Moloch and the sandpile catastrophe

Articles about the fall in wheat exports face another Molochian problem. The ones that say that a massive decrease in grain exports will lead to famine are shared widely. Articles that include the context that most wheat is produced and consumed locally, so exports are a small proportion of global wheat production, are boring articles about boring price movements, so they aren't shared widely.

World grain production is 760 million tons per year. Russia exports 35 million tons per year (4.6% of total wheat production), and Ukraine exports 24 million tons (3.2% of total production). Losing three quarters of those exports will be a supply shock of the size we see about once or twice a decade (though it's usually due to a drought).

(btw I'm not accusing Eric Raymond of alarmism; I thought the grain decrease was a big deal too, until I happened across a Twitter thread explaining the details. Update: I found the thread – it's by a crop scientist. I'm not sure why her figure for Russian wheat as a percentage of world production is lower than what I found.)

I do think it'll be interesting to see if the sorts of things that ALLFED has been working on for bigger disasters will get deployed for this smaller disaster as well.

I don't know how to quantify the risk. I believe it's serious because (a) global economic analysts like Peter Zeihan say it's serious, and (b) it's difficult for me to construct a plausible scenario in which that many tons per wheat a month becoming unavailable doesn't cause famine somewhere. The risk would be especially acute in places like Egypt, Bangladesh, and Japan that combine a large population with a shortage of arable land - but while Japanese are wealthy enough to meet rising prices in the grain markets and get by, Egyptians and Bangladeshis are not.

Also, too, what is near-term? Supply chain disruptions are currently causing shortages, but new shipments from India and other exporters should arrive within a month or two, which probably isn't long enough for people to literally starve to death (since wheat isn't literally 100% of calories, I'd Fermi estimate that a poor resident of North Africa could physically survive for about 3 months with zero wheat consumption by being hungry and eating a little bit more of whatever other food is available)

Maybe I'm stating what is now obvious, but this applies to shortages of other outputs as well.

Think of potential producers for a good as a portfolio of options, one or more of which is exercised when you need to actually have it. You want to have multiple options available to reduce your risk that no producer will be able to deliver

When the cost of transportation is high, production has to be local to you, so it is more likely that all your options have correlated risks. As the cost of transport drops it gets possible to pick up options from producers further away, so the risks de-correlate. Trade networks get larger.

But that's not all good. Transport disruption is always a risk in trade, even when it's very local. But as trade networks get larger and the transport network has more moving parts, coordination issues increase.

Also, you're trading decorrelation of risk for the possibility of becoming critically dependent on suppliers far away from you. Which brings us back to my original post.

The reason it happens this way is that in a multi-agent economy with reliable trade, reserves against disruption get interpreted as wasteful and competed out. Investors seek the higher returns from companies that cut that below-the-line cost and plow the savings into capital goods or other things that can increase future revenues.

For example, Just In Time delivery swept the business world because investors and managers optimizing for profits began to see warehouses full of inputs as places that were costing money, not making money. JIT eliminates that inventory, but it relies on the assumption that you can always collect your inputs from suppliers just before you need them.

This was continuous with a century-long trend of vertically-integrated manufacturing dis-aggregating into contract networks, which made total sense as long as transaction costs kept dropping.

Another way to look at it is this: As long as communications and transport are getting cheaper and more reliable, profit maximizers will try to use them to replace more expensive goods, including storage space. Since food is perishable, the advantage of not buffering it in warehouses is exceptionally high. Which is fine until the cost gradients reverse and JITting your food from overseas gets expensive, at which point you can be in a heap of trouble.

Is efficiency-driven supercriticality the only reason for interconnected failures at all scales? No. Is it an important driver, perhaps the single most important one under modern conditions? Evidence points to yes. Worked example follows: embedded electronics for automobiles.

This is an example of how even ordinary fluctuations in demand for non-perishable goods (something much less disruptive than a war) can cause cascade failures in a system that's supercritical due to insufficient buffering. In 2020, automobile manufacturers reacted to a COVID-induced collapse in demand for their product by letting their contracts with the chip fabs making their car electronics go un-renewed - assuming that once demand picked up they could buy the chips again at the same prices.

When they went back beginning in later 2021, they discovered that (a) the chip fabs had converted the idled capacity to higher-margin products, and (b) they hadn't warehoused enough parts to keep making cars until they could buy line capacity. The consequences rippled down the chain towards consumers as a bunch of availability and price shocks, nearly wrecking several manufacturers and damaging a legion of related service businesses.

Took them a lot more money to get production reestablished than it would have to keep their piece of the fab capacity running through the slump. The recovery isn't done yet, and business schools are already treating this as a textbook case of the management stupids

See also the economic effects of the Great East Japan Earthquake (2011).

https://en.wikipedia.org/wiki/Aftermath_of_the_2011_T%C5%8Dhoku_earthquake_and_tsunami#Economic_impact

Corrected, thanks for spotting that.