• Why there are rice shortages in England and America

    by  • June 1, 2008 • The Global Picture • 0 Comments

    (from a conversation with David)

    The thing about just-in-time JIT in all of its manifestations is that it induces system fragility because it encourages optimization against a static frame. The assumption is that things will be tomorrow much as they are today.

    Worse, systemic underpricing of risk is an evolutionarily stable strategy over the long periods when nothing bad happens, because those who underprice risk out-compete those who price it correctly. It’s like operating a business without insurance, and calling the saved money profit.

    This means that when a crisis comes nobody is left who planned appropriately. They were all priced out of the market by the people who underpriced risk and called their errors “profits.”

    I don’t know what you do about this, but it seems fairly widespread and might be responsible for a lot of economic volatility in the long run.

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    Vinay Gupta is a consultant on disaster relief and risk management.


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