Global melodrama

[michael perelman]

Seth asks me to try again to explain the puzzle.  Suppose you have an
economy made up of identical capital intensive factories [sounds like
economics talk, doesn't it?].  Production goes up by 10%, so you have
growth.  But the factories all go bankrupt.  [I am not pretending to be
realistic].  The factories are one year old, but the owners are strapped for
gold, so they sell their factories at half price to other people that are
holding gold.

You have 10% growth, but enormous capital losses.  Where did the value go?
It is as if [switching analogies] you have an enormous output of 486
computers this year, just as the pentiums are ready to come on line (and
companies will rush to buy the pentiums to be comepetitive with the other
companies buying pentiums.  The value of the 486's suddenly disappears.

I hope this helps, but economic accounting is fundamentally metaphysical.

Seth Ackerman wrote:


> Maybe I'm being too accounting-oriented here, but economic growth means
> growth in total income. If wages were stagnating and profits were
> falling, who was getting the extra income?
>
> > -----Original Message-----
> > From: michael perelman [SMTP:michael at ecst.csuchico.edu]
> > Sent: Tuesday, August 18, 1998 6:12 PM
> > To:   lbo-talk at lists.panix.com
> > Subject:      Re: Global melodrama
> >
> > Seth asked how wages could stagnate while the economy grew, yet have
> > profits fall. The solution to the riddle is that heavy competition
> > propelled by technical change and over capacity caused capital to be
> > devalued.  Firms, especially railroads, went bankrupt.
> >
> > Barkley Rosser says that you can explain this outcome with monetarism.
> > I
> > agree that it is consistent with monetarism.  I think that we would
> > nearer
> > to the truth by explaining the problem in terms of what was going on
> > in the
> > market for goods.  Neither explanation is exclusive of the other.
> >
> > Seth Ackerman wrote:
> >
> > > Michael Perelman wrote:
> > >
> > > <<The economy grew during the "fast deflation" of the late 19th C.
> > > Profits fell,
> > > wages did not increase much, but the economy grew, leading some to
> > deny
> > > that any depression occured.>>
> > >
> > > How can the economy grow faster than the sum of wage growth and
> > profit
> > > growth?
> > >
> > > Seth Ackerman
> > > FAIR
> >
> >
> >
> > --
> > Michael Perelman
> > Economics Department
> > California State University
> > Chico, CA 95929
> >
> > Tel. 530-898-5321
> > E-Mail michael at ecst.csuchico.edu
> >

--
Michael Perelman
Economics Department
California State University
Chico, CA 95929

Tel. 530-898-5321
E-Mail michael at ecst.csuchico.edu