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This is coincides with my headcannon cause of the business cycle. 1. Firms compete 2. Firms either increase their efficiency or die 3. Efficient firms are mo
by kelseyfrog 2y ago
This is coincides with my headcannon cause of the business cycle.
1. Firms compete
2. Firms either increase their efficiency or die
3. Efficient firms are more susceptible to shocks
4. Firm shutdown and closures are themselves shocks
5. Eventually the system reaches a critical point where the aggregate susceptibility is higher than the aggregate of shocks that will be generated by shutdowns and closures
6. Any external shock will cause a cascade
There's essentially a "commons" where firms trade susceptibility for efficiency. Or in other words, susceptibility is pooled while the rewards for efficiency are separate.
- NeoTar 2y agoIt sounds similar to how animal/plant species often work. A species will specialise for a niche, and outcompete a generalist. But when conditions change, the generalist can adapt and the specialist suffers.
- yannis 2y agoGood analysis, but one also needs to look at the definition of `efficiency`, what is your definition of efficiency in this context.
- kelseyfrog 2y agoThe ability to do more with fewer resources. Profit is a great starting point when answering, "What is efficiency to a firm?"
- Eddy_Viscosity2 2y agoBut in practice we see that: 1. Firms compete 2. Some firms get ahead 3. Accrued advantages to being ahead amplify 4. A small number of firms dominate 5. New competition is bought or crushed 6. Dominate firms become less efficient in competition-free environment
- kelseyfrog 2y agoThey aren't mutually exclusive. And, not xor.
- xapata 2y agoIf only that weren't called a "cycle" as if it had a predictable periodicity.
- kelseyfrog 2y agoIt has inevitability, but you're right, not predictable periodicity. Is predictable periodicity a necessary part of a cycle? I feel like the rise and fall of nations is a cycle, but not necessarily one of predictable periodicity.
- xapata 2y agoIf not predictability, then regularity, and I believe that's a fundamental misunderstanding -- the system is chaotic.
- triceratops 2y ago*head canon Something you personally (in your head) believe to be a general law, or rule, or truth (canon). It's roughly synonymous with "mental model". A cannon is a weapon.