Crisis of Overproduction Discovered

LouPaulsen LouPaulsen at
Sun Dec 15 08:20:24 MST 2002

According to a series of articles in this week's Chicago Tribune,  the most
theoretically advanced 'ivory-tower' economists and journalists have
discovered a previously unsuspected phenomenon, for which I propose to
invent the phrase "crisis of overproduction."  Somehow this reminds me just
a little bit of a class I taught about 12 years ago, with little pictures of
workers and dollar bills and stereos drawn on paper.

"The world's auto industry can now produce 20 million mor cars than
consumers can buy." [...]

"Cisco Systems Inc. built six new buildings to expand its presence at the
high-tech Research Triangle Park in North Carolina when the dot-com business
was sizzling. All six buildings are empty.

Each of these instances reflects a powerful wave sweeping the economy. In
the ivory towers of academia, economists call the phenomenon overcapacity.

In the factory and in the office, it has a more concrete dimension:
Businesses can produce far more than we need. Supply has simply outstripped
demand. When that happens, production slows, equipment sits idle, costs go
up, workers are laid off and investments are postponed.

The capacity glut exists on a scale that this country and many others
haven't seen for decades, and it at least partially explains why it is so
difficult for the American economy to shake off a recession that by all
measures seemed mild." [...]

"Joel Goldberg, vice president for operations at Chicago's Atlas Material
Testing Technology LLC, said his firm doesn't plan to hire new workers. New
technology it has installed in recent years has boosted the company's
productivity by 5 percent to 10 percent a year, Goldberg said, and 'the
reality is, we need fewer and fewer people.'

At the same time, U.S. companies are rapidly expanding their operations to
low-wage countries such as China and India. There, Goldberg said, 'People
have become a commodity, so to speak, and you go where the supply is.'"

"The nation's own efficient system of production has contributed to the
excess of supply over demand, said Wallace Hopp, a professor of industrial
engineering and management sciences at Northwestern University.

Consumers are benefiting from lower prices, enabling them to stretch their
dollars, but that comes at a cost that could hurt the economy in the long
run. Because businesses are able to make more than customers can buy, they
aren't doing much investing in plants and equipment, and they are shaving
workers to become more efficient.",1,165246.story?co

Lou Paulsen

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