Macro Minute: Overproduction Does Not Bring Demand, China's Economic Illiteracy

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Economic Illiterates

I responded to this tweet yesterday—just one among many from communist sycophants who lack the intelligence to grasp the concepts involved. Let's discuss.

It is a common delusion to think that supply begets demand. We've seen this in the ill-fated Belt and Road Initiative, where billions of dollars were flushed down the drain building uneconomic projects in already highly indebted countries. An effort still ignorantly praised by so many communist orbiters, but one that has already been abandoned by the CCP.

Today, the Chinese Communist Party is desperately trying to boost domestic demand by building projects like the solar farm in the above tweet. Spoiler alert: it won't work, because it ignores a foundational part of the market: demand comes first. Market demand stimulates producers to meet that demand.

The original poster is so clueless he doesn't understand that there is nothing stopping Western producers from building more solar and wind power. In fact, they are encouraged through subsidies. The limiting factor is demand. Free market demand is unable to support so much overproduction.

That apparently doesn't matter for China, though. They're such brilliant leaders of industry that they can build more solar and wind capacity than the rest of the world combined, and it's a great investment. You can't make up the idiocy of that position.

Economics 101

The other responder said, "China's over deployment of cheap solar means they will be able to offer their industries cheap or even free electricity."

"Free electricity?" There is no free lunch. Only an ignorant communist would say such a thing—someone who doesn't understand basic economics about prices, profit, or opportunity cost.

This overproduction of solar and wind is being paid for by someone. The industry that receives this "free" power is building products for consumers. But not domestic consumers, because they are now poorer from footing the bill. This is the China model. Again, they desperately want to stimulate domestic demand and think they can do it by impoverishing their people. It is a vicious downward spiral of shrinking demand and oversupply.

The most likely outcome of this overproduction of solar and wind power is budget deficits. They have taken on the initial cost plus the maintenance and upkeep costs for an investment that loses money. This energy is not cheap or free; it is actually more expensive when considering the economy as a whole. It cannot lead to more net productivity because it is a net expense.

Conclusion

Central planners always claim to have the best intentions, but they are either too ideologically blind or just plain stupid to understand basic economics. Their grandiose schemes inevitably lead to worse outcomes for both the economy and the people. In their quest to stimulate growth, they end up handicapping it—regardless of what the CCP sycophants want you to believe.

Hope this helps someone.

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