Secular stagnation: Purchasing power disparity

Posted: January 14, 2014 in economy
Tags: , ,

LAST week, I dove back into Larry Summers’ musings on “secular stagnation” as an explanation for the rich world’s economic troubles. Brad DeLong then wrote a really fantastic post mediating the discussion; I encourage you to read it. Kevin Drum added some thoughts on the subject, and then Steve Randy Waldman tweeted a link to a post of his to Kevin Drum by way of response. Mr Waldman’s post is not only exceptionally incisive on the subject, but was written in 2008.I recommend that you read Mr Waldman’s contribution, and the rest of his blog while you’re there. But I’ll briefly summarise here. There is no such thing as general overcapacity in an economy, he writes. One needs only to look around and see the many obvious examples of want to see that. There is only the problem of underconsumption.Why should there be systematic underconsumption? A market economy relies for its balance on a divine coincidence: the fact that producers produce only as much as people want. But that balance only materialises if producers produce in order to consume. That is, it assumes that profit maximisation is a goal because people want more claims on real resources because they want to consume more real resources. But, as Mr Waldman points out, producers often produce for its own sake. Why would they do that? They might be part of the working super-rich. In that case, all their …

via Economic Crisis http://www.economist.com/blogs/freeexchange/2014/01/secular-stagnation-0?fsrc=rss

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