alt Hacker NewsAll of the capital intensive businesses face this issue. Chemicals, Shipping, Semiconductors etc.
You get market signals that the demand is there, you acquire the necessary capital, you spend 5 years to build capacity, but guess what, 5 other market players did the same thing. So now you are doomed, because the market is flooded and you have low cash flow since you need to drop prices to compete for pennies.
Now you cannot find capital, you don't invest, but guess what, neither your competitors did. So now the demand is higher than the supply. Your price per unit sold skyrocketed, but you don't have enough capacity!
Rinse and repeat.
Capitalists claim that this is optimal.
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Is the DRAM industry really capitalist? Focusing on just the Korean parties, it functions like a command economy. I would say the same about most high end semi-conductor manufacturing, TSMC, Intel, ASML are being commanded and driven by nation-state level decision making. Right now the command is to focus on high wattage centralized AI systems at the expense of everything else.
> Capitalists claim that this is optimal.
Because that does not happen exactly as you say for all players. The demand signals will be processed and long-term risk is balanced against short-term gain in a distributed fashion, so not everyone will do the same.
Forecasting demand 5 years into the future is intrinsically highly unreliable. It doesn’t matter if it is capitalism or a command economy. The bet is always going to be risky and someone will have to pay for that risk.
At least with capitalism you have many different people with different perspectives on the risk making independent bets. That mitigates the more extreme negative outcomes.
>Capitalists claim that this is optimal.
It's more optimal than planned economies until we have AI planned economies with realtime feedback, I guess.
Consumers get cheap goods during oversupply and most inefficient companies get elliminated during bust while consolidation leads to economies of scale.
It's not optimal, it's pathological. Definitely better than starving under communist dictatorships though.
The book Capital Returns: Investing Through the Capital Cycle details this phenomenon, including historical cases.
If anything, it shows it's possible for you to arbitrage this and in doing so help "smooth out the cycle."