The Supply Web

I’m reading J. Doyne Farmer’s recent book, Making Sense of Chaos, for a discussion I’ll be involved in next week. On page 53, Farmer makes a good point, writing:

Though we often refer to pieces of the production network as supply chains, this is a bad metaphor: The production network is full of branches and is more like a tangled web than a chain. (italics in original)

It’s nice to see someone who’s not even an economist making that economic point. Here’s Don Boudreaux making it in some detail in “The Economy is Not a Series of Supply Chains,” American Institute of Economic Research, April 13, 2020:

A Web Isn’t a Chain

The first reality is that, in our modern economy nearly every productive enterprise is connected to every other productive enterprise. This connectedness is the phenomenon alluded to by the term “supply chain.” This term, however, is highly misleading. Today’s economy is not a series of supply chains running side by side with each other, each largely distinct from, and independent of, the others. If it were, there would indeed be little challenge in pulling in one or more such chains into the domestic economy so that it fully resides there, from beginning to end.

Instead of a collection of distinct supply chains, our modern economy is a single globe-spanning web of interconnectedness. Within this web every output is the product of countless inputs and each kind of input typically is used to produce countless different kinds of outputs. This web of interconnectedness – the complexity of which is beyond human comprehension – is indispensable for our modern mass prosperity. Yet its existence – its ‘everything-is-connected-in-some-way-to-everything-else’ reality – means that there are no objective and clear lines separating “critical supplies” from “uncritical” ones.

Further obliterating the existence of any such objective and clear lines is economic change – both change that is inseparable from a market economy’s creative destruction (for example, the invention of the assembly line), as well as change that is imposed on humanity by nature (for example, the depletion of an iron-ore mine). Such change at every moment rearranges – usually slightly, but sometimes dramatically – the particular connections that each node of the vast economic web has with innumerable other nodes.

 

Postscript:

Russ Roberts recently interviewed Farmer on his book for EconTalk. Arnold Kling recently reviewed the Farmer book here.

 

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