Economic Overcapacity

[Bloo Loo]

The problem is that the systemic costs raised by the real estate bubble have made the production needed to purchase the cars unviable

so one dimensional.....why cant FORD make their cars in China where wages are low?

[bogbrush]

Well said Stars. The idea that efficient production is somehow a bad thing is insane. It opens the door to higher standards of living - just look at the price of virtually every manufactured thing now.

The problem comes when people have to earn more money just to survive, and that is caused not by efficient production but by distorted markets in land and in the monopoly on the medium of exchange - money - and consequent bleeding of everyone by taxation facilitated by the compulsory use of money.

As the bear nearly says in Jungle book, the bare necessites of life shouldn't require your slavery. It's just that the answer isn't more compulsion and central control, that's the problem.

[Bloo Loo]

It is.An engine plant i know is running on 1 shift.It used to run on 24/7.500 ex workers are sat at home watching TV.If demand came back those workers would be back at work.The engines would FALL in price .That is why its a lack of demand and economic activity that causes inflation.The trick was tried on easy credit to keep demand up with capacity.That has failed.The only answer is to increase peoples incomes.There is no other way out of this mess.Someone needs to grasp it.

you are describing an inflationary BUST....that leads to stagflation.

Of course, the workers could be laid off, and other unemployed could take their place at lower wages and produce the engines cheaper....funny, but thats why China has been successful...wages are lower.

[Stars]

so one dimensional.....why cant FORD make their cars in China where wages are low?

Perhaps they can, but somebody will still need to purchase it with their production

[Game_Over]

As others have said, the problem isn't actually over capacity or lack of demand.

The real problem is that the wealth created by increasing efficiency has been concentrated in too few hands.

The demand is there, the capacity is there, the money is there

But the money is being used by a few to create asset price bubbles while the real economy collapses.

So much for 12 years of socialism.

[Bloo Loo]

Perhaps they can, but somebody will still need to purchase it with their production

or, as was the case of the last 10 years, through credit expansion. no production needed.

[Stars]

or, as was the case of the last 10 years, through credit expansion. no production needed.

And yet you are arguing that we had overproduction?..you are hitting contradictions because your position is contradictory.

Production is needed to pay producers for their production - credit or no credit

[Stars]

As others have said, the problem isn't actually over capacity or lack of demand.

The real problem is that the wealth created by increasing efficiency has been concentrated in too few hands.

The demand is there, the capacity is there, the money is there

But the money is being used by a few to create asset price bubbles while the real economy collapses.

So much for 12 years of socialism.

Sigh - it's happening again

[erat_forte]

thod

Posted Yesterday, 09:39 PM

We have overcapacity in say the car industry, yet there lots of people in Africa that want cars. The problem is they have no money to buy them. One solution would be to move the factory there and have them build them themselves. However the few that work in the factory will have low wages and the others still have nothing, so there is not enough money for anyone to buy them.

I am a great supporter of citizens income or national dividend, as a libertarian free market solution to the social and economic problems outlined here - (and I regard a citizens income as completely replacing pensions, benefits, quango grants, all government aid etc.)

However this post above illustrates a curious point.

Why should it ne a national, dividend not be a global dividend? Why shouldn't African villagers benefit as much from this scheme as Hull twenty-somethings?

Is it an economic argument? If so what? Is it a racist argument? If so what? Or something else? Genuinely curious.

[bogbrush]

I am a great supporter of citizens income or national dividend, as a libertarian free market solution to the social and economic problems outlined here - (and I regard a citizens income as completely replacing pensions, benefits, quango grants, all government aid etc.)

However this post above illustrates a curious point.

Why should it ne a national, dividend not be a global dividend? Why shouldn't African villagers benefit as much from this scheme as Hull twenty-somethings?

Is it an economic argument? If so what? Is it a racist argument? If so what? Or something else? Genuinely curious.

It's tribal.

It will get interesting when people wake up and realise tribes don't actually exist.

[Game_Over]

Sigh - it's happening again

Perhaps I'll just stick to philosophy then

Or just give up altogether

Thanks for the 'heads up'

[ParticleMan]

Production itself doesn't create a problem, and it is viciously self regulated by the rewards gleaned by it.

If it weren't for the rather obvious state subsidisation of production, this would hold.

The recapitalisation of banks constitutes such a subsidy - unwanted production has become a claim on future output; as it must, with the state an eager participant in the stoking of demand through the specific vector of permitting equity valuations to rise unbounded.

As you've stated, it is not production which is at fault - it is a misallocation of capital.

However, I maintain that the capital which is misallocated is also the capital which results from productive endeavour - one state in particular has perfectly engineered a fulcrum designed to transform the productive output of its own citizenry into a vast and as-yet unrealised claim against their income.

The fulcrum is a truly beautiful machine - simply put, it permits unbounded trade-credit growth on the one hand, and unbounded growth of production on the other.

Only a sovereign state which was answerable to neither its own populace nor the capital markets could implement such a thing - in retrospect, it is obvious that such a state would.

Again, to restate, the problem is not production, nor is it overcapacity.

But the symptom which policy-makers in less well regimented states will begin to react to, most certainly evidences both - which is why the meme appeals and grows.

I broadly agree with your position, and our perspectives are different, and these things are not contradictory in my mind.

[Bloo Loo]

And yet you are arguing that we had overproduction?..you are hitting contradictions because your position is contradictory.

Production is needed to pay producers for their production - credit or no credit

we had overproduction....cars for example...a major part of the economy....fields full of them.unsold...Im not sure what needs to convince you we never had overproduction?

where is the contradiction... if the price is wrong then demand is either too high...so the price rises, or demand is too low...the price falls.

what the Government is doing is adjusting the price down with a subsidy. this will allow more to buy....take away the subsidy and either A: the price falls to maintain the demand, or the fields fill again.

where is the contradiction?

[Stars]

If it weren't for the rather obvious state subsidisation of production, this would hold.

The recapitalisation of banks constitutes such a subsidy - unwanted production has become a claim on future output; as it must, with the state an eager participant in the stoking of demand through the specific vector of permitting equity valuations to rise unbounded.

But the producers are the only ones who make any part of the bill payable at any time. What you are watching is a massive non productive sector gouging the productive to the point that its debts become un-payable and then the government increasing future liabilities upon production to plug a hole in this situation. We are really only talking about the same thing from slightly different angles, but my angle makes your notion of silly, unwanted production nonsense. The production failed because it was hit with costs, the government then moved to prop up the banking system by gouging future production to feed the animal that just took chunks out of and destroyed our present production - in no sense in this scheme of things is any production anywhere actually being subsidised; quite the converse

As you've stated, it is not production which is at fault - it is a misallocation of capital.

But it is a missallocation of 'capital' into the pursuit of raising costs, of increasing scarcity (real estate speculation). This is not a missallocation in the normal sense of (say) the wrong things being built at the wrong time, this is a missallocation away from production itself into anti-production (scarcity raising activity)

However, I maintain that the capital which is misallocated is also the capital which results from productive endeavour - one state in particular has perfectly engineered a fulcrum designed to transform the productive output of its own citizenry into a vast and as-yet unrealised claim against their income.

The fulcrum works like this not because people can use credit to make money by producing / reducing scarcity, but because they can make money instead by raising costs or increasing scarcity.

[Stars]

we had overproduction....cars for example...a major part of the economy....fields full of them.unsold...Im not sure what needs to convince you we never had overproduction?

They are unsold (largely) because the production needed to purchase them has now been destroyed, not because producers were way overproducing cars just for the hell of it.

where is the contradiction... if the price is wrong then demand is either too high...so the price rises, or demand is too low...the price falls.

The contradiction i referred to was in you first claiming there was overproduction and then claiming there was no production

[winkie]

We have the capacity and man power to make and create more than our hearts could ever want or desire...the only trouble is we are using the money that we earn net of taxes is to pay for our basic living needs, a roof over our heads, food, education and fuel... most of the extras and luxuries on top are purchased with credit....the rest is history.

[Laughing Gnome]

IMHO we should have fewer people making consumables, and more people finding solutions to a post-fossil fuel era.

Don't be humble. You're right.

[Bloo Loo]

They are unsold (largely) because the production needed to purchase them has now been destroyed, not because producers were way overproducing cars just for the hell of it.

The contradiction i referred to was in you first claiming there was overproduction and then claiming there was no production

you mean the credit to purchase them has gone....the reason the credit is gone is because the credit outstripped the wealth created by the production.

you seem to be saying credit should be released at ever increasing levels.

[Bloo Loo]

snip

The fulcrum works like this not because people can use credit to make money by producing / reducing scarcity, but because they can make money instead by raising costs or increasing scarcity.

yes, there was an excess of credit. I think we've got that bit.

the solution then is what? keep it going?

or reducing the public sector waste...which reduces the amount of buyers as they are unemployed?

in an uninterfered with BUST, all the things that need to happen will happen. the excess credit is destroyed, banks collapse, taxes fall, public sector is reduced, wasted production is reduced.

interfere in any part of the BUST process merely creates and imbalance, the illusion of a return to boom and a prolonging of the misery.

[Mikhail Liebenstein]

No, the problem was caused by one, large and largely unproductive sector (real estate) systematically pushing up costs for everything else until the costs became so large, that eventually production was crushed. For some bizarre reason many people want to interpret this as 'too much production' or inefficiency etc etc, but it was never the actual production that caused the problem.

I included in this all mal-investment, including too many banks, too expensive properties etc.

[ParticleMan]

We are really only talking about the same thing from slightly different angles, but my angle makes your notion of silly, unwanted production nonsense.

Do you concede that there is a marginal cost below which production is unviable?

Because that's the detail we're dickering, here.

What's happened is a giant subsidy to production - the minimum bid in the market has been shifted sky high through the fiscal gymnastics practiced by reserve banks in the far East.

I concur that the sector you refer to has opportunistically captured its slice of the action but again I consider this symptomatic rather than causitive.

It is, as you say a matter of perspective.

But mischaracterising mine (I merely stated unwanted, you added the pejorative "silly" and called it nonsensical) doesn't seem productive - especially in the light that crossing prices on the whole rose, rather than chased demand down the curve (hence, the view that demand is being supported and that production should otherwise have moderated - that output was "unwanted" - seems somewhat tautological).

But it is a missallocation of 'capital' into the pursuit of raising costs, of increasing scarcity (real estate speculation). This is not a missallocation in the normal sense of (say) the wrong things being built at the wrong time, this is a missallocation away from production itself into anti-production (scarcity raising activity)

I completely agree.

But I think you need to look further afield than land prices, in this - all equity is in a bubble, and all yields similarly depressed.

And this, as you state, is the mother of all misallocations, and indeed, into anti-production.

The fulcrum works like this not because people can use credit to make money by producing / reducing scarcity, but because they can make money instead by raising costs or increasing scarcity.

Agreed.

What's been comprehensively attacked, in the state to which I refer, is producer's very ability to form new capital - it's far more deeply rooted than any specific asset class alone.