Policies designed to avoid economic downturns at all costs can lead to significant long-term risks. Capital and labor become trapped in inefficient companies that would otherwise fail, hindering productivity growth and creating a less dynamic economy.

The Froyo industry's previous decline wasn't due to a lack of demand, but a surplus of supply. The business model—low-cost self-serve machines and minimal labor needs—was so attractive and easy to replicate that it led to oversaturation. The industry essentially became a victim of its own success.

A record harvest of corn and soybeans, coupled with lower demand from China, created a surplus of turkey feed. This supply chain effect directly lowered input costs for farmers, resulting in a significant 14% Thanksgiving turkey price drop for end consumers.

China is poised to create a microcycle in chemicals by moving up the value chain to compete on quality, not just cost. This will create massive overcapacity and upend a global industry that seems unprepared for the coming upheaval.

China's policy to combat deflation focuses on cutting excess industrial capacity. However, this is deemed insufficient because the root cause is weak aggregate demand. A sustainable solution requires boosting consumption through social welfare, an approach policymakers seem hesitant to implement on a large scale.

China's immense state capacity allows for rapid infrastructure development but also enables disastrous national policies like the one-child policy or Zero-COVID. Unlike the deliberative U.S. system, China's efficiency means that when it goes off track, it can go catastrophically off track before any course correction is possible.

Policies like price caps (e.g., for insulin) or price floors (e.g., minimum wage) that deviate from market equilibrium create distortions. The economy then compensates in unintended ways, such as companies ceasing production of price-capped goods or moving to under-the-table employment to avoid high minimum wages.

In response to deflation and eroding profits from hyper-competition, the Chinese government's "anti-evolution" policy is a deliberate strategy to force consolidation, reduce overcapacity, and restore pricing power, thereby boosting corporate return on equity.

China's economic structure, which funnels state-backed capital into sectors like EVs, inherently creates overinvestment and excess capacity. This distorted cost of capital leads to hyper-competitive industries, making it difficult for even successful companies to generate predictable, growing returns for shareholders.