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Overcapacity is easily misunderstood and has several possible definitions. For economists it usually means that there's not enough demand to use all of the existing productive capacity. By keeping the Chinese currency undervalued external demand can provide outlets for more capacity. The result will be Chinese ownership of large portions of foreign assets. Thrift and hard work is one element of the policies that will propel China toward being the globe's superpower. Trade friction will not effectively stop the export of cheap goods, because cheap goods are what the world wants. The result of that process is not clearly seen, much like the abuse of consumer credit by those who don't know any better and those who only live for today. The old superpowers are selling the family inheritance and going on a spending spree. Aside from being a subsidy to crooks, if stimulus was applied to match demand and supply then overcapacity would not be a problem. And, vast amounts of money could be created, and rapid growth could be attained without inflation, but only so long as the scale of the global economy remained below levels at which further increases in capacity were not limited by other factors. Coordinated biz policies can and do limit capacity short of expected demand to boost profits. Resource scarcity can limit capacity too. While those strong forces operate to limit capacity, the causes driving overcapacity are an aversion to directing stimulus directly to consumers and the stupid theory that supply side stimulus is all that is needed. For those who live in poverty, those who want low prices, and those who just want more and more, overcapacity seems like a good idea. For those who advocate stewardship of natural resources overcapacity is not nearly as bad as overdemand. When the goose that lays golden eggs dies, we will have proof that overdemand is possible even without throwing any money out of airplanes. Who would ever believe it? Barry ________________________________________________ Send list submissions to: [email protected] Set your options at: http://lists.econ.utah.edu/mailman/options/marxism/archive%40mail-archive.com
