[ianlippert]

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business cycles come from an inability to manage perfectly. when demand has been higher than previous periods, we order more (typically far more) on the assumption that the next period will have more of the same. it takes a realization of the decreased demand to reduce orders for the next period (again by too much). humans over-react and no matter what you do (as has been studied in oprations research), that extrapolation is unavoidable and thus business cycles will always be around regardless of whether we have a fed or not.


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I dont really see how this is irrational, mabey more just bad management. And of course there will be small cycles in particular industries, but how can you have an entire economy collapse from individual industries?

Your example works much the same way as my stock market example. If you dont take into account future demand and I do, I make a profit and you go out of business. Considering the level of competition in most industries I find it very unlikely that there will be much mismanagement from year to year among competant capitalists.