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It's easy to refute an argument if you first misrepresent it. William Keizer
Oh, oops, I just re-read your post title and realized it's General Glut, not General Glutton...
Clayton -
I think that you fundamentally misinterpret ABCT in characterizing malinvestments as entirely noxious. Malinvestments are indeed the wrong combination of goods, of production itself. I feel like your analogy of arsenic in the cake ingredients is entirely wrong. Yes, malinvestments are not what should be put into the cake but this does not mean that they are wholly noxious or they produce no value. They are projects that are unsustainable, but this just means that they are indeed the wrong combination of goods and services.
Other than that if I were to properly critique the article I'd need to read both Callahan and Murphy's articles to really understand what the discussion is about. If anything I think you should have spent more time on really explaining their arguments.
For whatever its worth I do think that business cycles are the best explanation of how a general glut could occur. Any shock to the system will likely reduce consumer spending and a general glut will result. Without a sudden change there is no reason why this should occur.
Neo,
...this does not mean that they are wholly noxious or they produce no value.
I'm talking about the malinvestment part of the malinvestments.
I think you should have spent more time on really explaining their arguments.
I quoted Murphy's argument in full, and summarized Callhan accurately.
Any shock to the system will likely reduce consumer spending and a general glut will result.
Any shock? Like an earthquake? Like inflation? Why should a shock to the system reduce consumer spending? If anything, a shock sounds like something that would damage production, not consumption. I find it hard to envision something that will not damage the machinery of production or the quantity of goods, but will discourage consumption. Can you give me an example?
Dave,
Once again, I am lazy, and therefore I have not read the entire of Callahan's argument, but I have a very hard time buying the idea that Callahan's argument is as simple as:
"Three people on a desert island. They catch more fish than they can possibly eat. General Glut right there"
If this truly is a proper summation of Callahan's argument then I agree with you, it is entirely ridiculous, well, if you're trying to apply such an example to the modern world. You can make any scenario where some massive proportion of consumer spending is lost or where entrepreneurs become brain-addled and suddenly make idiotic choices, but it's much harder to properly show why this actually occurred. This is why possibly the most ridiculous thing about Keynes' theory was that he posited "animal spirits" as the cause of recessions. While I think he is right that the more idiotic and herd-minded investors out there might exasperate recessions for a little while once they occur, as well as helping to inflate any existing bubbles, this is hardly an actual reason for the recession in the first place, certainly not initially severe recessions.
If you have indeed quoted Murphy in full then I have no problem with rejecting his argument either. I do think that anyone who says a general glut, for a period of time, is strictly speaking impossible is foolish. It is possible, it is not likely under normal circumstances, nor is it a permanent state of affairs. Prices fall and all is well.
"I'm talking about the malinvestment part of the malinvestments."
Why are malinvestments arsenic instead of salt? This really is something of a ridiculous semantics debate, but I'd like to know why you characterize malinvestments in this manner.
"I find it hard to envision something that will not damage the machinery of production or the quantity of goods, but will discourage consumption. Can you give me an example?"
I'm talking about a shock to the entire system that increases productivity, like a sudden decrease in the availability of a raw material or certain trade-networks going down. Like ABCT this suddenly makes a large number of firms unviable, large layoffs and wage decreases ensue decreasing AD.
Why are malinvestments arsenic instead of salt?
The key idea is in the paragraph after that. There is no need to get those lazy workers off the couch, or convince producers to use resources now instead of later, or lower wages or prices of anything. All we need is to sit back and do nothing, and watch as the body ejects the arsenic out of the system, meaning watch as malinvestments go bankrupt, close down, and we get two huge advantages. First, resources stop being wasted. Second, and what is almost the same thing, they are free to move on to productive uses. Which is basically the end of the recession, when they do move on.
About your last paragraph. Fairy tales have to end with "and they lived happily ever after." But an explanation of a recession does not have to end with "and so, AD decreased, which is why there was a recession."
Once production is reduced [and I think that's what you meant to write, and the word "increases" is a typo], that's the end of the story right there. Decreased production is the recession. Everything that happens in a recession, poverty, unemployment, is a direct result of decreased production.
And if we tell the story correctly, we gain valuable insight about how to make things better. We have to do all we can to get our productivity back. And if we can't get our productivity back to the level it used to be, then too bad. We will have to learn to live with poverty. Nothing in the world will better the situation if that is the case. Contrast this with schemes to artificially increase AD.
I see that as having a tired mule, who collapses under his burden from exhaustion. We can either help him get his strength back, maybe by letting him rest, feeding him, reducing the load, whatever, or we can "incentivize" him to work by whipping him or coaxing him. He might twitch a few steps forward, but he will soon collapse, weaker than before. Since the problem is not lack of incentive, but lack of strength, whipping and coaxing will never solve it.
Similarly, the economy in a recession lacks the power to keep producing at old levels. [ABCT explains why. You gave other examples of why this can happen]. Increasing AD artificially to incentivize production will not give it that power. If anything it weakens that power, because "consumption" means, by definition, destruction of resources.
A glut? What is this nonsense. A glut only occurs when you've got a minimum price set by the state. A 'glut' on the market is just going to result in lower prices.
... just as the State has no money of its own, so it has no power of its own - Albert Jay Nock