Market economy constitutes a self-regulating system with positive and negative feedbacks. Positive feedbacks accelerate system adaptation to external change; however, they can also cause loss of stability and auto-oscillations (crises). In this work we propose a new economic mechanism: Contracts conditioned by state of economy. This mechanism can inhibit destructive influence of positive feedbacks in time of crisis, while preserving them during normal state of economy. Thus a central regulator obtains a new precise and efficient instrument of crisis management.
Monday, July 5, 2010
Sunday, September 27, 2009
How to prevent economic crisis in time of external shock
Michael Zibulevsky, Technion, September 8, 2009
In time of a crisis consumers tend to spend less money on leisure, luxury and durable goods, which often leads to further market deterioration. In order to treat this problem, we propose a new insurance system, which provides support of industries in crisis by their customers. It creates a possibility of moving money fast from areas of excess to areas of shortage, blocking the crisis in early stage, before the waves of instability spread over the entire economy. This instrument can greatly stabilize the economy in whole and reduce its vulnerability to sharp external shocks....
Under conditions of instability (for example, on eve of crisis) consumers change their behavior dramatically, saving on durables, automobiles, tourism, etc. The whole economy goes into different "mode of operation", depressing entire industries and regions. The same can occur due to sudden changes in the external world: For example, in time of epidemic people can dramatically limit their travel.
Obviously, these changes are temporary in nature, and it would be unproductive to retrain and move workers from the crisis industries somewhere else. On the other hand, support of these industries require huge funds, and state budget may not be able to bear such costs. Existing insurances can also break down, when simultaneously presented a myriad of insurance bills for payment.
However, a close look shows, that the necessary funds exist. They are in pockets of former customers of the crisis industries, and precisely in necessary amounts. Really, the corresponding goods and services were not purchased, and the money was saved! How to transfer these funds to the "thirsty" industries and their workers? For this purpose I propose a new mechanism: Insurance of producers by their customers.
In time of a crisis consumers tend to spend less money on leisure, luxury and durable goods, which often leads to further market deterioration. In order to treat this problem, we propose a new insurance system, which provides support of industries in crisis by their customers. It creates a possibility of moving money fast from areas of excess to areas of shortage, blocking the crisis in early stage, before the waves of instability spread over the entire economy. This instrument can greatly stabilize the economy in whole and reduce its vulnerability to sharp external shocks....
Under conditions of instability (for example, on eve of crisis) consumers change their behavior dramatically, saving on durables, automobiles, tourism, etc. The whole economy goes into different "mode of operation", depressing entire industries and regions. The same can occur due to sudden changes in the external world: For example, in time of epidemic people can dramatically limit their travel.
Obviously, these changes are temporary in nature, and it would be unproductive to retrain and move workers from the crisis industries somewhere else. On the other hand, support of these industries require huge funds, and state budget may not be able to bear such costs. Existing insurances can also break down, when simultaneously presented a myriad of insurance bills for payment.
However, a close look shows, that the necessary funds exist. They are in pockets of former customers of the crisis industries, and precisely in necessary amounts. Really, the corresponding goods and services were not purchased, and the money was saved! How to transfer these funds to the "thirsty" industries and their workers? For this purpose I propose a new mechanism: Insurance of producers by their customers.
Saturday, September 5, 2009
WHITE PAPER ON NOVEL H1N1
John M. Barry, Distinguished Scholar, Advisory Board, MIT
July 27, 2009 view abstract download pdf of paper
July 27, 2009 view abstract download pdf of paper
This is a great paper!!
Friday, September 4, 2009
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