Mises argued that when demand in an economy is artificially stimulated, not through genuine consumer need or preference but through external factors like increased money supply or credit expansion, it leads to a distortion in the market.
Industries respond to this artificial demand by ramping up production and building up inventories. However, this increase in production is not aligned with real consumer demand or backed by actual savings in the economy.
Real savings, in contrast, represent the surplus of income over consumption. When people save, they are deferring current consumption in favor of future consumption. This kind of saving leads to capital accumulation, which is used for investments that are in line with consumer preferences. In a healthy economy, this results in sustainable growth.
Artificial demand, on the other hand, is often driven by monetary and fiscal policies that artificially lower interest rates or increase money supply. This leads to misallocation of resources, as industries produce goods based on distorted signals.
Eventually, when it becomes clear that the demand was not real, the market corrects itself, often leading to a bust cycle where there is excess inventory and a sharp contraction in economic activity.
The tightening of credit makes it more expensive for businesses to borrow money. This, combined with the realization that demand was artificially inflated, leads to a rapid decrease in production. Industries find themselves with excess inventory that they cannot sell at previous prices.
Unemployment may also begin to rise as companies cut back on production and lay off workers. This reduction in employment further decreases real consumer demand.The culmination of these factors – reduced credit availability, increased production costs, lower consumer demand, and excess inventory – leads to a rapid drop in prices. Businesses try to offload their unsold inventory at lower prices, often incurring losses.
In summary, Mises highlighted the dangers of economic policies that create artificial demand, leading to misalignments in production and eventual market corrections. This is contrasted with growth driven by real savings, which is sustainable and aligned with actual consumer needs.
@TedPillows For a seller to sell, there must be a buyer on the other side. The question is actually more accurately stated as:
Why are sellers more eager than buyers to settle?
@kunchenguid No I was just joking around, it makes sense actually. It will likely reason better and actively try to make less mistakes and plan ahead better most likely. What a time to be alive.
@akshayvkt@ohabryka Yeah but marginal at best and if other llms take the lead you just switch model in the blink of an eye and the cursor harness works exactly the same with all the quality of life features of cursor ide. Not to mention the composer model is going to just get better and raise bar