Monday, January 23, 2006

How crises happen

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I'm fond of small examples. I used to give the example of computer programmers as an example of how markets fail.

Now, I can use plumbers (I can't find an interweb link to this story, but I heard it on the radio).

Basically, a shortage of plumbers meant rising wages/costs for that trade - quite serious earnings.

People left city jobs to become plumbers, because the money was so good. Of coruse, so many people moved in, and took up the training, that there was fairly swiftly an abundance of plumbers.

So far, so good. The trick is, information. Market signals move at the speed of the market, i.e. it takes the time for pliumbers to get from training, into the field and onto the market ebfore prices start to fall. People who entered late may well be just finishing training, or in the middle, when teh bottom drops out of the market - of coruse, lets not forget, these are people who will have paid the increasing training fees as plumbing teachers/trainers also become scarce.

These late comers enter the market, and find ther is no work. They are left high and dry because the market told them to go into plumbing (high wages) and now is telling them to get out.

Fair enough, but these people have ploughed savings into training which is no longer any use to them, they have abandonned careers and made holes in the CV which will harm them in returning to their old trade. In short, they have made investments which they expected to turn-over. Likewise, established plumbers may well have engaged spending commitments based on expected (inflated) incomes. Others, more cautious ones, may find themselves being driven out of the market by this glut of new comers.

Chaos all round, and far from being a free-flow of labour to where it is needed, we see the invidious hand of capital, or property, that demands to be turned over, but cannot be. That is the cause of capitalist crisis, and this is just a tiny example, but one worths studying in detail.


Blogger John said...

A timely posting, what with a new shower being installed at Number 52 this week;-)

1:20 AM  

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