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> 3. Supply chains had also all gone to a JIT model to keep inventories lower. This was a huge source of efficiencies, but made them vulnerable to a demand shoc
by roughly 5y ago
> 3. Supply chains had also all gone to a JIT model to keep inventories lower. This was a huge source of efficiencies, but made them vulnerable to a demand shock.
I think it's worth emphasizing this - all of the other issues you describe are correct, but what's allowing individual disruptions to turn into a global crisis is a lack of buffering between components of the individual systems. This is a known issue with JIT, and in some ways it's factored into the models - assuming one bad year in ten, 9 very good years can still be more profitable than 10 pretty good years - but it widens the possible set of outcomes and allows for these kinds of cascading failures, which makes it harder for one institution to model or plan around.
- rossdavidh 5y agoIt's also the sort of thing where if you're the first one using it, the costs of it are not nearly as large as when the whole economy is using it. Your buffer is, in effect, being stored at other people's factories. This is logically predictable, but was not in fact widely appreciated before the current problems, perhaps because this is the first shock to come after JIT was almost universally used.
- roughly 5y agoYeah, I think this is in part an outcropping of the Friedman/Chicago School notion of firms as purely self-interested - the notion that one can ignore the actions of the other actors in the space when planning one's own strategy is sort of silly on the face of it.