Tuesday, October 6, 2009

All sales final!

I think of that phrase as a short hand pointer to asymmetry in the economy. Ultimately, there is no reversible flow of goods, so flows are best treated as positive. Consumers generally do not take inventory from their homes and return them to the store for cash. So, the result is that a store in equilibrium has to account for reverse flow, or else inventory grows definitely positive forever. As Arnold Kling points out, that would be slow steady positive growth, mixed with sudden occasional bankruptcy. The economy Recalculates with only positive numbers.

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