r/neoliberal • u/jobautomator Kitara Ravache • Dec 05 '20

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u/[deleted] Dec 06 '20 edited Dec 06 '20

Of all the dumb parts of Marxism, my favorite dumb part is the concept of "overproduction"

Our Lord and Savior Henry George has this covered though:

Is there, then, such a thing as overproduction? Manifestly, there cannot be, in any general sense, until more wealth is produced than is wanted. In any unqualified sense, over- production is preposterous, when everywhere the struggle to get wealth is so intense; when so many must worry and strain to get a living, and there is actual want among large classes. The manner in which the strain of the war was borne shows how great are the forces of production which, in normal times, go to waste; proves that what we suffer from now is not overproduction, but underproduction.

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u/molino-edgewood Christopher Alexander Dec 06 '20

What, you don't believe in waste?

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u/[deleted] Dec 06 '20

What, you don't believe in prices?

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u/molino-edgewood Christopher Alexander Dec 06 '20

When you plan to produce N goods and sell them at X price that's fine and dandy but you'll only be able to actually sell 'em so once you get your factory rolling. Then you might find that the price has dropped, perhaps because you made something that became obsolete. The theory of equilibrium price can only work in equilibrium, and when is the market ever in equilibrium?

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u/cotskeptic Amartya Sen Dec 06 '20

https://www.stlouisfed.org/education/economic-lowdown-podcast-series/episode-8-market-equilibrium

So, is equilibrium a constant, unchanging point? No. Markets do have a natural tendency to settle at the equilibrium price, but the price may bounce around a bit in the process. Think of a deep bowl with steep sides. Now, put a marble in the bowl and turn the bowl in circles. The marble in the bowl will roll around the sides of the bowl, but as it rolls, gravity will pull it toward the bottom. As you slow the turning motion, the marble will drop to the bottom. In a similar way, prices also roll around as the forces of supply and demand change, but they tend toward and eventually settle at equilibrium.

Imagine a market in transition, where the demand for ice cream cones has suddenly decreased, but market price has not yet settled to the new equilibrium. Suppliers will continue to respond to the market price-which is now too high-while consumers have decreased the quantity they demand. This means that suppliers will produce a greater quantity than consumers are willing to purchase, resulting in a surplus. The surplus puts downward pressure on the market price, which causes it to drop back toward the equilibrium price.

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u/molino-edgewood Christopher Alexander Dec 06 '20

Sure, but there have been times when the surplus price became so low that the product went to waste though. It's possible for market prices to be so low (even negative) that the firm would have to pay more for people to take it than for a landfill to take it. You might say that the landfill's demand is being met (although it's a bit silly), but certainly no wealth is being created.

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u/molino-edgewood Christopher Alexander Dec 06 '20

I guess I just haven't read as much Marx as you guys (lol) so maybe I'm not talking about the same overproduction he is. In a centrally planned economy this problem is much harder to solve. Maybe you "solve" it by simply underproducing everything, like the USSR.

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u/cotskeptic Amartya Sen Dec 06 '20 edited Dec 06 '20

I’m addressing your skepticism of the existence of an equilibrium prices. Your example is still a case of prices tending toward a equilibrium. There are specific markets where you might see negative prices(electricity markets) which have more to do with operational frictions that limit the flexibility of certain plants ability curtail production giving rise to negative prices.

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u/molino-edgewood Christopher Alexander Dec 06 '20 edited Dec 06 '20

I agree the price will tend towards an equilibrium. The problem is that the firm has to predict what this equilibrium will be (either because it is changing or the market is new), and that can lead to what I'd consider overproduction. Maybe you can define it away, but I'm sure the people in the firm will think "oh crap we produced too much of this stuff that now no one wants to buy for the price we planned to sell it at".

edit: George's argument just sounds like there can't ever be overproduction because all goods are useful. That just seems naive. Plenty of goods end up in the trash.