Surplus of anything depreciates value of “anything”
Surplus refers to the quantity of assets or resources that exceeds the requirement. Surplus is a desire in short term but a major problem in long run, by reading this article you might just agree with my statement. This term is often used for capital, labour, budget, goods etc. Problem of surplus is also related to Alfred Marshall’s Law of diminishing marginal utility. Not only surplus creates a problem in long run but also it has diminishing returns. Surplus is like music to anyone’s ears, but the problem with surplus is that, if it’s not utilized effectively it will turn out to be a burden for that firm, person or economy.
Surplus in different aspects
Goods Market
If there is an unlimited supply of any good, people wouldn’t store it and would be indifferent to the price change of the product. In the initial years, consumers would be happy for it, people in the allied industries would be also happy but over the period the value of that commodity would be diminishing. For example, when Reliance Jio was launched there was a hype in the Indian market for the new telecom company, but over the months competitors came up with similar plans. Now that the telecom service in India is not that hard on everyone’s pocket the customers are happy but that is a diminishing rate. I personally, use to call up people for small talks in the initial months of the launch of various plans, that made me feel happy because I was calling and had to pay almost nothing for it and now 3 years down the line my utility for the change in telecom plans is almost 0.
Budget
For instance if India is having a surplus budget of ₹ 10,00,000 Cr every year, due to any advantage is good, but if that surplus amount is utilized for unproductive purposes like building statues or spending on securities of “law-makers” getting a surplus budget is bad for the Indian economy. If the surplus amount was used to for productive purpose, then it would be good for the country. Who knows if all the cards play well the surplus amount would increase by a certain percentage year by year. The ruling party can just claim during their election rallies about achieving surplus budget, but it is bad if the effect of surplus budget doesn’t trickle down to the poorest section of the economy.
Wealth
A wealthy person is satisfied with her/his wealth till the time, the saturation point is reached. Once the saturation point is reached the person becomes a case of diminishing marginal utility. For instance, if Ms. A accumulates a wealth of ₹ 50,00,00,000 and after earning even ₹ 50,000 more she would start disliking wealth.
Power
It is wisely said that, too much power corrupts. This statement perfectly explains the problem of surplus power. In a democracy if a family knows that, come what may their family is going to be in power for decades and decades they wouldn’t work as efficiently as they would if there was a fear of opposition coming into power.
Case Studies
- Sectoral Development
When an economy focuses on the development of a sector, that sector’s production is surplus resulting in harming the other sectors and reducing the price for the product of that sector. In the year 1977 The Economist magazine coined the term Dutch Disease for such a situation. This term was coined when they were analyzing the crisis which occurred in Holland, Netherlands. This crisis was due to the discovery of vast natural gas deposits in the North Sea in the year 1959. When the government realized the vast natural gas deposits, it started promoting that sector and neglected other sectors which resulted in problems like increasing unemployment.
- Agriculture
In the year 2010, India had a boom in terms of wheat production. There was lack of storage facility available for the farmers to store wheat. Due to a large supply, the price of wheat was cheap resulting in creating a disequilibrium in the wheat market. Tons and tons of wheat was rotted. Due to surplus production, the farmers were in trouble.
- Printing of Currency
When an economy prints more currency, it creates a surplus supply of that currency. Which reduces the value of that currency. Zimbabwe is the best example. The citizens of Zimbabwe carry a lot of currency to buy a handful of goods.
- Power
In India, till date there are 10 prime ministers, all from different political parties have been elected from Uttar Pradesh, still the state is performing badly and the residents of that states have to go out of the state in search for a living.
Solutions:
1) In India when the prime ministers are being elected from a state, they could have developed the state in past 70 years.
2) If the Indian government had planned properly for the export of the wheat in the year 2010, it would be beneficial for the economy.
3) If the government of Zimbabwe would have regulated the printing of its currency the country wouldn’t have suffer what it’s suffering today. Surplus of anything may it be commodity, power, currency, sectoral production, wealth, budget etc. is a problem unless it is used wisely. Thus, a surplus of anything depreciates the value of “anything”.
Note: This article was written by me for The Economic Transcript, Mithibai Economic Forum, Mithibai College.