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Economy in Crisis

Here we consider the emergency modes of operation of economy circuit aka crises.


Three reasons, three different types of crises


Let's discuss three main causes of crises. People usually confuse them and then look for wrong ways to overcome the crisis-at-hand.


[I “borrowed” this classification of crises from Paul Weinstein. He described it in detail in his article Crisis for Dummies (in Russian) in the Strategic Management magazine, 01 (05) 2009,]


The first possible cause of the crisis is a force majeure: hurricane, earthquake, war. In order not to disrupt the rest of the economy circuit, it is necessary to localize the destroyed part and restore order in it after the force majeure ends. To do this, one should make certain decisions (close or open certain breakers that do not allow current to to to the disturbed parts of the circuit). Some time after the end of disaster, after the “status quo” of the pre-crisis life is restored and adjusted for the changes caused by the disaster, the crisis passes.


The second possible cause of the crisis is a serious “mistake” with widespread consequences, such as, for example, voluntary reduction of oil supplies by OPEC countries that led to the 2005 fuel and energy crisis. Since both the proper way, this error and the ways to correct it are within the boundaries of the same paradigm, as soon as the error is detected and corrected the normal course of events is restored, and the crisis passes. The economic chain is recovering and functioning further, as if nothing had happened.


The third possible cause of the crisis is the exhaustion of the “improvement potential” of the current paradigm. Although this crisis looks similar to the crisis caused by a mistake in planning or management, its resolution is beyond the current paradigm. As long as the paradigm shift has not become apparent at all levels, both in the heads of manufacturers and in the minds of consumers, the crisis only aggravates and worsens. The way out of this crisis is to change a certain paradigm, to switch to other principles of action, sometimes even to another organization of the industry. A return to the status quo in such a crisis is impossible. Attempts to maintain the old paradigm only prolong the crisis and multiply its consequences.

Economy as an Electric Circuit | Financial and Systemic Crises | Systemic Crisis as a Short Circuit

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