>You can have bubbles which coexist with a foundation of genuine
>investment, though. *Something* kept Japanese rates of investment as a %
>of GDP near the 28-30% level during the 1990s, and it sure wasn't
>profitability (low), a stock boom or a real estate splurge.
Mr Redmond: It would seem that we need an explanation of why the supply and demand mechanism breaks down such that in those very industries where overcapacity builds up there are powerful tendencies to invest in and bring on even *more* low cost capacity (which can of course represent enormous up front costs). The S& D graphs of the Harvard Marshallian-Keynesians don't seem to illuminate much real world dynamics in steel, memory chip, car production etc. In the real world, exactly because too much has been produced, even more is produced. The Japanese industrial profile may be top heavy with those branches and lines in particular prone to excess capacity. Informative article yesterday or today in the WSJ about the problem in the US steel industry.
Yours, Jan Carowan
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