A Crisis of Overcapacity and its Consequences
By Alan Singer
This is the second of three blogs that focus on economic issues facing the United States and the global economy that are exacerbated by the Trump administration’s fixation on returning to bad economic practice from the past. The previous blog, MAGA’s Great Economic SNAFU, looked at what economists predict will be “China Shock.” The next blog tries to answer the question why everything is so unaffordable.
In the global capitalist economy, companies and countries compete for market shares and profits. Each company and country expands production to the point where aggregate production far exceeds aggregate demand creating a crisis of overcapacity. This has led to the unrestricted release of greenhouse gases and climate change, environmental degradation and companies and countries seek any possible advantage, nationalist movements that want to close domestic markets and charge everyone else with unfair practices, waves of unemployment in affected industries, rustbelt communities with desperate populations, economic depression, political instability, and war, trade wars and actual military conflagrations.
Economists from Adam Smith and Karl Marx to the present have all seen productive overcapacity as a problem for market economies, Marx thought capitalism was self-destructive, but free market pro-capitalist economists like Smith, Friedrich Hayek and Milton Friedman argued that the system is self-correcting. Nobel prize winning economist Joseph Stiglitz argues that left unregulated, markets, spurred on by speculative investment, tend towards irrationality leading to a cycle of booms and busts. He cites the dot.com bubble of the 1990s and China’s export-based economy today as examples. He wants cryptocurrencies to be outlawed as criminal enterprises before they do irreparable economic damage and believes the AI craze has the potential, if left unregulated, to worsen existing economic inequality, contribute to unbalanced production, destabilize the global economy as some hyper-expensive speculative ventures collapse, and consolidate enormous power in the hands of a few dominant monopolies. None of this looks very hopeful for the immediate future.
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Alan Singer is a historian and teacher educator at Hofstra University, Hempstead, New York. His most recent books are Social Studies for Secondary Schools, 5th edition (Routledge, 2024) and Class-Conscious Coal Miners (SUNY Press, 2024). Blogs, tweets, essays, interviews, and e-blasts present his views and not those of Hofstra University.