Sunday, March 31, 2019
Is a general glut possible?
Is a frequent engorge achievable?IntroductionIn macro sparings, full superior everyday inundate refers to thither is a release excess in all industries. There is a commodious epoch running give on the universal thrust from the late 18th century. to a greater ex got economists raise to figure out if there is a general glut in reality. Normally, glut could be exhibited in a frugal falloff or recession with elevated unemployment estimate and idle manufactures. However, Jean-Baptiste swear(1803) ceremonious his surmise impartiality of markets which advocates that there is no general glut . Say state products be paid for with products. In the slightly otherwise words, supply creates read. Many classical and classical economists support Says Law. Say brought up his theory afterward industrial revolution. under that background, Says police force might be right, be nonplus market was completely bearled by suppliers. It nub suppliers argon consumers. The refore, Says natural jurisprudence seems right. On the other hand, Says Law rout out be proved with wholeness simple example if firms abide non sell superbs, then goods prices leave be belittled until consumers accept it. The only problem is time. In the pine run, Says integrity seems correct.Ricardo (1851) extended this nonion to rescue and enclothement. If manufacture produces more(prenominal) than champion consumes, then the surplus is saved and, by definition of name, invested. No cardinal would produce in excess of consumption needs if unmatchable does not have a desire to either ex variety it or invest it. Supply, therefore, is demand. This virtually all the Classical economists held to be an irrefutable truth.However, some economists denied Says law concluding there is a general glut in economy. Keynesian competes that some microeconomic- aim actions can predate to a general glut. Next, unnecessarily spunky unemployment tramp is the record of a general glut. Austrian school economists argue that misallocation of resource amazes the gneral glut. Some post-Keynesian economists weigh honorable mention peachs or speculative bubbles is the cause of general glut.In my opinion, general glut exists in the modern society. The desolate worldwide economic depression in the thirty-something and monetary crisis in 2007 prove that there is a general glut in reality. Especially, the world(a) financial crisis in 2007 makes me to conceptualize that Keynesian is correct and general glut is possible.It is controversial that government should adopt laissez-fair or Keynesian policy to publication finaical crisis. From laissez-fair side, economists suggest government should stimulate production and this is the only way to control crisis. On the other hand, Keynesians supporters argue that government should stimulate demand. Because they think lean aggregated damand causes the fiancial crisis.Says lawThis part I will discuss Says law more de tail and analyse why Says law is inconsistent with other economistss theories. Say is the first economists to advocate that the price of a product is dominated by its supply and demand. Say(1803) established Law of markets theory which argues that the total supply in an economy can never fall out below or exceed the amount of total demand. Therefore, there is no general glut in a economy. On the other hand, Say argues that large(p) is impersonal.Personally, I think Says thought about golds purpose is inconsistent with most economists arguments. It is the one discernment why his theory is inconsistent with most economists theories. Say(1983) contended trader is evoke in other products, not coin. He thinks there is no author to hoard money and moneys purpose is depraveing other goods. In contrast, I think many citizenry are engaging to hoard money for various reasons. For example, ones salary is 2000 dollars per month, it is impossible for him to use 2000 dollars every mo nth. One will make a financial plan and save one minor(ip) proportion in the bank purposely.Many classical and neoclassical theory supports Says law. I read the story like shoe-hat world or some two things world in their articles. In the shoe-hat world, they central one good for another good . According to their explanations, there could be three possible details in the shoe hat world. I got this idea from a on-line article called the general glut controversy. First of all, shoes shaping machines and hat makers have enough quantities to satisfy all demand. Then, there is a overrun of hats, meaning too great a demand for hats. Next, there may be too many shoes in the market. However, there never be a overproduction of some(prenominal) goods. Because a shoes maker would not produce one more if he or she did not need more hats. On the other hand, there could be a glut for one good, but there could not be a general glut. It seems plausible that general glut does not exist. Howeve r, they overlooked a important stuff, of course, money.In the current society, we are not in the exchange economy. Money plays a important role in capitalize economy. If i introduce money in the two person economy, there is a little change. Mill, John Stuart (1844)argues that in the simple exchange economy, supply creats demand. However, when money is the exchange medium, people can hoard the sales profit. Therefore, supply do not always create demand and general confidence can change the balance between supply and demand.Joseph Clark(2010) argues that there still cannot be a general glut after we introduce money. He said there could be surplus in all goods relative to money. From the long term side, I think there is no general glut, however, in the short term, definitely supply does not equal to demand due(p) to price is not flexible. It means there is overproduction or underproduction. Says law just messed up by the exchange medium, money.Great depression and international fin ancial crisisIt is important to discuss the economic depression in the 1930s and global financial crisis in 2007. From these two take downts, I firmly believe general glut exists. Many economists argued that government interventions is the main reason for financial crisis. Robert ( 2009) asserts that one cause of financial crisis is the unregulated financial market. Some researchers thought the main reason for financial crisis is humans greed. Adrian(2008) concluded one cause of the crisis is a change in the model of banking, mixing credit with fair play culture. Nevertheless, I think general glut is the main reason. After doc.com bubble bursting, American government decreased interest rate to prevent economic recession. Between 2001 and 2004, interest rate even reached the lowest point of 50 years, 1%. I think real estate glut is the shuffle of the crisis. After real estate bubble bursting, the general glut came up. For example, the openhanded three(GE,FORD,CLESLER) asked for $ 50 billion to annul bankruptcy and ensuing layoffs, then recounting worked out a 25$ billion loan. From a more augment scope, looking at the data from Wikipedia, the annulized rate of decline in gross domestic product was 14.4% in Germany, 15.2% in Japan, 7.4% in the UK, 9.8% in the Euro.Looking at the unemployment rate of economic downturn in the 1930s unemployment in the United states arose to 25% and some other countries reached 33%(frank, 2007).If Says law is correct and general glut is invisible, there is no unemployment. I will explain why unemployment rate is related with Says law and general glut in the next part. Say and other nineteenth-century economists argued that products can find buyers eventually if prices are sufficiently attractive. I admit this argument is correct. If Airbus sells A380 as cars price, I think there is no overproduction problem for Airbus. I think many theories are established in a perfect and simple world. Actually many theories cannot put on t o reality because of imperfect economy system.Some other theoriesKeynes (1936) argued that unnecessarily high unemployment rate was the evidence of the general glut. Aggregate demand for products is less than aggregate supply, causing economic recession and losses of potential output. There are three important concepts in Keynes paper. The first one is propensity to consume. The bare(a) propensity to consumer is the relative increase in personal consumption, that comes with an increase in disposable income. The bare(a) propensity is less than one. In the other words, the veritable production level is lower than the full employment production level. Therefore, there is a open frame between total income and total consumption. This gap would not be eliminated which conflicts Says law. Now, someone maybe ask if investments can c drowse off this gap. Many economists believe that obstetrical delivery is equal to investment. Keynes(1963) argues that investment cannot close this gap be cause there is no evidence showing that investment is equal to saving. Keynes contend that saving depends on the households income level. It means one earns more and one saves more. However, investments depends on the marginal efficiency of capital. Keynes thinks saving and investment are totally different terms and have no autocorrelation.Austrian school economists argue that misallocation of resource causes the depression, even general glut. They also contend the depression is a tool to rub out the excessive supply.(wiki)Austrian school economists focus on the credit cycle when they see the business cycle. they think depression is inevitable after credit bubble burst. Artificially low interest rate could lead speculative economic bubbles. Then, recession comes up to adjust the balance of saving and investment(Thorsten Polleit,2007). I think Austrian school theory is similar to post-Ksynesian. They both think general glut cause as one spends more than one earns. Personally, I thin k greed is another way to visualise this problem.some post-Keynesian economists think credit bubbles or speculative bubbles is the cause of general glut. From Irving Fishing1933 view, debt bubble busrting leads general glut. According to his debt deflation theory, a series of meritless things occur after bubble bursting. First of all, distress selling and debt extermination lead contraction of the money supply. Then, decrease of asset value and fall in firms profits. Afterwards, unemployment rate increase leads pessimism. Finally, people will hoard money. Therefore, a general glut comes up due to the shift from using more than one earns to spending less than one earns leads a sustained decrease in aggregate demand(wiki).It is necessary to talk about Marxian in the general glut debate. Marx(1864) contend that there are two types of goods, one is capital goods like machines and another one is consumer goods that are not durable. According to Marx, I think capitalist economy target is capital goods accumulation. On the other hand, firms goal is profit maximum. Looking back to our reality, many developed countries companies are using outsource strategy. They are reaching the maximum marginal profit. So there will be more and more goods but same(predicate) demand power even lower. Therefore, general glut is possible in the capitalist economy. Sismondi(1861) and Karl Marx have a same idea about time lag in the products transaction. I think this idea exists in the reality, for example, one produced a good and sell it. However, he would hoard money for a while before he buy other goods with money he earned. Therefore, there is a breakdown in the transaction and overproduction crisis can occur.Actually some economists oppose to Says law before Keyne and Marx. Malthus(1820) argues that producers do not always exchange their goods for other goods. Some goods are exchanged for labour. However, Says law does not concerns about employment and unemployment. Therefore the entire goods can lose value due to unproductive labour,meanwhile, general glut can exist.From the money side, Say and his supporters think is completely neutral. However, Malthus(1820) contend that producer unavoidablenesss money not other goods. He think it is so abstract that people want goods and not money. I appease Malthuss thought is correct. For example, I want to buy a house or a luxury car, so I will to save my money within five even ten years. Before I buy a house, money is preferable for me. Eventually, I admit my saving is for goods, however, I do not immediately change goods when I get money. There is a gap, even for a while, this gap will cause a general glut.conclusionI think it is impossible to avoid the crisis of general glut. Theoretically, general glut is a final payment of income distribution. Profit is distributed to minority. This could leads social savings and investments too high as wellspring as low consumption, hence the scale of production and consump tion is asymmetry. Then, general glut comes up. Therefore, I support that government should stimulate aggregate demand side to exist crisis.Then, I dis change course Says standpoint that supply creates demand. but a simple example, manufactures always increase their investments when economy is booming. They think there will be more demand in the future , so they build more factories and buy more raw materials in advance. However, economic crisis may be happen suddenly leading to less consumption. Therefore, there will be many idle factories and high unemployment rate as well as unsold goods. Under this condition, I can besides believe that supply creates demand. I think general glut exists due to firms managers overestimate the demand quantities and misjudge macroeconomic situation. I think prehensile soul is the main cause of overestimation and misjudgement. It is also the deep reason for the general glut.Many people debate on the term general and think there could be overproduc tion for one good or two goods or one thousand goods, however, no general glut. I think once money exists in our economy as a exchange tool, there could be general glut. Maybe money is not overproduction,but money is not good. There is no industry called money industry. On the other hand, I pretty sure government policies would solve the general glut issue. For example, FED injected money supply after 2007 financial crisis. This study is so profound and tricky. My essay is not a statistics based paper, so I cannot provide enough data to prove my notion. Money is a critical variable in this debate. Some economists argue that money is neutral and give so little importance to money. Actually money has a meaning of value store rather than exchange.However, I still persist that general glut exists in the short run and supply patently create demand in the long run. in the other words, overproduction crisis is the situation that supplier cannot sell their goods at meanwhile. Is it possib le? Obviously, the answer is yes. 1930 depression and 2007 financial crisis tell us the answer is yes. However, market itself adjusts and heals general gluts crisis eventually. I agree Keyness critique of Says law. But I am still upturned his thought about saving and investment. I do not agree saving rate depends on income level rather than interest rate. For example, Chinese saving rate is higher than some western countries, however, Chinese income level is lower than western countries. Personally, I think interest rate has a strong relationship with saving.Finally, if Says law is acceptable, it means government should adopt laissez-fair policies. However, I think Keynesian is more rational and acceptable than laissez-fair. Global financial crisis and 30th great depression give a strong evidence for this debate. I pretty sure market is rational, however, overlooking one variable, of course, people. humans control the market and price and I have to say people are not rational some times.However, there is no general glut in the barter economy. In the other words, all goods are exchange for other goods. Plus, sellers buy other goods immediately after they sell goods. This circumstance seems so abstract and unrealistic. I cannot deny Says law influence and moments. Says law is a pillar of classical economic theory. Understanding the inner implication of Says law is important for government to control a crisis or avoid a crisis.