages.

    For example, instead of a grocery store buying goods from wholesalers why buy them from other distributers etc why not have a grocery store where we buy directly from the producer? Some department stores are moving in that direction where we have stores within stores. Shopping malls already have the model. I can now do it with music and books.

    So rather than changing “economic models” change the system.

  3. Over at The Oil Drum, there’s a Report Review: Prosperity without Growth. The report is from the Sustainable Development Commission, a British organization that is, according to their own words, “the Government’s independent watchdog on sustainable development”. The report talks of the need for “A new economy, a new man, a new moral” ie, the end of the world is nigh. Are they wrong?

  4. What they are saying is that the new economy should not be based on consumption – how strange.

    Growth is the only way people can better themselves, without movement we all go backwards.

  5. rog, endless growth in an essentially finite, closed system is unsustainable. (The only external input is the energy of the sun and the occasional meteorite.)

  6. Yes, David Irving (no relation)@5, I completely agree with you.

    It seems to me the difficulty is that the system looks like an open system from the perspective of the planning horizon of an individual, including those who try to take the interests of their great-grandchildren into account.

  7. The only way we can move to a permanent growth system is to move to a information based system ala Greg Egan type sci-fi – which quite possibly is not even theoretically possible (and even if it is then there are still limits, albeit quite in the distance). It amazes me that people are still going the growth path 30 years on from club of rome/limits to growth.

  8. What about this proposal as a thought experiment, although I have no real ideas in practice how it would happen.

    Suppose the United States become somewhat similar to the European Union, and it was disaggregated into five or six nation states. I am not sure what they would be called but Pacifica for the West Coast and Atlanta for the South might work.

    One major effect would be that the American Empire of overseas bases and permanent wars would dissolve along with the military-industrial complex, which would be a very good thing for the world and for citizens of that tarnished republic.

    The EU framework would preserve the economies of scale, but the separation into nation states would unleash comparative experiment including in relation to the provision of health services and electoral reform.

  9. What happened to Australia,in the above comments!? We have farmer markets,backyard gardeners to non competing skill levels without ABN numbers,at a price!? No every alternative fuel source needs commercial enterprise to create work or transactional value,without cheating the taxman.Distribution of goods as a theoretical example for economics, isn’t new. Six accounting rules were hijacked by economists and economics has been less fair to workers ever since.First in First out is as unfair as First in Last out in some circumstances.So when it actually comes to monies earnt within the term good, maybe, the cardboard box the thing comes in,is the reason the thing actually gets distributed!? So call something work for the sake of economic measure,even if the worker thinks..”some bloody work and pay this is”, whilst economists gloat. Or conversely the cardboard box is more useful than the good…Chk Chk Boom instant fame,sell videos hub caps for dogs to pee on and ChK Chk Boom, and scratchy hub caps for cats to pee on, if competition takes off.[Refering to a incident in Sydney where having an opinion that is as false as can be…gets marketing approval where someone has been well and truly “hurt”.] Thus Chk Chk Boom becomes the new 16 year old party hopeful way to distribute the good to those so needy of the good.[Just have large yellow sunglasses]

  10. I have stuffed up again.I surely meant that some peoples skills that are useful do not come with ABN numbers and do not compete commercially with local ABN numbers.We have a small number of mechanics and would be mechanics out here,who are not work ready in the marketplace, and do not have ABN numbers,but,in a pinch can do the work on earlier model cars. I give non ABN advice on many matters,and seemingly sometimes more professional than those in the marketplace wit all the right stuff! Goof ups a specialty!?

  11. Further to my comment on the weekend Reflections about the Queensland Government’s threatened “Shock Doctrine” style plans to asset-strip Queensland on behalf of its coroprate benefactors, Ellen Brown, author of “The Web of Debt” argues that Queenlsand cour get out of its financial problems simply by creating its own bank and lending itself the necessary money to keep Govenment programs running. The article, addressed to Arnold Schwarzenegger Governor of California which faces similar problems to Queensland is

    “But Governor, you can create money! Just form your own bank.”

    Can anyone tell me what the flaw in Ellen Brown’s case is?

  12. Re Joe #3: I’ve been wondering for a while if anyone has made a serious (read that as “courageous” – “Yes, Minister”) attempt at dealing with an economic system that is not predicated on growth. I’ll have to have a look at the article you link to.

    The key word in a significant way is growth, that is, what do we mean specifically by growth? Growth of what, exactly? Without answering my own question, it seems that we use proxies to measure growth. The most well known proxy is the change YoY of GDP as a percentage change of GDP. Another proxy, at least in broad discussions and debates, is consumption. A third proxy, one which causes interminable confusion and arguments because it is flawed as a proxy for growth, is the concept of progress.

    What do we mean by progress? Again, this is a word with deeply amiguous meaning, in so far as lay-person arguments about social history and economics go.

    Then there is the issue of time. I’m no scholar when it comes to economics, but most (if not all) of the textbooks I’ve seen (and admittedly not read, perhaps skimmed) on economics of one sort or another have fairly elementary approaches to dynamics, IMO. At the system level there are multiple time scales of significance, and usually where model simplification is attempted, the choice of preferred time scale makes all the difference as to what the model is capable of modelling – unsurprisingly. The same goes for scale: do we model at the transaction level, or much much higher up the scale?

    Finally, as the last coffee wears off and sleep once again encroaches, there is the issue of energy and its conservation. At a fundamental level, energy constraints determine what is physically possible, and hence what actions are admissible in the set of all actions that an economic model can use. For example, digging up tar sands, extracting the oil out of it, purifying and distillation processing, shipping, burning (whether in a car or a heater or some manufacturing process for producing other goods), dealing with GHG, requires energy at each point of the overall process. If the energy gained from burning the final oil products exceeds that of all of the other steps then we have a process that is energy-positive.

    However, there is only a finite store of energy in the ground for us to find. With nearly 7 billion people on planet Earth and climbing, we must surely be at the stage where economic models must consider the finiteness of stored energy as a constraint on the system. Admitting that energy constraints are real then leads us to question what we mean by progress, and by growth? Growth subject to energy constraints is a far different concept to growth in an energy infinite world.

    ‘nough insomniac ravings 🙂


    PS: if anyone knows of economics books that explore these sorts of questions, I’d be interested to know.

  13. I don’t get the Austrian cycle as focused on money per se. Any good can temporarily operate with an error in its economies of scale, thus causing a business cycle. Car companies, government, ad central banks all cause errors.

    Ihave a nit pick on this:

    “If investors correctly anticipate that a decline in interest rates will be temporary, they won’t evaluate long-term investments on the basis of current rates”

    Investors assume that operations become stable, and that long term loans will match long term capital purchases, and similar for short and medium term. Investors who assume short term rates accumulate up into long term rates are assuming instability by definition, and will not make investments on that basis, unless we are talking about some stimulus effect of hidden information by some monopoly.

  14. Warwick McKibbin (who visits here sometimes) says Australia should prepare itself for a rapid recovery in Asia. He suggests that there will be a V shaped recovery in the Asian region: “People are misguided if they think everybody is going to be in malaise until the US gets its act together. I think you will find that the world is not as dependent on the US economy as you think.”

    Warwick please explain how these export-oriented Asian economies will recover quickly when the rest of the world is in recession. Who are they going to sell stuff to?

    As for his comments that China’s stimulus package has reignited growth in Asia, and that’s good for Australia’s resource sector, there is a lot of evidence that China is stockpiling minerals in the lead up to contract negotiations. How is it in China’s interest to pay more for resources? I think they’re setting us up to play hardball.

  15. I’m not Warwick and I’m not an economist but doesn’t China have a huge internal market and a huge demand for infrastructure from an increasing middle class AND the cash to pay for it? Again, not being an economist I wouldn’t know but Warwick’s comment doesn’t seem unreasonable.

  16. The Anglophone West is going to continue to stagnate and even decay. The triumph of corporate managerialism has created a class that “manages” with moronic generic incompetence. They continue to believe in and apply all the policies and mangagement approaches which landed us in our current trouble. They don’t know how to run the complex society they have inherited.

    The East (China and India) cannot complete its industrialisation as there are not enough resources left. Full stop. End of story.

  17. I’m not Warwick and I’m not an economist but doesn’t China have a huge internal market

    China’s GDP is one quarter of the US. China could, in the long term, replace external demand with domestic demand, but that is a multi-decade process. You can’t turn a billion Chinese into rampant consumers overnight.

  18. #21 carbonsink

    People do not have to consume to get paid. If we pay people not to consume and if we give them things to buy that will increase our collective wealth then we can solve the problem.

    The Chinese are investing in infrastructure and encouraging people not to consume but to save. This is the same thing as paying people not to consume.

    They have been doing this for years so it is not a big switch and it will not take decades because it is already happening.

    We need to do the same. We need to make it worthwhile for people save and we make up by spending the money saved for productive purposes.

    Our system is set up for consumption now rather for building for the future.

  19. The Chinese are investing in infrastructure and encouraging people not to consume but to save.

    Actually the Chinese govt is doing quite a bit to stimulate domestic consumption at the moment — vouchers and low interest loans for white goods, consumer electronics, cars etc.

    You see the problem for the Chinese is the world isn’t buying the stuff they make at the moment. They have thousands of idle factories shutting down, and mass unemployed amongst rural workers. Someone has to consume all that stuff, otherwise the Chinese economy breaks.

    The Chinese save by tradition. They don’t need encouragement to save.

    However I do agree we need to change the system away from consumption, but that’s not how China (or anyone else) is going about solving this problem. Everyone is scrambling to get the debt-fueled consumer bubble back up and running.

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