The supply web – Econlib

I am reading J. Doyne Farmer’s recent book, Understanding chaos, for a discussion I’ll be involved in next week. On page 53, Farmer makes a good point, writing:

Although we often refer to parts of the production network as supply chainsis this a bad metaphor: the production network is full of branches and looks more like a tangled web than a chain. (italics in original)

It’s nice to see someone who isn’t even an economist making this economic point. Here is Don Boudreaux making it in detail in “The economy is not a series of supply chains”, American Institute for Economic Research, April 13, 2020:

A web is not a chain

The first reality is that in our modern economy almost every productive enterprise is connected to every other productive enterprise. This connection is the phenomenon referred to by the term ‘supply chain’. However, this term is very misleading. Today’s economy is not a series of supply chains running side by side, with each chain largely distinct and independent of the others. If that were so, there would indeed be little challenge in bringing one or more such chains into the domestic economy so that they could continue to exist there fully, from start to finish.

Rather than a collection of separate supply chains, our modern economy is one that spans the globe web of interconnectedness. Within this web, each output is the product of countless inputs, and each type of input is typically used to produce numerous different types of output. This web of interconnectedness – whose complexity is beyond human understanding – is indispensable to our modern mass prosperity. Yet its existence – the ‘everything-is-in-some-way-with-everything-else’ reality – means that there are no objective and clear lines separating ‘critical facilities’ from ‘uncritical ones’ facilities.

The existence of such objective and clear lines is further erased by economic change – both change that is inextricably linked to the creative destruction of a market economy (for example, the invention of the assembly line), and change that is naturally imposed on humanity . for example the depletion of an iron ore mine). At any given moment, such change rearranges – usually slightly, but sometimes dramatically – the specific connections that each node of the vast economic web has with countless other nodes.

Postscript:

Russ Roberts recently iinterviewed farmer about his book for EconTalk. Arnold Kling recently reviewed the Farmer book here.