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Eureka: Another explanation for the recession
by Jay Gutman
2017-06-24 11:46:31
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A building that used to take 6 years to build can now be built in 6 months for about the same amount of investment. Except that that’s 5 and a half years of wages that the construction workers aren’t getting. In sum, lower production costs and higher investments in lower time spans means that you get too much investment and not enough consumption.

recc01_400I explained in the past that the lower birthrate means dwindling consumption. If you add to that fact that higher investments are being done in shorter time frames, meaning that a lower amount of investment is intended for consumer purposes. Let me explain.

When you decide to build a building, a road, a bridge or any other infrastructure, and that the project takes several years, a higher part of your investment goes into consumable investment, that is what you pay the construction workers and staff and that goes into the market for consumer purposes. If you build that same project in six months, that means your workers are getting income that is ready for consumption.

In today’s world, investors don’t necessarily want to invest less in non-consumable goods such as machines and real estate. They want to invest less in consumable goods such as wages and functioning costs. This despite the fact that the population of consumers is dwindling and that those very same consumers are the ones buying their products.

In sum, you get higher investments, but few of those investments are ready-made for consumption purposes. That often means failed investments, because consumers don’t have enough available wages for consumption.

So if anyone wants to fix the economy at this point in time, the idea is to try to empower the consumers rather than trying to empower the investors. More on this later.

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