Gyres of Waste
The persistent breakdowns of the capitalist economy can all be traced to a single underlying cause: the anarchic or planless character of capitalist production. ~ American economist Robert Heilbroner
Competitive enterprise is economic anarchy. Individual firms are guided solely by their perception of profitable opportunities, without regard to the economy as a whole. Isolated atomic decision-making ensures misallocation and waste. The reason this occurs is that the price mechanism does not support the rationalization of resource allocation. The price signal is a clarion bell lacking clarity.
Rising prices suggest unmet demand. For lack of coordination, individual companies react with investments to manufacture supply that, in the aggregate, exceed need. Wasteful oversupply bubbles is one of the most salient characteristics of capitalism.
Oversupply is a global problem. ~ Chinese politician and business executive Gao Hucheng in 2016
In the 19th century there were 2 episodes of overbuilding railways in the United States. The 1st caused the Panic of 1873. The 2nd caused the Panic of 1893.
In a milieu of huge enterprises and enormous fixed investments, such miscalculations or imbalances carry the potential of a major disruptive impact. ~ Robert Heilbroner
Toward the end of the 20th century, an advance in drilling technology (horizontal fracking) afforded extracting petroleum and natural gas from deposits previously considered uneconomic. A rush of investment led to a massive oil boom.
You’d be hard pressed to find anybody who saw this coming. ~ American economist Karr Ingham on the early 21st century oil boom in Texas
What no one investing seemed to see coming was the inevitable bust, causing the companies that had been so sanguine about the future to suddenly find themselves going broke.
When times are good in the oil field, no one ever thinks about the slowdown. But the slowdown’s always just around the corner. ~ American oil worker Jess Crone
The one surety of capitalism is that the lessons of history are never learned. An economic system driven by greed is instead guaranteed to repeat excesses which look rational only when viewed atomically, ignoring (or ignorant of) larger contexts, and with optimism: which is exactly how entrepreneurial decisions are made.
Besides the toll on the economy of such episodes, the price of such boom/bust cycles includes massive material waste and pollution, and large-scale dislocation in people’s lives. It is certainly no way to run an economy.