The Wall Street Journal has an article up claiming that the world economy is currently experiencing an excess of capital, labor, and commodities, and that this is potentially a cause of serious problems.
Could anyone explain to me how it is possible to have an excess of capital and an excess of labor?
There is a lot of capital and a lot of labor, but in different areas where they don’t complement each other. For example, maybe there is a lot of car factories and equipment, but not enough skilled workers to operate the equipment.
There is just more economic power than people actually want. For example, there is a lot of car manufacturing capacity and a lot of skilled auto workers, but people don’t feel the need to buy more cars.
As a side note, I strongly believe that the conceptual tools of “modern” economics are increasingly ill-suited to describe the modern world. Economic concepts like supply/demand and labor/capital were developed in an era where most economic activity was centered around the production and distribution of goods—either agricultural or industrial. In the modern world, physical goods are becoming less and less important. Agriculture is down to 1% of GDP in the US, and industry is down to 20% (even this number seems high). The economy is now dominated by sectors like health care, education, technology, and government. These sectors cannot be described well by traditional economic concepts. What does it mean to talk about the “demand” for health care or education? How can one apply concepts like marginal cost and comparative advantage to the technology sector, where the marginal cost is zero and there is usually a free version of every product available?
I can’t see this article, what kind of labor did they have in mind? There is a chronic shortage of skilled/creative labor, so I am assuming they mean the kind of labor that’s vulnerable to being automated away. Perhaps the key shortage that explains this situation is education and training. In a modern economy people and money isn’t enough anymore.
According to Marx, in capitalism, improvements in technology and rising levels of productivity increase the amount of material wealth (or use values) in society while simultaneously diminishing the economic value of this wealth, thereby lowering the rate of profit—a tendency that leads to the paradox, characteristic of crises in capitalism, of “reserve army of labour” and of “poverty in the midst of plenty”, or more precisely, crises of overproduction in the midst of underconsumption.
Has anyone made a mathematical model of that? I don’t know what most of the words in it mean, in concrete terms.
It sounds like “we can make more than we want with less labour than we can supply.” Is that accurate?
In scarcity, which has been all of history up to the present, everyone’s strategy has been to get as much work as they can, make as much stuff as they can, and sell as much stuff as they can, in order to get as much stuff as they can in exchange. I can imagine that when half the workforce can make twice as much stuff as everyone wants, that may not work so well. But that’s just a verbal story, and I don’t trust those.
The article makes it pretty clear they are not describing a mismatch scenario. In a mismatch you have simultaneous shortages and gluts, but the article never talks about shortages of X while there is a surplus of Y, only gluts.
The Wall Street Journal has an article up claiming that the world economy is currently experiencing an excess of capital, labor, and commodities, and that this is potentially a cause of serious problems.
Could anyone explain to me how it is possible to have an excess of capital and an excess of labor?
ETA: You can get around the paywall by googling the title of the article and clicking the first link.
There are not enough people with great ideas to produce new products starting companies that don’t take away the market of existing companies.
Two guesses:
There is a lot of capital and a lot of labor, but in different areas where they don’t complement each other. For example, maybe there is a lot of car factories and equipment, but not enough skilled workers to operate the equipment.
There is just more economic power than people actually want. For example, there is a lot of car manufacturing capacity and a lot of skilled auto workers, but people don’t feel the need to buy more cars.
As a side note, I strongly believe that the conceptual tools of “modern” economics are increasingly ill-suited to describe the modern world. Economic concepts like supply/demand and labor/capital were developed in an era where most economic activity was centered around the production and distribution of goods—either agricultural or industrial. In the modern world, physical goods are becoming less and less important. Agriculture is down to 1% of GDP in the US, and industry is down to 20% (even this number seems high). The economy is now dominated by sectors like health care, education, technology, and government. These sectors cannot be described well by traditional economic concepts. What does it mean to talk about the “demand” for health care or education? How can one apply concepts like marginal cost and comparative advantage to the technology sector, where the marginal cost is zero and there is usually a free version of every product available?
A lot of capital existing means that inflation adjusted US t-bond have at the moment a 0.07% interest rate. It even used to be negative in 2013.
A lot of labor existing means that we have high unemployment in many countries.
It’s sad that big pharma companies buy back their own shares and let go of employees instead of investing the money into developing new drugs.
Apple doesn’t buy back shares but has $158.8billion in cash in there reserves that they don’t manage to invest into developing new technology.
A shortage of land?
I am really confused by economics.
I can’t see this article, what kind of labor did they have in mind? There is a chronic shortage of skilled/creative labor, so I am assuming they mean the kind of labor that’s vulnerable to being automated away. Perhaps the key shortage that explains this situation is education and training. In a modern economy people and money isn’t enough anymore.
You can access the full article by googling the article title. It should be the first link.
Paywall.
— Wikipedia, “Overproduction”
Has anyone made a mathematical model of that? I don’t know what most of the words in it mean, in concrete terms.
It sounds like “we can make more than we want with less labour than we can supply.” Is that accurate?
In scarcity, which has been all of history up to the present, everyone’s strategy has been to get as much work as they can, make as much stuff as they can, and sell as much stuff as they can, in order to get as much stuff as they can in exchange. I can imagine that when half the workforce can make twice as much stuff as everyone wants, that may not work so well. But that’s just a verbal story, and I don’t trust those.
With a 1,000 square kilometer industrial complex for the manufacture of slinkys and a million trained botanists.
The article makes it pretty clear they are not describing a mismatch scenario. In a mismatch you have simultaneous shortages and gluts, but the article never talks about shortages of X while there is a surplus of Y, only gluts.
Send them to me! slinkys that is! it’s time to change the world for the better!
Send them to me. Botanists, that is. It’s time to change the world for the better.