Over Supply

Guest Post by The Zman

One of the first lessons in economics is that demand drives supply. The more a product or service is desired, the greater the supply of it, barring some artificial constraint on supply. The relationship between supply and demand is expressed in the price for the good or service. A rising price means demand is outpacing supply and a falling price means supply is outpacing demand. If demand falls low enough, supply will disappear as there is no profit to be made in the transaction.

Supply and demand used to be an article of faith in capitalist countries, but it seems that our rulers have abandoned that axiom. Take for example labor markets. They insist that flooding the American labor market with new people from abroad will lift wages and increase employment. All that diversity will cancel out the collapse in demand relative to supply and something will happen. With regards to the labor market, the new article of faith is that unlimited supply drives up demand somehow.

Now, a lot of people think this new universal truth about the labor markets is just a trick to fool people into voting away their inheritance. Collusion between the cheap labor lobby and the cheap voter lobby has resulted in this weird libertarian argument that the old axioms about supply and demand do not apply to labor markets. That way heritage Americans will not resist the flood of foreigners into their country. That could be true, but it is not an isolated example of this new economic law.

You may have noticed that the car makers are making a big splash by announcing they will abandon the internal combustion engine within the next decade or so. Jaguar is the latest car maker to say they will stop making normal cars within the decade. They say they will be fully electric by 2025, which is not far off. Other carmakers have been less aggressive in their target date, but the general consensus is that all of them will be electric-only within the next decade.

The question no one asks is why? The embrace of electric cars has been tepid in the United States and Europe. They are an interesting experiment. If you are the sort that likes owning a novelty product, then buying a Tesla is an option. The government literally pays you to buy one, so there is that. Even so, the demand has not been great, because there is not great need for electric cars. For most people, a car is a tool and the current internal combustion models do the job perfectly well.

Then there is the fact that it is a terribly impractical thing to own at this time, as there are few charging stations and charging takes too long. More than half of US drivers cannot have a charging station at home, because they live in a rental unit. Many homeowners cannot have one because of the cost or their homes are not capable of having one installed. Then there is the power grid. Estimates range from $4 to $10 trillion to upgrade the power grid for electric cars.

This is of no concern to our rulers. They are sure that if they crank up the supply side the demand side will do something and then something else will happen and before long the roads are full of electric cars. Now, some will claim that these announcements are just like Soviet five-year plans. They are not realistic targets and the people behind them have no intention of doing what they claim. In other words, they still accept the laws of supply and demand, they just like lying.

Maybe that is true. The fake meat business, on the other hand, suggests they really believe the new economic model. Five years ago, the number of people walking around demanding a burger made from beetles that tasted just like a burger was zero. We have vegans and vegetarians, for sure, but we also have schizophrenics and manic depressives too. Mentally ill people are a part of the human condition. Normal people want to eat a balanced diet that includes meat.

Despite zero demand for meat made from grass and insects, the “Impossible Meat” racket is picking up steam. The billionaires are getting in on the racket and the Davos crowd is telling politicians it is the future. In fairness, the fake meat is not revolting, but that is not the threshold. Cat food does not taste terrible under the right conditions, but people do not want to eat that either. Fake meat is the e-book of the food business, in that it is a solution is search of a problem that was solved long ago.

These are some big recent examples, but they are part of a general trend in which the overclass abandons the laws of supply and demand. Given that market capitalism starts with supply and demand, it may be that we are now post-market societies. We are becoming something like a high-tech version of the palace economy. This was a common way to distribute goods in the Bronze Age. Given that the managerial class has a distinctive Bronze Age quality, it makes perfect sense.

On the other hand, supply driven economics has a poor history. In the 1970’s the great and the good pulled out all the stops to impose the metric system on America, but it was a complete failure. No demand meant no acceptance. The same is true of soccer and women’s sports. For half a century the great and good have been pushing these on Americans, but they remain fringe interests. Those iron laws of supply and demand, like reality itself, are resistant to wishful thinking.

The other side of this is that the people pushing these fads know this and believe they can warp reality to their will, or they are lying. Jaguar marketing is probably packed to the gills with the sort of people who live in whites-only neighborhoods, but demand the company bring in Robin DiAngelo to lecture them about their privilege. Fake meat and electric cars are just the latest boutique moral signifiers. Another turn of the wheel and some other fad will fill this role.

Of course, this raises an important question. Is it better to be ruled by maniacs who think reality is an optical illusion or is it better to be ruled by a class of sociopaths willing to lie about everything? From a moral perspective, the former is worse because they really believe in their cause. There is no reasoning with a fanatic. On the other hand, can you reason with a pathological liar? How can you know? These questions suggest that the real supply problem is at the top.

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