Doyne Farmer

That's right. But let me emphasize, we also have supply and demand and inflation. Okay, sure. Because those agents make supply and demand happen, right? And that's in the oscillations we're seeing, they may be oscillations where there's more supply than demand or more demand than supply.

That's right. But let me emphasize, we also have supply and demand and inflation. Okay, sure. Because those agents make supply and demand happen, right? And that's in the oscillations we're seeing, they may be oscillations where there's more supply than demand or more demand than supply.

And in some markets, you know, some markets saying supply equals demand, not a bad approximation over sufficiently long timescale. In other markets like housing markets, supply and demand can be wildly out of balance. And it goes back to the way prices get formed in housing markets. You know, if you bought a house, What do you do? You go find a comparable house.

And in some markets, you know, some markets saying supply equals demand, not a bad approximation over sufficiently long timescale. In other markets like housing markets, supply and demand can be wildly out of balance. And it goes back to the way prices get formed in housing markets. You know, if you bought a house, What do you do? You go find a comparable house.

You go to a real estate agent who says, here are some comparable houses. You know, you would just tweak it up or down a little bit. You try and sell your house at that price. It doesn't sell, you mark it down, doesn't sell again. After a month or two, you mark it down again. Maybe at the end you go, I don't want to sell my house. This is too cheap. And you pull it off the market.

You go to a real estate agent who says, here are some comparable houses. You know, you would just tweak it up or down a little bit. You try and sell your house at that price. It doesn't sell, you mark it down, doesn't sell again. After a month or two, you mark it down again. Maybe at the end you go, I don't want to sell my house. This is too cheap. And you pull it off the market.

So there in housing markets, you can see supply and demand imbalances that are more than an order of magnitude. And you can see, like you go through the housing crisis, we flipped from a market where there was a huge excess of demand to a market where there was a huge excess of supply and prices are responding very sluggishly to that, those much more.

So there in housing markets, you can see supply and demand imbalances that are more than an order of magnitude. And you can see, like you go through the housing crisis, we flipped from a market where there was a huge excess of demand to a market where there was a huge excess of supply and prices are responding very sluggishly to that, those much more.

And you can't capture that in a mainstream model because you can't write it down in an equation simply.

And you can't capture that in a mainstream model because you can't write it down in an equation simply.

Yeah, so let's be a little more precise there. Okay. In macro, that's more or less true, though these days a hot topic in macro is having heterogeneous agent models where you have things like a Gaussian distribution of agents, just one-dimensional Gaussian, with some agents, say, having more earning power than others. Okay. Right? Right.

Yeah, so let's be a little more precise there. Okay. In macro, that's more or less true, though these days a hot topic in macro is having heterogeneous agent models where you have things like a Gaussian distribution of agents, just one-dimensional Gaussian, with some agents, say, having more earning power than others. Okay. Right? Right.

Okay, so they're putting that in, but in our models, what do we do? We create a synthetic population with a million agents where we try and match all the demographics, earning power, education, age, even race and gender. And so we match all those characteristics of the population. We can even do it regionally. So it may vary.

Okay, so they're putting that in, but in our models, what do we do? We create a synthetic population with a million agents where we try and match all the demographics, earning power, education, age, even race and gender. And so we match all those characteristics of the population. We can even do it regionally. So it may vary.

So we have the power because we can have millions of agents to really make all this much richer and much more accurate.

So we have the power because we can have millions of agents to really make all this much richer and much more accurate.

Yeah, yeah. So mixing together a couple of metaphors there, but in a good way. Yeah. What does the economy do for us? So first of all, you know, when I wrote my book, I realized it made me appreciate the economy more because I really tried to reflect on what is this thing doing for us? And I would argue it's like, it's the digestive system of civilization, the metabolism.

Yeah, yeah. So mixing together a couple of metaphors there, but in a good way. Yeah. What does the economy do for us? So first of all, you know, when I wrote my book, I realized it made me appreciate the economy more because I really tried to reflect on what is this thing doing for us? And I would argue it's like, it's the digestive system of civilization, the metabolism.

It takes in, just as our metabolism, what does it do? We take in food, right? from the outside world, we reform that food, we break it into pieces and we make it into something else. What does the economy do? It takes in natural resources and then combines it with labor and we reform it into goods and services that we consume or that other industries consume. So it's the engine at the bottom.

It takes in, just as our metabolism, what does it do? We take in food, right? from the outside world, we reform that food, we break it into pieces and we make it into something else. What does the economy do? It takes in natural resources and then combines it with labor and we reform it into goods and services that we consume or that other industries consume. So it's the engine at the bottom.