Hurricane Hits Just-In-Time Economy

I've been wondering for a long time whether the just-in-time nature of modern economies created large-scale rapid failure modes in which a shock that pushed the system sufficiently far out of its envelope of resilience would trigger a catastrophic breakdown.  I've called this kind of thing a "death-star vulnerability" in which if something hit civilization in just the right way in the most vulnerable place, the whole thing might blow.  I first became interested in this in the context of cyber-attacks,  but I've never seen any way to get any kind of intellectually defensible handle on the problem of understanding the existence, nature, and tractability of that kind of vulnerability.

At any rate, and at some risk of sounding ghoulishly detached, Hurricane Sandy is creating a pretty interesting natural experiment that is illuminating some of the issues.  The hurricane hit land on Monday evening, and by Thursday the entire region is close to out of gas:

Modern Cities are Hard to Kill

I have a hard time believing that a city in an ancient civilization would have coped anything like that well with a similar disaster (think Angkor for example).  This is quick bit of lunchtime research inspired by this Open Mind post - New Orleans seems like a prototype for worst case scenarios for cities that experience failures in their response to 21st century sea level rise.

I stress I'm not trying to minimize the enormous suffering of the people of New Orleans - just pointing out that the city is still there and has a functioning economy that is only slightly smaller than before the disaster.  New Orleans is clearly not going to end up as ruins in the bayou as a result of Katrina.

The data are from the BEA.  

Are Throwaway Societies More Resilient?

When I was growing up in England, it was very common to hear my older relatives say "They don't make things like they used to".  They generally had a perception that in the past, things were better made, lasted longer, and were expected to last longer.  Bedsheets used to be thicker, buildings made of stone, bridges and machinery over-engineered with lots of extra metal, etc.  By contrast, nowadays we live in a throwaway society.

It would be interesting and useful to quantify that.  However, this morning, I'm just going to throw out a half-formed idea for the sake of seeing if anyone can give me useful feedback.  So I'm just going to assume that it's basically true that in modern society, the average lifetime of an object is lower - buildings, personal possessions, etc - compared to pre-industrial societies.  Things are designed accordingly, with planned obsolescence.

When Does Surplus = Resilience?

Implications of Unmeasurable Capital

I was very struck by a piece by Steve Randy Waldmann at Interfluidity yesterday, entitled Capital Can't be Measured.  He is basically arguing that modern financial institutions are sufficiently complex that the concept of their "capital" is subject to measurement errors of the same order of magnitude as the capital itself.  This rang true to me, and put into words something that had nagged at me in reading about financial reforms, but had not come clearly to the surface of mind.

Sure, “hard” capital and solvency constraints for big banks are better than mealy-mouthed technocratic flexibility. But absent much deeper reforms, totemic leverage restrictions will not meaningfully constrain bank behavior. Bank capital cannot be measured. Think about that until you really get it. “Large complex financial institutions” report leverage ratios and “tier one” capital and all kinds of aromatic stuff. But those numbers are meaningless. For any large complex financial institution levered at the House-proposed limit of 15×, a reasonable confidence interval surrounding its estimate of bank capital would be greater than 100% of the reported value. In English, we cannot distinguish “well capitalized” from insolvent banks, even in good times, and regardless of their formal statements.

The Just-In-Time Economy