The word overcapacity is being used increasingly by economists of late when talking about the global economy. That means people aren’t buying the goods and services being produced, that there is more capital tied up in production than there is money in the hands of people who would otherwise buy those goods and services. In other words, there is too much money at the top and too little at the bottom, a direct consequence of supply-side economics, or trickle down economics as it is more commonly known.
When the USSR economy started to crumble in the 80s we saw images of people queuing for loaves of bread, the controlled economy didn’t direct production towards the available demand. Too much demand for too few goods and services.
What we’re seeing in the opposite extreme today is diminishing queues, there is lessening demand for the goods and services being produced. Why? Because people don’t have as much money. Australian economic figures released a few weeks ago reinforce this argument, GDP went up, income went down. Australian businesses produced 3.1% more but the people have 1.3% less money. More things to buy, less money to buy them with.
This is where the ludicrousness of the company tax cut being proposed in Australia comes in – it is being used to try and increase the level of investment in an already over supplied economy, and it is being paid for by increasing the cost of government services for people on low income. See it? Less money in the hands of people that would purchase, more money for those producing the things that people have less capacity to buy.
If we are to avert the deflation crisis that is developing, we have to get money into the hands of people who will purchase and money out of the hands of people who are investing in idle capacity.
In Australia that means increases to unemployment benefits and pensions, it means fixing the welfare/taxation nexus so people transitioning from welfare to work keep more of their benefits. It also means directing greater childcare rebates to the lower end of the scale so the fees don’t cut into the income. And it means raising the income level where HECS and HELP repayments kick in, and stretching the scale so that the top rate doesn’t kick in till a lot later.
What we don’t do is lower penalty rates, tighten welfare eligibility, increase health costs, and most importantly, we don’t cut the company tax rate. We should also start to pare back corporate welfare like diesel rebates for miners and direct those resources towards real jobs programs that include a large training component.
As for the intern policy, it makes no sense for businesses with over capacity to take on interns. We’ll end up with interns sitting in the corner doing nothing because the business doesn’t need them but quite like the extra cash, and of course the intern quite likes the extra cash as well. The intern is better off doing something useful, like learning new skills, or playing with the kids at home.
What the above will do is put the spending power into the hands of those who spend, and then businesses will do what they always do, they will follow the money, they will shift their investments towards the production of goods and services that people want and need.
Money will trickle up.