I’ve been reading J. Doyne Farmer’s recent book. Understanding the chaos For a discussion I will be taking part in next week. On page 53 Farmer makes a good point:
We are part of a production network supply chainThis is a bad metaphor. Production networks are branched and more like a tangled web than a chain. (Italics in original)
I’m glad to see someone who isn’t an economist pointing that out from an economic perspective. Don Boudreau wrote:The economy is not a series of supply chains”, American Institute for Economic Research, April 13, 2020:
The web is not a chain
The first reality is that in a modern economy, nearly every productive enterprise is connected to every other productive enterprise. This connection is the phenomenon implied by the term “supply chain.” But this term is highly misleading. Today’s economy is not a series of supply chains operating in parallel with one another, each significantly distinct from and independent of the others. If that were the case, there would actually be little difficulty in importing one or more supply chains into a domestic economy and making them fully embedded in the domestic economy from start to finish.
The modern economy is not a collection of separate supply chains, but a single economy that spans the globe. web A web of interconnectivity. Within this web, every output is the product of an infinite number of inputs, and each kind of input is typically used to generate an infinite number of different kinds of output. This web of interconnectivity, whose complexity exceeds human comprehension, is essential to the prosperity of modern masses. But its existence – the reality that “everything is somehow connected to everything else” – means that there is no objective, clear-cut line that distinguishes “important” from “unimportant” supplies.
Moreover, economic change erases the existence of such objective, clear-cut lines: both changes that are inseparable from the creative destruction of the market economy (for example, the invention of the assembly line) and changes that nature imposes on humanity (for example, the depletion of iron-ore mines). Such changes constantly rearrange, usually subtly, but sometimes dramatically, the specific connections of each node in the vast economic web with its countless others.
postscript:
Russ Roberts recentlyFarmers interviewed Arnold Kling recently reviewed Farmer’s book. here.
