
The Perils of Efficiency - danw
http://www.newyorker.com/talk/financial/2008/11/24/081124ta_talk_surowiecki
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byrneseyeview
Interesting. I wonder if a bias or law against price gouging could be a
problem, here. I mean, if you know there is, e.g. a 20% chance of a bad
harvest that will let you sell food at twice the normal price, you probably
have an incentive to store some yourself. But if you know that, in the event
of a bad harvest, someone is just going to take your food -- or tell you that
you can sell it, but only at an artificially low price -- you might not
bother.

The usual question applies: can this complaint about the market be restated as
a business plan? If so, why not do it? If not, is it really a solvable
problem?

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sciolizer
Insurance, perhaps? Treat price gouging as a natural disaster. Farmers pay for
the peace of mind that they will be compensated in the event of a seizure.

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zmimon
I remember reading a similar article about the airline industry.

Despite great improvements in technology, fleet size and a greater diversity
of airlines delays just get more frequent and more severe. Why? Because there
is no longer any leeway in the system for error. Each flight is turned around
and sent out in such minimal time that if it is late for any reason the
problem cascades on to the next flight. And the whole system is so well
coordinated that there is never any airplane just sitting around to make up
for a problem. So the whole system, though more efficient is more fragile. And
ironically, being more fragile, actually ends up making it _less_ efficient.

Of course, as an engineer I simply say that you need to make the robustness
part of your design goals to begin with and then design the system to meet
that while being maximally efficient.

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newt0311
_Because there is no longer any leeway in the system for error. Each flight is
turned around and sent out in such minimal time that if it is late for any
reason the problem cascades on to the next flight. And the whole system is so
well coordinated that there is never any airplane just sitting around to make
up for a problem._

American Airlines and all the airline companies wish that you were right. As
is, the biggest problem with airlines is not the lack of robustness. As of
now, most airline companies toss in generous leeways into their flights to
accomodate late flights (now over 10 minutes, which does not seem like much
until you realize that this is _per every flight_ ). The biggest problem is
that the traffic control system is at capacity. Ie. It is too _inefficient._
To fix the delays, the FAA needs to modernize and increase efficiency in the
airline traffic control system.

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marvin
Good luck with that. It is technologically possible, but everyone who works
with planes is scared shitless of the possibility that something can go wrong.
It's bureaucracy at its worst. Nothing will happen with the existing system,
the best we can hope for is that a new and better system will replace modern
(obsolete) air travel.

Many major airports are clogged, however..it's more than just a problem of
traffic control and coordination. There is a limit where you are operating so
tightly that if anyting goes wrong, there will be a major accident. I think
the direction we are going in is one of smaller aircraft and more
decentralized terminals. With the level of stupidity in airline travel (et.
al.) and the growing resentment among passengers, it is doubtful that the
system can successfully develop into something even more centralized.

This whole industry is a prime target for disruptive change. The major problem
is the same as for startups working in the financial industry: there is just
too much regulation. (TipJoy, PayPal etc.) In addition, the capital
requirements are pretty steep.

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davidw
Flagged - you just can't post articles like this without the libertarians (or
whoever is called out by the article du jour) frothing at the mouth and
rendering the whole discussion nothing more than a repeat of a very old and
tired internet discussion.

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danw
I think you're right, in hindsight I shouldn't have submitted this article

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sd
Perhaps this should be entitled "The Perils of Market Efficiency" instead,
because this is more about market liberalization than improved productivity.

Although this article highlights some of the consequences of market
liberalization, I think it's dangerously to extrapolate this case more
broadly. First, structural readjustment programs took place in sub-Saharan
countries that lacked necessary markets, transit infrastructure, and other
prerequisites for private business growth. This differs from in the United
States, where such infrastructure is substantially more mature. Second, many
of these countries lack sufficient crop diversification, which when coupled
with limited purchasing power, exacerbates famine during droughts.

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kurtosis
I never understood what the reason was for the recent spike in food prices.
Does anyone here know of a good study that explains this?

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anamax
It was a combination of the spike in gasoline/diesel prices, a diversion of
corn to make ethanol, which pushed up the price of everything that depended on
corn (meat being a big one), and a shift to more corn production (which
reduced the production of other things, increasing their price).

The US subsidizes domestic ethanol production and heavily taxes imported
ethanol. Brazil produces ethanol far more efficiently than Iowa does. For
those playing at home, that's a govt failure.

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trapper
Ummm... does meat really depend on corn?

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mythogen
Yes. At least in the US, I believe, feed for a variety of meat animals is
often composed heavily of corn. Ask your local rancher about this. Price of
cow food goes up; price of tasty cow bits goes up.

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trapper
Ahh, I hail from a grass fed country.

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tsally
This is certainly a case where the loss is efficiency due to regulation is
outweighed by the cost of a market failure. In all honesty, essentials like
food, education, clean water, and so on should never be left up to the free
market.

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richcollins
The government can always stockpile food in case of shortages.

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anamax
People can stockpile too.

However, they won't if they think that govt will seize their savings.

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fallentimes
I first read this as "The Penis of Efficiency" and almost spit out my beer.

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thomasmallen
Time to reinstall Verdana.

