Companies then have to build cars to provide to your workers, instead of building you a factory. We have a limited amount of capital. There's an economic opportunity cost from higher wages and more consumer spending.
So having more customers is… bad?
> instead of building you a factory.
Where do you think cars get built?
> We have a limited amount of capital.
Not really. The entire point of the article is that the available capital exceeds the available investment opportunities.
If it's coming at the expense of higher prices for building out new capital, yes.
The market will naturally calibrate the amount of consumer spending for it to be optimal for long-term economic growth. If we artificially boost consumer spending at the expense of capital investment, we will hurt long-term economic growth.
>>Where do you think cars get built?
Resources that go to building cars at a factory are not going to building a new factory.
>>Not really. The entire point of the article is that the available capital exceeds the available investment opportunities.
The hypothesis is based on the fact that corporations are sitting on a lot of cash, which totally neglects to account for the huge growth in debt, and how cash reserves are important for absorbing economic shocks that can occur in over-leveraged financial systems.
>>What’s a capitalist supposed to do if nobody can afford their stuff?
Investing in new capital equipment is how you allow more people to afford your stuff.
More consumers will afford your stuff in the future when you've built your factory and you can churn out more stuff for more people.
Capital investment is why 2.5 billion people can afford smart phones today instead of 50 million people, like 12 years ago.
Money is not wealth. It's how we measure it. Real wealth is goods/services. And the only way to increase the volume of goods/services produced is to invest in the capital equipment that increases our productivity in producing them. More goods/services means more purchasing power, which means higher wages.
What you might be talking about is how economies of scale result in increased productivity but your rule of thumb is a pretty poor model. Every industry has it's own learning rate. PV for example reduces costs by 28.5% on every doubling of production capacity.
[0] Ok, ok, this is actually the business model of Uber and pretty much all modern unicorn startups but they do it to drive out competitors, not because it makes economical sense.
>>If everyone has half as much money then the supply gets cut in half.
No, money is not wealth. If everyone had half as much money, each unit of that money would double in value.
>>Likewise the supply will only be doubled if everyone has twice as much money.
If we expanded by the money supply 20X, we wouldn't get 20X more production. Money is not valuable in and of itself. It's only a claim on the real goods produced, and each unit will adjust in value based on how many currency units there are relative to real goods produced.
The limiting factor in the value of money is the number of goods/services that the economy is capable of producing. And that capability can only be improved with capital investments.