Globally, we have an oversupply of labour... but we also have lots of capital unused... What Xie's piece puts in my mind is that we may have, in the West hit the limits of "capital availability" in spurring growth.

This makes no distinction as to the ends for which capital is employed, or, in a utopia, is allowed to be employed. It assumes that capital is employed for productive purposes and then tries to explain why that doesn't always work. This is what the holders of the capital would have us think.

But in the USA and, now it seems, in Japan after 1990 capital was deployed to extract the maximum rent possible and if this resulted in cannibalization of the domestic economy that was just another "innovation" so long as the returns to the FIRE sector looked good, as with "off-shoring" of manufacturing operations. For the holders of capital the loss of domestic employment is a necessary consequence. If they can't externalize that consequence they will minimize it.

Mainstream Economics doesn't seem to really concern itself much with debt levels but the ratio of total debt to GDP. Had we shown concern with the debt to GDP ratio instead of wage inflation we would have been alerted to the problems of the asset bubbles and could have prevented them, we would have a more equal wealth distribution and larger consumer demand.

Goodhart's Law states that whenever an economic indicator is made the target for setting policy it loses the information content that would qualify it to play such a role. (Note 16, p.4 of Edward Chancellor's excellent White Paper, China's Red Flags, via Zero Hedge.) We have certainly succeeded in controlling wage inflation--to our detriment and the dropping of M3, the revisions to the CPI and all of the various measures of unemployment in the USA would seem to support Goodhart. We need better metrics AND better application of those metrics.

"It is not necessary to have hope in order to persevere."