Friday, June 18, 2010

"Robinson Crusoe" Economies

"Let us look more closely at the type of economy which is represented by the 'Robinson Crusoe' model, that is an economy of an isolated single person or otherwise organized under a single will. This economy is confronted with certain quantities of commodities and a number of wants which they may satisy. The problem is to obtain a maximum satisfaction. This is--considering in particular our above assumption of the numerical character of utility--indeed an ordinary maximum problem, its difficulty depending apparently on the number of variables and on the nature of the function to be maximized; but this is more of a practical difficulty than a theoretical one." --Von Neumann and Morgenstern, Theory of Games and Economic Behavior, 1944, pp. 9-10.

This quote exemplifies some of the problems that we are likely to face when dealing with the challenge of containing the oil spill in the Gulf of Mexico. It is not business as usual. We are lacking the means to achieve an end. We have to create an economy practically from scratch. Wasted effort is contrary to our goal. We have to do the best that we can under the situation. We not only have to reduce the time it takes to stop the flow of oil but we also have to try to reduce the rate at which the costs accumulate. This is probably the best plan of attack. We need to look for what is missing and strive to fill the gap.

Obama's plans for change face similar problems. We don't always know in advance what difficulties we will face. There are hazards which need to be avoided and factored into the "equation." There are barriers to progress.

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