After inflation, the whip-crack

Broken telephone, but for back-orders.

There’s a school of economics that likens the economy to a computer, one that we all power. Every time we buy something — or walk away from an offer — we feed data to the computer, which transmits this price- and demand-information from consumers to producers to financiers, so that demand can be met with supply.

The proponents of this theory admit that this “computer” produces a lot of waste as it buds off different solutions — new businesses, products and services — and then prunes away the ones that fail, but, they say, this waste is far less than the waste we’d experience if we shut the “computer” down and switched to a “planned economy.”

As Leigh Phillips and Michal Rozworski argue in their crucial, slim 2019 book “The People’s Republic of Walmart,” any large, complex economy tends toward high degrees of integration between firms, because the “computer” of the economy of buyers and sellers is balky, slow and often catastrophically unrealiable:

https://memex.craphound.com/2019/03/05/the-peoples-republic-of-walmart-how-late-stage-capitalism-gives-way-to-early-stage-fully-automated-luxury-communism/

Here’s one way that the economy-computer fails: the “bullwhip effect.” That’s when a retailer experiences a rush of sales for a product and sells out, and so places a bigger order. The distributor notices that their retailers are raising their orders, so they place a bigger order with the wholesaler. The wholesaler then boosts their order with the manufacturer, who places bigger orders with their material suppliers and so on:

https://en.wikipedia.org/wiki/Bullwhip_effect

Just as the little wave at the start of a bullwhip turns into a succession of bigger waves, so that a simple twitch of the wrist can cause the tip of the whip to break the sound-barrier, so too can a transient increase in demand ripple up the supply chain, creating vast overproduction of goods.

This, in turn, leads to the other side of the bullwhip effect: a series of overcorrections that produces shortages. The retailer now has a shelf full of whatever their customers briefly wanted. But the surge is over, so those products just sit on the shelf. The retailer…