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Why Doesn't Increased Demand Bring More Supply?

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Mises Institute


  • We suggest that without the expansion and the enhancement of the production structure, it is going to be difficult to increase the supply of goods and services in accordance with the increase in the total demand.
  • The expansion and the enhancement of the infrastructure hinges on the expanding pool of savings.
  • We suggest that the currently observed massive shortages of various factors of production such as labor and raw materials are in response to enormous monetary pumping by the Fed and massive increases in government outlays.

Wooden houses with yellow arrows up. housing boom, property market growing, high demand for real estate, house prices rising concept

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By Frank Shostak

By popular thinking, the key driver of economic growth is increases in the total demand for goods and services. It is also held that the overall output increases by a multiple of the increase in

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The Mises Institute is the world’s largest, oldest, and most influential educational institution devoted to promoting Austrian economics, freedom, and peace in the tradition of classical liberalism. Since 1982, the Mises Institute has provided both scholars and laymen with resources to broaden their understanding of the economic school of thought known as Austrian economics. This school is most closely associated with our namesake, economist Ludwig von Mises.We are the worldwide epicenter of the Austrian movement. Through their research in the fields of economics, history, philosophy, and political theory, Mises’s students F.A. Hayek, Henry Hazlitt, Murray Rothbard, and others carried the Austrian School into the late twentieth century. Today, Mises Institute scholars and researchers continue the important work of the Austrian School.Austrian economics is a method of economic analysis, and is non-ideological. Nonetheless, the Austrian School has long been associated with libertarian and classical-liberal thought—promoting private property and freedom, while opposing war and aggression of all kinds. The Mises Institute continues to support research and education in this radical pro-freedom tradition of historians, philosophers, economists, and theorists such as Jean-Baptiste Say, Frédéric Bastiat, Richard Cobden, Herbert Spencer, Lysander Spooner, William Graham Sumner, Albert Jay Nock, Mises, Hayek, Hazlitt, Rothbard, and many others.

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Comments (9)

One answer to the title of your slanted article: semiconductors don't grow on trees, nor do most of the products that are in short supply. Looks like the pump was set to open in 2020, for a number of reasons, and is just now looking safe to close. People aren't working not because of a few thousand dollars handed to them through our social safety net, but because companies are doing just fine with profits in many cases at all-time highs. How many billions did the airlines get, just to name one? Workers never could count on a job that adequately covers their necessities, unless they had the good fortune of getting into the right schools, in the right areas of study, and landing the right job. Too few of those available since the rise of crony capitalism and corporate welfare, which is billions more than was handed out to the actual taxpayers.
Finally an economic view on sa rather then thin gruel of current promoters. Keep it up an SA may some day become respectable.
DKnewb profile picture
Supply side manipulation working in tandem with free money has jilted the supply demand curve. NWO is attempting a major economic direction change.
lol wut profile picture
It's really fascinating to watch the 2020/21 money pump alter the economy in real time. The CPI and JOLTS reports are the clearest examples of how the money is shifting the economy... or in other words how the economy is shifting toward the new money. Companies that are receiving the new money first are on a hiring frenzy and bidding up goods and services. 11 million job openings is no joke and neither is a 6% CPI print. The hangover will suck though. Once the money pump slows the economy will reorient back to the needs of society rather towards the new money.

Certainly the pandemic had a negative effect, but a more significant negative effect was the fallacy of Modern Monetary Theory (MMT) put into practice by the US and foreign sovereign governments. When governments create money out of thin air and pay people to do nothing, people do nothing productive and just spend the government largess that is bestowed upon them. The US and foreign governments have the power to rein in the inflation we are currently enduring, but the dirty little secret is they actually benefit from the inflation because the real cost of servicing their mountains of government debt decreases. The Fed's "transitory" inflation was never transitory, and it will be some time--a year or two in my estimate--before the rate of inflation slows significantly; and 2022 is an election year, which means the government is more inclined to continue with the largess than rein it in.
jack kreg profile picture
Biden is paying people not to work.
His programs, pay for life's expenses, again, no need to stress about work, career, or paying for family expenses.
No worry, Gov will pay for life's needs. Just sign your kids over to the gov teacher union at 2 years old, maybe your kids will call you after they graduate college.
Biden has put America in its worst position in decades, perhaps in my long life.
Duncan20903 profile picture
@jack kreg Utter hogwash.
@Duncan20903 when has it been worse in the last 40 years?
VoiceofSanitySometimes profile picture
Too monetary. Monetary theory is a part of economics, but it isn't all of it by any stretch.

Adding production takes time, not just capital. We need more cars, but it takes many years to build a car factory and get it operational. Look how many years it has taken Tesla to ramp up, and they are still only at about a million vehicles per year (global demand for new vehicles is 66MM to put that in perspective).

We currently have inflation because of the imbalance of supply and demand. It isn't transient because of the time it takes to add supply. It will end when supply catches up to demand after so much supply was lost during covid. While the headlines were about human deaths from covid, very little attention was paid to the deaths of productive businesses that created supply. It will take years to get it back into balance.

Then we have two other obstacles -- human nature and govt intervention. Human nature makes us gun-shy after we've been burnt. Just like people were slow to re-grow single family housing after 2008, the same is true now with productive businesses. Individuals are nervous to re-enter, banks are nervous to lend, etc.

Govt intervention further slows the process of rebuilding productive capacity. Can't drill more oil wells if the govt won't let you. Hard to hire workers if the govt puts restrictions on who you can hire. And more and more businesses require greater capital and more time to start because meeting govt regulations is the single biggest hurdle.

Govt could throw money at industries to help with capital formation, and they are trying to do that. But they are doing nothing to address the time problem, and in many areas are making it worse.
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