Monday, August 17, 2009

Socialism anybody?

There's no quick fix

Too many steel mills have been built, too many plants making cars, computer chips or solar panels, too many ships, too many houses. They have outstripped the spending power of those supposed to buy the products. This is more or less what happened in the 1920s when electrification and Ford’s assembly line methods lifted output faster than wages. It is a key reason why the Slump proved so intractable, though debt then was far lower than today.

Posted by all in vain @ 03:07 AM (3287 views)
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5 thoughts on “Socialism anybody?

  • Cars in the 1920s were not a common thing and supply outstretched demand when production lines became more efficient. It cannot be compared to Modern life. Things like computer chips become obsolete; cars have a limited lifespan (though the slump in sales is due to no one having any spending power – there is still a demand for cars). The same applies to houses – there is a demand but no one has the finances to buy.

    Don’t get your ‘ships’ and ‘solar panels’ bit though…

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  • stillthinking says:

    I disagree with this. The UK has demand way in excess of production and has done for some time. Also, our debts are run up due to an asset bubble, not over-consumption.

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  • A E-P highlights some deflationary stats, but I see these as largely temporary, one-off events.

    The real bogeyman is the combination of rampant money supply growth being supported and extended by QE, while GDP contracts.

    The ratio of money supply to GDP is not a perfect science, but if the ratio gets too far out of kilter, it is inevitable that the global value of the currency will suffer, and interest rate expectations will rise.

    Those economists who argue that governments got it wrong in the 1930’s, cannot readily prove that their alternative fiscal ideas (even with the benefit of hindsight) would have been better.

    The problem then, as now, was the issue of keeping the population of an industrialised nation gainfully employed during a period of low demand.

    Get people building houses – preferably their own..!

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  • Great piece. Uncontrolled money creation without directing it where it was needed got us here. We need an independent body (maybe BoE) or eventually an international body to control money creation so we will not invest insainly all our money into property again. Property will get as much money as it is needed.

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  • Shouldn’t be a problem.

    The UK doesn’t have too many steel mills, too many plants making cars, computer chips or solar panels, too many ships, in fact we make burger all.

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