By Matthew Yglesias
Read Brad DeLong on the correct policy response to a “general glut,” which is to say “a situation in which there is excess supply of not one or a few but all commodity goods and services.”
In an odd way, commentators on the economy have a strong bias toward talking about supply-side problems. Misguided policies that prevent the economy from operating as efficiently as it might. Policies like a “License Raj” that stifles innovation and entrepreneurship among a nation of over 1 billion in South Asia. Policies like Mao Zedong’s Five Year Plans that trampled on the aspiration of another nation of over 1 billion in East Asia. But though the policy environment is not ideal in China or in India it’s really extraordinarily better than it was in the recent past. And the physical infrastructure is much better too. And something similar, though to a lesser extent, could be said about improved governance in Indonesia and Brazil. A number of Central European countries have likewise been rescued from Communism and embedded in liberal democratic regimes. Meanwhile all around the world transmitting information is dramatically cheaper and easier than at any time in human history. And yet in newly productive China and India hundreds of millions of people continue to live lives as subsistence or near-subsistence farmers. This in a world where the total production of calories far, far, far exceeds the number of calories needed to keep five billion people alive.
To say that the world has solved its supply-side problems would be absurd. Greece really is overburdened with bureaucracy, Italian governance is a mess, we have too many useless homes in the Inland Empire and the suburbs of Las Vegas, and too much of Ireland’s GDP growth was based on a tax haven accounting gimmick. But Greece and Ireland are tiny, Italian governance has always been a mess, and the value of homes in the Inland Empire and the suburbs of Las Vegas has always been tiny relative to the vast productive capacity of the United States. To think that Greek overborrowing and over-bureaucratization could somehow maroon a global economy that’s featured the invention of the Internet and the liberalization of China and India is slightly insane. We right now have the capacity to produce more—much more—than has ever been produced before in the history of the planet. There are dozens of supply-side policies that could be improved in every country on earth, but that’s not a new fact about the world. What’s new is the lack of demand, the willingness of the key leaders in Tokyo, Frankfurt, Washington, Berlin, and now it seems London as well to tolerate stagnation and disinflation in the face of some of the most exciting fundamental new opportunities for human economic betterment ever.