Don Boudreaux manages to take a swipe at Krugman in the midst of a post praising an old Slate article of his that takes the logic of overproductionism and the crisis of capitalism to task. This is, of course, related to the overproductionism post I had the other day.
Of course, Krugman is right here. So why do I post semi-favorably on overproductionists and treat them with kid-gloves when Boudreaux and Krugman are more harsh? There are several reasons:
1. Overproductionism as a permanent crisis of capitalism is different from overproductionism as a reason for temporary dips in the economy. The latter is fairly respectable - the inventory cycle is nothing if not an overproductionist theory, and everybody believe the inventory cycle exists. We also live in a world where Diamond, Pissarides, and Mortensen all have Nobel prizes so we have no excuse to not take search and matching frictions seriously. When technological development increases manufacturing productivity it can seriously screw up mid-Western factory towns. Dislocation matters, particularly if you're the one being dislocated. This is all fine. What's not fine is the sort of "crisis of capitalism" overproductionism that says we're going to invent ourselves out of jobs and the owners of capital are going to become plutocrats and workers will starve. Economies do adjust - but that doesn't mean frictions, dips, and cycles don't happen along the way.
2. Overproductionism is a path to underconsumptionism for the layman. Non-economists have tendency to view self-interest with embarrassment or disgust, so they have a hard time either seeing a lack of demand as even possible, much less a problem if it occurs. They have an easier time understanding "the boss has no work for me", so in the lay literature you see a lot more overproductionism than underconsumptionism. But the thoughtful ones find their way to underconsumptionism, money demand, liquidity preference, and all that - and that's very good. A layman expressing overproductionism has an inherent sense that general gluts are real. That insight alone goes a long way in separating the good economists from the bad, so when I see it in people I'm a little more forgiving - and if I see it without the apocalyptic doom and gloom, I'm even more encouraged that they're putting real thought into this.
3. Who knows - maybe one day we will invent ourselves out of work! Honestly, my faith in what Boudreaux and Krugman are saying here is largely an empirical faith rather than a theoretical faith. It's entirely plausible that one day we'll say "I'm sated now - I'm going to just kick back and read on the beach, be happy with my current state of wealth, and increase my leisure". Demand may not keep up with production. It's possible - why not? But history tells us that it's highly improbable. Every time someone has suggested this outcome their hopes/fears have been dashed. But there's nothing inherent in the economy or in human nature that I know of that says it can't happen, and if it ever were to happen, maybe it would be nice! Who knows. I don't think I ever will because I don't expect it to happen in my lifetime, if it ever does.
Demand, Supply, and Macroeconomic Models
21 hours ago