Tag Archives: Malinvestment

Malinvestment: Have We Learned Anything Since the Last Recession? by Bradley Thomas

Government spending does not promote recoveries or economic growth, especially when it goes down the rat holes to which most such spending goes. From Bradley Thomas at mises.org:

A growing number of economists are predicting the current economic boom will turn to bust in 2019. When recession does come, will economists simply call for more of the same — namely endless government spending?

After all, in the wake of the 2008 financial crisis, most economists told us the problem was the private sector was not spending and investing enough. So, we were told, government must step in and make up the difference with deficit spending to get “idle resources” — like capital goods and labor — back to work.

But what should the government be spending on? Apparently, anything.

This is not an exaggeration. For example, noted Cal-Berkeley economist Brad DeLong insisted in 2009 “At this point, anything that boosts the government’s deficit over the next two years passes the benefit-cost test — anything at all.”

Such thinking reveals one of fatal flaws of mainstream economics: the idea that all the economy is one big homogeneous blob. As Friedrich Hayek put it, “Mr. Keynes’ aggregates conceal the most fundamental mechanisms of change.”

Continue reading


Malinvestment Run Amuck: Mired In Massive Overcapacity And Pollution, China Approves 155 New Coal Fired Power Plants This Year, by Zachary Davies Boren

From Zachary Davies Boren at Energy Desk Greenpeace, via davidstockmanscontracorner.com:

China has given the green light to more than 150 coal power plants so far this year despite falling coal consumption, flatlining production and existing overcapacity.

According to a new Greenpeace analysis, in the first nine months of 2015 China’s central and provincial governments issued environmental approvals to 155 coal-fired power plants — that’s four per week.

The numbers associated with this prospective new fleet of plants are suitably astronomical.

Should they all go ahead they would have a capacity of 123GW, more than twice Germany’s entire coal fleet; their carbon emissions would be around 560 million tonnes a year, roughly equal to the annual energy emissions of Brazil; they would produce more particle pollution than all the cars in Beijing, Shanghai, Tianjin and Chongqing put together; and consequently would cause around 6,100 premature deaths a year.

But they’re unlikely to be used to their maximum since China has practically no need for the energy they would produce.

Coal-fired electricity hasn’t increased for four years, and this year coal plant utilisation fell below 50%.

To continue reading: Malinvestment Run Amuck

He Said That? 8/2/15

From John Stuart Mill, British philosopher, political scientist, and civil servant:

“Panics do not destroy capital; they merely reveal the extent to which it has been previously destroyed by its betrayal into hopelessly unproductive works.”

The modern term is “malinvestment.”

The problem isn’t overproduction; it’s malinvestment, by Patrick Barron

The Ludwig von Mieses Institute Canada explains the principles of Austrian, or free market economics, clearly and concisely. Here, Patrick Barron punctures a Keynesian boogyman—overproduction—at mises.ca:

Mr. Max Ehrendfreund, writing in the Washington Post’s Wonkblog, believes that he has discovered something new: that the world is producing too much and doesn’t know what to do with it. His solution, of course, is to confiscate the overproduced products, such as oil and cotton, from its rightful owners and give it to the people who need it. This phony problem and its statist solution goes back at least as far at the 1930’s socialist calls for “production for use” vs. the hated capitalist concept of “production for profit“.

Mr. Ehrenfreund commiserates that a “surplus…challenges some basic principles of conventional economics…”. Ah, now we see why Mr. Ehrenfreund has a problem; he understands only “conventional economics”. Austrians have no such problem understanding why many commodities are currently in surplus. Our understanding of Austrian business cycle theory tells us that years of interest rate suppression by monetary authorities worldwide has disrupted the time structure of production; i.e., that artificially low interest rates have led entrepreneurs and their business partners to believe that sufficient resources exist for the profitable completion of longer term projects, such as increasing investment in oil and cotton production. Austrians do not contend that there cannot be a surplus of some goods. Of course, there can! But we know that a surplus of some goods means that there is a scarcity of others. Resources were “malinvested” in some projects instead of those more urgently desired by the public.

Here’s a rather humorous example. A good friend was teaching in West Germany during the age of Tito, when he and his wife decided to vacation along Yugoslavia’s beautiful Adriatic coast. While there they tried in vain to find swimming accessories, like fins and masks, but shop after shop sold only one product. That one product? Panama hats! True story. So here is a good example of zero demand for Panama hats and a scarcity of swimming accessories in one of the most beautiful seaside vacation spots in the world. But these surpluses and scarcities are not always so obviously related. A surplus of oil and cotton may mean that there is a scarcity of millions of other goods that could otherwise have been produced.

The socialist dogma, to which Mr. Ehrenfeund seems to be enamored, blinds him to the concept that a successful economy does not need centralized control. In fact a successful economy needs no guidance at all, except the rational decisions of the owners of the means of production to put their resources to the most desired use. How do they know what that “most desired use” is? The price system tells them! A dynamic economy is controlled by millions upon millions of people making billions upon billions of decisions that are in constant flux. Manipulating the price of any factor of production, such as cotton prices, will cause disruptions. But our governments have done much worse than manipulate the price of a few major factors o f production; they have manipulated the price of money itself, the medium of exchange that is the lubricating and knowledge transmission device for ALL economic decisions.

So, Mr. Ehrendreund, brush up on your Mises, Rothbard, Hayek, Habeler, and Garrison. Your confusion will disappear to be replaced, no doubt, by exasperation that you ever could have harbored such silly notions as those you espouse in your article.