Doyne Farmer

Oh, that totally makes sense. It's true. As a physicist, you will appreciate it because it says that The economy doesn't seem to be time reversible. If I look at time series, just from looking at the time series, I can tell which way time is flowing. Now, of course, the other significant thing that happens is the economy tends to grow.

Oh, that totally makes sense. It's true. As a physicist, you will appreciate it because it says that The economy doesn't seem to be time reversible. If I look at time series, just from looking at the time series, I can tell which way time is flowing. Now, of course, the other significant thing that happens is the economy tends to grow.

It's not that it can't shrink, but the US economy has been going up at 2% per year on average most of the time since the Revolutionary War. So that's another time asymmetry. But yeah, markets go down easier than they go up.

It's not that it can't shrink, but the US economy has been going up at 2% per year on average most of the time since the Revolutionary War. So that's another time asymmetry. But yeah, markets go down easier than they go up.

Right, right. You know, since we're talking about the endogenous-exogenous distinction, I should say disequilibrium models are also really useful when the shocks come from outside. And the good example of that would be COVID. Now, that was clearly outside, right? I mean, at least from the point of view of the economy, having a virus suddenly cause people to not go to work is an outside shock.

Right, right. You know, since we're talking about the endogenous-exogenous distinction, I should say disequilibrium models are also really useful when the shocks come from outside. And the good example of that would be COVID. Now, that was clearly outside, right? I mean, at least from the point of view of the economy, having a virus suddenly cause people to not go to work is an outside shock.

That was a very sharp and sudden outside shock. And we built a model in a crash program as the pandemic was starting and actually used it to advise the British government about the economic consequences of different forms of lockdowns. And that model was very, very explicitly disequilibrium. I mean, it worked in a very simple way. We said,

That was a very sharp and sudden outside shock. And we built a model in a crash program as the pandemic was starting and actually used it to advise the British government about the economic consequences of different forms of lockdowns. And that model was very, very explicitly disequilibrium. I mean, it worked in a very simple way. We said,

An industry can't make its product if there's no demand for the product, if it doesn't have the inputs it needs for the product, and if it doesn't have the labor it needs.

An industry can't make its product if there's no demand for the product, if it doesn't have the inputs it needs for the product, and if it doesn't have the labor it needs.

And so just using that basic observation, the longer story for how we managed to guess how big the shocks were going to be and which industries would get shocked, that had to do with our knowledge of occupational labor and beautiful data set put together by the Bureau of Labor Statistics. But that contained information like how close together do people work in different occupations?

And so just using that basic observation, the longer story for how we managed to guess how big the shocks were going to be and which industries would get shocked, that had to do with our knowledge of occupational labor and beautiful data set put together by the Bureau of Labor Statistics. But that contained information like how close together do people work in different occupations?

Yeah.

Yeah.

So from that, we can infer who would be able to go to work and who wouldn't. And but we initialized the model in the steady state it was in before the pandemic started. And then we hit it with the shocks. And using the rule I said, we could see those shocks reverberating around the economy because every day we'd update the model. We'd say, oh, does this industry have labor? Does it have inputs?

So from that, we can infer who would be able to go to work and who wouldn't. And but we initialized the model in the steady state it was in before the pandemic started. And then we hit it with the shocks. And using the rule I said, we could see those shocks reverberating around the economy because every day we'd update the model. We'd say, oh, does this industry have labor? Does it have inputs?

Does it have demand? And if it didn't have some of those, we would reduce its output. So it was a very dynamic output that changed through time. For example, some of the industries were running out of inputs a month or two after the lockdown started. So it didn't, the consequences weren't necessarily felt immediately.

Does it have demand? And if it didn't have some of those, we would reduce its output. So it was a very dynamic output that changed through time. For example, some of the industries were running out of inputs a month or two after the lockdown started. So it didn't, the consequences weren't necessarily felt immediately.

And then once they ran out of, once they reduced production, if they were upstream in the economy, meaning like producing natural resources or stuff that lots of other industries use, then that would propagate, as they say, downstream and hit the other industries. So there were complicated dynamic effects. And mainstream models don't work that way. They assume equilibrium from the get go.

And then once they ran out of, once they reduced production, if they were upstream in the economy, meaning like producing natural resources or stuff that lots of other industries use, then that would propagate, as they say, downstream and hit the other industries. So there were complicated dynamic effects. And mainstream models don't work that way. They assume equilibrium from the get go.