Thursday, July 27, 2006

Economic Recursion

Dan has cracked the code on computer upgrades. He decided to buy Apple shares to finance the purchase of his new Apple PowerMac. Apple's success is therefore key to getting Dan's business. Not only is this conceptually pretty cool, it occured to me that it is not even uncommon. We all do this sort of thing every day. We buy clothes and wear them to the store where we bought them. We buy gas and use it to drive to a service center to keep our car running, where we buy parts and use them to get us to a gas station. I suppose this sort of circular consuming and producing is the basis of any economy bigger than simple subsistance agriculture, where each individual makes most of what they need themselves. Perhaps this is obvious to economists, but I thought Dan's solution was an elegant one (in a bull market). It certainly got me thinking about how all parties in a complex economy depend on each other.

Perhaps the high degree of economic interdependence explains why societies can collapse so rapidly when the social contracts needed to run them are disrupted. I am thinking about Iraq, of course, but it seems this is the basis for a simple economic argument against breaking a country's social system. They are easy to break, but hard to repair.

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