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Comment by jonrimmer | Hacker News Reader

The price advantages of globalised supply chains vs. the relative rarity of an event like this means that, during normal periods, firms using them will enjoy a significant advantage over those doing the "right" thing and market forces will weed out the latter. So I don't expect management to be taking a lead on this.

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> The price advantages of globalised supply chains vs. the relative rarity of an event like this means that, during normal periods, firms using them will enjoy a significant advantage over those doing the "right" thing and market forces will weed out the latter. So I don't expect management to be taking a lead on this.

That's correct. It's a market failure that needs to be remedied through law and regulation.

Hyper-specialist species can amazingly exploit their niche, but they're the first suffer and go extinct when things get disrupted. It's the generalists that survive.

Would you agree with Trump’s stance on reducing American reliance on Chinese manufactured goods? Trump has been doing that since his election.

Oh, is that what the tariffs are for?

Even the NY Times agrees with that.

> From tax cuts to relaxed regulations to tariffs, each of President Trump’s economic initiatives is based on a promise: to set off a wave of investment and bring back jobs that the president says the United States has lost to foreign countries.

https://www.nytimes.com/2019/08/13/business/economy/donald-t...

Reducing the reliance is a good idea in principle. The way they actually went about it was not, though.

> law and regulation

In industries where innovation matters, how do you regulate for producing a good enough product?

Could you regulate Intel to fix their 10nm process?

Do you want a laptop with the reliability of a Fiat, or the reliability of a Toyota?

Not saying it is impossible, but countries quickly run inito problems when their home produced goods are strictly inferior to the imported goods on price or quality or other metrics.

A hyper-specialist will be the best at some thing or another, and bad at a lot. A generalist will likely not be as good at those things, but it can be good enough at them, and not nearly as bad at the other things.

The market, as you note, selects for hyper-specialists, but crises aren't kind to them.

Strictly inferior home-produced goods are better than no goods at all, and the capability to produce them may have systemic benefits (in flexibility, resilience, avoiding certain kinds of path dependence and local maxima) that are not visible when looking at the goods in isolation.

What law and regulation can do is keep a nation on a more generalist footing, and keep it from hyper-specializing too much.

Obviously. It needs to be enshrined in law. Stress tests, like for banks. It would also be more efficient / profitable for banks to keep lower capital reserves...

Edit: alternatively, countries could be much more trigger-happy when it comes to banning flights from potentially infected areas where some kind of virus starts - basically a lot of false alarms. Companies would simply have to adapt.

Another possibility: don't do any industrial bailouts and let high-risk investors take their medicine. Next time, risky businesses will find it more expensive to get capital, as investors realize some things they weren't thinking about before.

The problem is how long it takes for that to occur. If the bankruptcies occur immediately, then people learn. If the bankruptcies occur 30 years down the line when a rare event occurs, then the high-risk investors are the only ones left in the market.

If investors can comprehend the 30-year T-bill, then they can price in a bankruptcy expected 30 years in the future. If we can sit here and figure out on our own that a business that will fold if its revenue decreases by 10% for longer than a month is not worth as much as its P/E ratio would naively suggest, then surely other people can figure it out too.

If you can have 30 years of better returns and try to sell right before the next pandemic, you can bet most investors will go for that.

People already invest on much shorter timelines than 30 years.

They can't sell right before the next pandemic. Do you remember the attitude right before this pandemic?

There are reasons why US prefers to bail Boeing. US is always concerned about espionage and dependencies on other countries with respect to national interest. An example would be the whole Huawei+5G debacle.

What if Boeing goes bankrupt and the only reliable plane makers are PRC companies (usually state-backed, even if it's not explicit)?

If Boeing goes bankrupt all of the assets are still there and all of the employees still remember how to do their jobs. A company collapsing is a pure-paper action that means "fire everyone in charge." In some cases, depending on how the corporate governance is set up and on who holds the equity, it's the only way they can be fired.

If the US wants to help out US manufactures for strategic regions, it can apply the usual "made in USA" government purchasing rules, or maybe a tariff.

The problem is, while all this paper shuffling is taking place, state-backed players like Huawei can dominate a market in the interim. Not a good outcome to say the least. I agree that some structural change is needed, but it doesn't have a trivial solution.

Boeing needs to be broken up. Parts critical to national security can be federalized. The rest can be restructured to restore competition to the market and eliminate the 'single point of failure'.

Boeing's efforts to consolidate the entire US aerospace industry into one company have hurt our society.

https://en.wikipedia.org/wiki/Category:Boeing_mergers_and_ac...

> Boeing needs to be broken up. Parts critical to national security can be federalized.

Where that division line might be isn't clear to me. For instance the 737 is both a civilian airliner and a military maritime patrol aircraft (as the P-8: https://en.wikipedia.org/wiki/Boeing_P-8_Poseidon)

And they are still considering a 4.2 billion acquisition even as they ask for federal loans.

https://www.nytimes.com/reuters/2020/03/18/business/18reuter...

That would leave millions upon millions of people without jobs and trigger an economic recession against which 2008ff looks like a joke.

Maybe a moot point in the current market?

Well, the flip side is that during times of crisis, one would expect market forces to weed out the former kind of companies (leaner, and with globalized supply chains). So which ones survive, and which ones are out-competed are a consequence of which set of market forces we soften and which set we allow to play out.

not when governments around the world bailout the bad companies because they are "too Big to fail"

And the edge of that coin is: once we're past this crisis, the same market forces that created this peril will start cutting the redundancies from the survivors, setting us up for the next crisis couple decades down the line.

Yeah, not only is this a once in 100years event, it's also staggered in such a way that the Chinese manufacturing will likely be caught up by the time the European and North American economies are coming back to life.

> it's also staggered in such a way that the Chinese manufacturing will likely be caught up by the time the European and North American economies are coming back to life.

It's more difficult than that. Links in the supply chain aren't independent. Supply and demand must balance. Chinese manufacturing is spinning back up just as European and US demand is dropping. This will cause further damage to the companies on the supply side. And as Europe and US spin their economies back up, China may not be able to meet the growing demand in full. It'll take a while before this reaches something resembling an equilibrium.

SARS in 2003 and H1N1 in 2011(?) - in the age of increasing globalization and population it seems like odds of this are increasing, we have skirted and now had pandemics more than 1 in 100 years.

Global Viral Outbreaks Like Coronavirus, Once Rare, Will Become More Common: Urbanization, globalization and increased human consumption of animal proteins are driving a rise in epidemics

https://www.wsj.com/articles/viral-outbreaks-once-rare-becom...

Can you quantify the human suffering avoided by lower prices borne out of supply chains?

yep. if we wanted it to happen we need protectionism and tarrifs.

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