This is planet money from NPR.
So often in economics, we get these theories that sound really good.
They sound like they could be true, but theres no way to test them in the real world.
So people run around believing these theories and repeating these theories that are completely mushy and untestable forever.
Like, there's this idea taught in business schools called the bullwhip effect, the idea that the further away from the customer you are in the supply chain, the more volatile your orders are likely to be.
So, like with the whip, the part that's close to your hand goes up and down a little bit, but the farthest part goes up and down a lot.
And this interesting sounding thing was suddenly everywhere in the pandemic, if you recall, there were a bunch of shortages and consumers, companies, everyone reacted by ordering more of the thing or ordering it earlier and hoarding it.
And because all the different companies in the supply chain don't communicate very well or coordinate their needs, they tend to overreact.
They freak out about running out of stock and they over order, or they freak out about having excess inventory and they slash orders.
So if some customers suddenly decide that they need an extra pack of toilet paper this week, that might mean the factory at the far end of the chain ends up with hundreds more orders one week, and then I no orders the next.
And to see a perfectly manifested bullwhip effect at this enormous scale, it was kind of weirdly beautiful because normally real life is so much messier than models contaminated by too many variables.
And you're just never going to be able to convince a bunch of companies to please test this idea out until suddenly a pandemic and a recession and a total upheaval in the global supply chain.
Test it for you.
Hello, and welcome to Planet money.
I'm Mary Childs.
The shocks of the pandemic economy gave us a bunch of enormous natural experiments that helped to prove or disprove conventional economic thinking.
Our mushy little theories that ended up being right or not so right.
And in the episode you're about to hear, we're gonna look for other examples like the bullwhip effect, other big economic lessons from the past, past three years, and it's gonna sound a little different.
It's an excerpt from a live show we put on a few months ago.
It's a game show.