[Editors' note: This article was originally published in December 2012]
Those crazy Austro-libertarian filmmakers over at Econ Stories are back with a destined-to-be-classic holiday album: "Deck the Halls with Macro Follies."
Now that's the spirit. Needless to "Say," we think they're right:
Thomas E. Woods thinks there is no such thing as overproduction:
A most stubborn economic fallacy, especially in my own discipline of history, is that in the unhampered market, output can exceed demand. This is the alleged problem of “overproduction.” The result of this calamity, we are told, is that unsold surpluses pile up, leading to mass unemployment, since the natural solution to overproduction is to lay off workers and reduce production.
This fallacy gives rise to the related fallacy of too much savings.
Steve Horwitz agrees, reminding us that:
One of the problems in the world of ideas, particularly in the social sciences, is that the insight behind old ideas can get lost as new ideas crowd the intellectual landscape. Often, the historian of ideas has the thankless task of reminding his colleagues that what they think some long-dead writer said is not, in fact, what he was talking about at all.
And of course, it was Keynes who helped obscure the truth of Say's Law by mischaracterizing it.
Just ask Mark Skousen, who writes that by "incorrectly stating it as 'supply creates its own demand,' he proposed, in effect, that Say meant that everything produced is automatically bought. Hence, Say’s Law cannot explain the business cycle." But Say had a very different idea about his own law:
Say illustrated his law with the case of a good harvest by a farmer. “The greater the crop, the larger are the purchases of the growers. A bad harvest, on the contrary, hurts the sale of commodities at large.”
Say has a point. According to business-cycle statistics, when a downturn starts, production is the first to decline, ahead of consumption. And when the economy begins to recover, it’s because production starts up, followed by consumption. Economic growth begins with an increase in productivity, new products, and new markets. Hence, production spending is always ahead of consumption spending.
It's sad that our national obsession with consumer spending makes the Holidays more "materialistic" than they need to be. Isn't it ironic to anyone that leftish Keynesians support orgies of buying while free-market types think we should be a little more parsimonious this time of year?
Anyway, please share -- and try a little saving this Holiday season.