The problem is that in a closed economy, an increase in production without increased consumption will result in over production and closed down factories.
It isn’t in capitalist’s long term interests to increase production and cut wages across an entire economy. Having a very high net savings rate (whatever you don’t consume is by definition, savings) is not a good thing as a country.
America’s early growth was based on being a high wage and high consumption country.
However, in an open economy, you can export your excess savings (and underconsumption) to other countries. This was an issue during the great depression (called “beggar thy neighbour”).
It is a big problem in the global economy right now with China, Taiwan, Korea, Germany, Denmark, etc. all having stagnant or low consumption shares of the economy while exporting their net savings to persistant trade deficit countries like the United States, UK, Australia and Canada (noting Australia and Canada sometimes have surpluses when commodity prices are high).
It relies on the net deficit countries being willing to accept net capital inflows and all the issues with having persistent trade deficits (deindustrialisation, high debts, etc.) forever, which isn’t possible.
So in short, increasing profits and cutting wages (and/or the overall workforce) might work for an individual greedy douchebag but it is a terrible thing for the entire economy.
source: https://existentialcomics.com/comic/364 (it has mouseover text too…)
The problem is that in a closed economy, an increase in production without increased consumption will result in over production and closed down factories.
It isn’t in capitalist’s long term interests to increase production and cut wages across an entire economy. Having a very high net savings rate (whatever you don’t consume is by definition, savings) is not a good thing as a country.
America’s early growth was based on being a high wage and high consumption country.
However, in an open economy, you can export your excess savings (and underconsumption) to other countries. This was an issue during the great depression (called “beggar thy neighbour”).
It is a big problem in the global economy right now with China, Taiwan, Korea, Germany, Denmark, etc. all having stagnant or low consumption shares of the economy while exporting their net savings to persistant trade deficit countries like the United States, UK, Australia and Canada (noting Australia and Canada sometimes have surpluses when commodity prices are high).
It relies on the net deficit countries being willing to accept net capital inflows and all the issues with having persistent trade deficits (deindustrialisation, high debts, etc.) forever, which isn’t possible.
So in short, increasing profits and cutting wages (and/or the overall workforce) might work for an individual greedy douchebag but it is a terrible thing for the entire economy.