Stephen Gandel at Time magazine suffers the simplification complex

Like most economists he has no model of production chains, so he interprets oil shortages as an effect on the consumer.  Economists unable to grasp the concept  had me fooled for a while.  The closer I looked the more confused I was until it dawned on me, producers crashed in 2008, not consumers.

When the economist finally gets the concept of production chains, then he looks at Hausmann and Hidalgo and says, Ah Ah.  When one is a producer than one has a longer inventory cycle, remember inventory size and inventory cycle go as f(n)*log(f(n)), where f(n) is nth level transaction rate.  Transaction rates are  slower farther up the chain, and quant sizes , log(f(n)) are larger.  I think even Jim Hamilton misses this.  To see the evidence, once again, look at the crash of producer prices and consumer prices. Look closely, who crashed first?  The producer did.

It is the model of quantized flows that gives Hamilton his non-linear response to shocks. Producers have to plan longer based on estimated oil flows.  Oil shocks cause them greater risk, they crash sooner, and we have recessions.  Go look at Hamilton's research in the same link above.

Nick Rowe and Mark Thoma still cling to the outmoded New Keynesian model, so they get quite confused about the relationship between the banking chain and the real goods chain.  Real goods are sparse, they have gaps at the periphery after a shock and agents fill the gaps with the minimal number of inventory exchanges. Bankers estimate a heteroskedastic short term yield and get confused.  It is not gross expectations, it is the inventory network taking the minumum number of steps toward balance with only integer solutions to inventory size, the discrete form of the minimal distribution problem.

Will the current oil crisis cause a second dip?  The second dip is the current oil crisis continued, gains as the producer levelhave been dropping, retail velocity has been dropping, we have not balanced inventory flows. Economist cannot see it because they don't get the nonlinearity of integer solutions, quantization.

The oil crisis is part of the imbalance, as are the revolutions.  We have had imbalanced inventory flows ever since the Internet came on the scene, we are requantizing. The channel will complete one more rank reduction, then we move forward.

Production chains, we have a model, get with the program.