Thank you for taking the time to type this out. Concise feedback like this is really great and very much appreciated.
Our goal is a management game with a lot of creative freedom. With Cities: Skylines II we created a deeper simulation and it's important to us, that the added depth doesn't make the game harder or less inviting to new players. Cities: Skylines could be rough for new players, especially those new to the genre. I'll admit that it took me a few cities and tips from other players before I turned a profit in the original game. Getting the balance "just right" is always hard since what constitutes a "fun challenge" is very subjective and bound to vary a LOT. This is why feedback matters so much to us. It tells us if we reached the point we aimed for, what some players find too hard and what others find too easy. While it isn't something we're currently working on, I'd love to see more discussions about what a "hard mode" would look like/which areas of the game you all would like to see more challenges - I assume that for you specifically, the city's economy should provide a challenge.
So let's talk a little about the simulation and the failsafes. While we aim for the game to be grounded in realism, we are creating a game, not a 100% accurate simulation. This means we simplify certain things and need to take shortcuts to make sure the game is both fun (which is super subjective of course) and performs well (we're not there yet, but we'll keep working on improvements until we get there). For example, when a citizen is born, they are a "child" which covers them until they reach "teenager." No "babies" or "toddlers" to specify the different stages of "childhood." Covering all life stages might be more realistic, but the added complexity wouldn't necessarily translate to more fun, just more information for your CPU to process.
Failsafes are important to make sure the game is fun and to avoid frustrating situations you can't solve They're there to ensure you can recover from mistakes and that the simulation continues to function. If playing the game is like walking on a line suspended between two buildings, then failsafes are the netting below to catch you if you fall. Cities: Skylines has failsafes too. An example is vehicles despawning, which can happen in both games. In Cities: Skylines getting stuck in traffic too long triggers a despawn - the game determines that the vehicle cannot reach its destination, and it despawns to start again. In Cities: Skylines II that doesn't happen as the smarter AI allows them to try different routes or make u-turns to go back if the road is for example blocked by an accident. But if they're completely unable to find a route, they'll still despawn - like if you're redoing a part of the city and there are suddenly no roads leading to where they need to go.
I want to make it clear that failsafes are not there to take away challenges or stop you from failing. They're there to make sure the city doesn't fall apart to where you can't do anything to save it.
Two topics come to mind when we're talking about failsafes: Government subsidies and what happens when cities aren't connected. Government subsidies aren't really a failsafe but a way to bring money into the economic simulation and help you get started in the early game. If you find they take away any challenge, then we'd need to look at the balance and determine if they're too helpful or if we need some kind of difficulty tuning for them for players who want more of a challenge.
Now let's talk about what probably started the whole discussion of failsafes: What happens when your city isn't connected to the outside world or to itself? Here we definitely fell into the trap of playing the game as it was designed, and we didn't account for players creating cities that weren't connected. Real cities don't exist in a vacuum so why would yours? Well, to reduce variables as you're seeing what the simulation is doing. When you zone residential citizens will reserve homes and move into the city, at which point they count as citizens and can also get hired by companies in your city. If there's no way to enter the city, they won't ever reach their homes or jobs. I can absolutely understand that seeing companies function in a vacuum makes it feel like things aren't working or are "faked" - and makes you question how everything else works. I'll try and cover things briefly as this reply is long enough as it is.
Realistically, employees should be at work for work to happen (at least for businesses where working from home doesn't make sense). But as we discussed, we often need to simplify things for the game. Citizens travel your city in real time but the day passes much faster. Having every employee travel to work, to shops, find leisure, and go home, just isn't feasible, and the game running in real 24 hours would make for very slow progress. So companies don't need all workers to be at work every day to function. Some citizens travel to work/school, some to shops, some go to the park or restaurant, and some just spend the day at home. Larger cities still have more people traveling and more traffic to deal with - well, at least when the city is connected.
We have since made changes to how citizens can reserve homes and when they count as citizens, but when these experiments were done, citizens would reserve a home when it was built. They'd then be "moving in" and count as citizens. In a city connected to the outside world, they'd travel to their homes and start their lives, but without that connection, they'd never arrive while still "taking part" in your city. We've improved the pathfinding so they now can't move into homes if they can't get there, which means they won't be a part of your population.
We want to continue to hear about situations you may run into where your city should fail, if not immediately, then in the long run, but for some reason isn't. We always do our best to anticipate how you might play the game, but realistically, we'll end up like this little video as you come up with things we just didn't expect (and then we'll ask ourselves why we didn't think of that xD).
That was a long one, which I hope answered some of your questions. Keep sharing your feedback and thoughts, it's really great to see, and even if answers take a wall of text or a dev diary, we appreciate you sharing and asking. ^^