patrick.net

The problem with Capitalism is eventually the largest consumer base runs out of money to buy the Capitalist's products.

This headline has been pushed and spun by Faux Noise and I suspect maybe some publicists working for the Kochtopus or something. If you read the actual article instead of only the headline, it says the CEO "is also facing a lawsuit filed by his older brother, Lucas. The suit, alleging the CEO took millions of dollars out of the company while denying him benefits from his 30 percent minority ownership, was filed two weeks after the salary announcement. The resulting legal fees are draining the profits of the company, along with the increased salary costs." Other companies do prosper while paying much higher wages than their neighbors, e.g. Lincoln Electric. The difference is those companies don't have CEOs allegedly taking money out of the company and allegedly cheating even their own family. If the case is proved, then a better headline might report on the hypocrisy of a CEO who pretends to generosity while secretly cheating, but meanwhile the spun headline gets pushed everywhere blaming the minimum wage.

thunderlips11 says

The problem with Capitalism is eventually the largest consumer base runs out of money to buy the Capitalist's products.

The issue with that is, it depends to a large degree on government policy. In Latin America, you can see copious evidence to support your hypothesis, and the W tax shift (commonly misnamed a "cut," which it wasn't really) put the USA on an essentially Latin American path. It wasn't always that way, but elsewhere on PatNet Dan has argued that it does tend inevitably to go that way, as government policy gets corrupted by powerful financial interests. The issue with Dan's view is, it doesn't explain why this happens sometimes and not others. I tend to suspect the rise of religious fundamentalism has caused many voters to vote against their own earthly self-interest, derailing the democratic process; the "god and guns" crowd enabled W to become governor of TX and then POTUS, causing already catastrophic and still potentially apocalyptic consequences.

gsr says

Dan Price, the CEO of Gravity Payments recently made headlines by declaring his company would raise its employees to a minimum salary of $70,000, says the decision has caused him to fall on hard times.

The man is an idiot.
So an employee making $35,000 will get a 100% raise, while a more qualified employee making $70,000 will get a 0% raise. The more qualified guy will feel ripped off if he does not get a 100% raise too.
This is why socialism never succeeds. It assumes a 7th grade drop out with no skills is worth the same as a brain surgeon.

curious2 says

Other companies do prosper while paying much higher wages than their neighbors, e.g. Lincoln Electric.

The problem is not just higher wages, but is also about proportionality. His good employees left since they did not get similar raises compared to that of unproductive ones. If you read the article, you will see that too. He just raised the based level to 70K. That means people who had been earning 70k before got shafted.

Strategist says

So an employee making $35,000 will get a 100% raise, while a more qualified employee making $70,000 will get a 0% raise. The more qualified guy will feel ripped off if he does not get a 100% raise too.

Exactly!

gsr says

Strategist says

So an employee making $35,000 will get a 100% raise, while a more qualified employee making $70,000 will get a 0% raise. The more qualified guy will feel ripped off if he does not get a 100% raise too.

Exactly!

And when you increase the minimum wage too high too quickly, you will have a similar effect. The shift supervisor with 5 years experience at McDonalds making $15.00 per hour now, will have a fit when a 16 year old he supervises makes the same. Prices of almost everything, from restaurants to movies will go up. Prices of almost everything in So Cal has already gone up. Even Chipotle raised it's prices.

thunderlips11 says

The problem with Capitalism is eventually the largest consumer base runs out of money to buy the Capitalist's products.

It could only be plausible when the currency is monopoly money. It is simply not possible under hard money.

Call it Crazy says

Strategist says

Prices of almost everything, from restaurants to movies will go up. Prices of almost everything in So Cal has already gone up.

That's not true, Tatu said so. He says the rise in minimum wage costs will have NO effect on prices.

Tatu has been with the union too long.
Even the illegal workers hanging out at Home Depot want more. I hired a couple a few months ago to remove some curtains. It took them less then 2 hours. They got their $50.00. And then demanded a Tip. -"Teep" They did do a good job, so I gave them a "teep" of $10.00.

Name one capitalist economy that doesn't have socialism in it. America doesn't count as the U.S. military is the largest socialist institution in all of history.

Strategist says

This is why socialism never succeeds.

Socialism isn't "paying everyone the same amount regardless of what they do". That's an imaginary system that no one, not even the company in this post, uses. If you want to bitch about socialism, learn what the fuck it is first.

Dan8267 says

Name one capitalist economy that doesn't have socialism in it.

None.

Dan8267 says

America doesn't count as the U.S. military is the largest socialist institution in all of history.

And welfare, and education, and medicare.
What's your point?

The point is that it is utterly impossible for any country to exist that doesn't use socialism to some extent.

Secondary point, it's hypocritical to condemn socialism as inherently evil or ineffective and not do the same to the U.S. military.

Dan8267 says

The point is that it is utterly impossible for any country to exist that doesn't use socialism to some extent.

Secondary point, it's hypocritical to condemn socialism as inherently evil or ineffective and not do the same to the U.S. military.

When we say socialist, we mean primarily socialist. When we say capitalistic, we mean primarily capitalistic.
It should be obvious.

gsr says

His good employees left since they did not get similar raises compared to that of unproductive ones. If you read the article, you will see that too.

[update: see below] I did read the article, and even the linked Faux Noise (shudder) claptrap that the morningticker claptrap was based on. Reportedly, two former employees said they disliked the wage compression. Turnover happens everywhere, and former employees have always a list of reasons why they left or were asked to leave. Cherry-picked anecdotes promoted by Faux Noise are not data. We have no data to compare turnover at this particular company to turnover at other companies in the same sector and/or geographic area. If you can link to data showing that turnover worsened, or really anything worsened, compared to other similarly situated companies, then please do. Otherwise it looks to me like a CEO was being accused by his own brother of corporate abuse, and maybe decided the best PR defense is a good PR offense, and so announced he was raising wages; then, when his family troubles caught up with him, some Faux Noise meme-spreaders decided to use the story for their own purposes, maybe with his collusion: they claim he's suffering because he paid his workers too much, when in reality he's suffering because he allegedly cheated his business partner who was also his brother.

curious2 says

I did read the article, and even the linked Faux Noise (shudder) claptrap that the morningticker claptrap was based on.

You are arguing against facts. This "claptrap" is published in New York Times as well. You can't claim New York Times has the same agenda as that of Fox News.

http://www.nytimes.com/2015/08/02/business/a-company-copes-with-backlash-against-the-raise-that-roared.html?_r=0
...................
Two of Mr. Price’s most valued employees quit, spurred in part by their view that it was unfair to double the pay of some new hires while the longest-serving staff members got small or no raises. Some friends and associates in Seattle’s close-knit entrepreneurial network were also piqued that Mr. Price’s action made them look stingy in front of their own employees.

Then potentially the worst blow of all: Less than two weeks after the announcement, Mr. Price’s older brother and Gravity co-founder, Lucas Price, citing longstanding differences, filed a lawsuit that potentially threatened the company’s very existence. With legal bills quickly mounting and most of his own paycheck and last year’s $2.2 million in profits plowed into the salary increases, Dan Price said, “We don’t have a margin of error to pay those legal fees.”

gsr says

curious2 says

I did read the article, and even the linked Faux Noise (shudder) claptrap that the morningticker claptrap was based on.

You are arguing against facts. This "claptrap" is published in New York Times as well. You can't claim New York Times has the same agenda as that of Fox News.

http://www.nytimes.com/2015/08/02/business/a-company-copes-with-backlash-against-the-raise-that-roared.html?_r=0

It is a lot easier to follow the Business Insider video here.
http://www.businessinsider.com/dan-price-gravity-payments-ceo-raises-pay-salary-70000-minimum-wage-2015-8

gsr says

You can't claim New York Times has the same agenda as that of Fox News.

Well, let's just say that I don't, at least on domestic policy, though they have aligned very closely on some issues, e.g. their support for the Iraq war.

Anyway, thanks for the additional links. I had been seeing this story reported only from one pole of America's polarized polity. You're right though, corroboration is showing up elsewhere on the spectrum, and in greater detail.

Strategist says

When we say socialist, we mean primarily socialist. When we say capitalistic, we mean primarily capitalistic.

Your statements are meaningless then. You cannot measure non-scalar values as percentages. It's meaningless to say an economy is 30% socialist and 70% capitalist. It's doubly meaningless as socialism isn't an economic system, but rather a strategy and one with varying scope.

Call it Crazy says

That's not true, Tatu said so. He says the rise in minimum wage costs will have NO effect on prices.

That's not what I said, but I wouldn't expect you to understand even such a simple concept as supply and demand. What I said was that prices are set by supply and demand and are independent of cost (except for the very long run--which we may never reach).

Here's a primer for you and Strat:

http://www.investopedia.com/university/economics/economics3.asp

In reality, an increase in minimum wage would probably lead to slightly higher prices as the extra wages translate to extra demand. Lower income folks tend to spend a larger % of their earnings than do higher income folks so a dollar paid to low income will give more demand than a dollar paid to high income.

Strategist says

Tatu has been with the union too long.

Even the illegal workers hanging out at Home Depot want more. I hired a couple a few months ago to remove some curtains. It took them less then 2 hours. They got their $50.00. And then demanded a Tip. -"Teep" They did do a good job, so I gave them a "teep" of $10.00.

Nice that you got a shot in at unions. Well played, sir. But what does a couple workers wanting more for their labor have to do with the fact that price is independent of cost??

It is not a fact that price is independent of cost.
The two components of price are:
1- Cost: a seller will not price an object for less than cost ( unless it is some type of advertising investment or tax strategy )
2- Greed: a seller will try rake in as much as possible, above cost, given demand and competition pricing.

tatupu70 says

with the fact that price is independent of cost

SoftShell says

It is not a fact that price is independent of cost.

The two components of price are:

1- Cost: a seller will not price an object for less than cost ( unless it is some type of advertising investment or tax strategy )

2- Greed: a seller will try rake in as much as possible, above cost, given demand and competition pricing.

Which is why I said this:

tatupu70 says

What I said was that prices are set by supply and demand and are independent of cost (except for the very long run--which we may never reach).

You cannot separate cost from the price equation.
Prices are set by supply, demand, cost, and to a lesser degree, other variables .

tatupu70 says

tatupu70 says

What I said was that prices are set by supply and demand and are independent of cost (except for the very long run--which we may never reach).

SoftShell says

You cannot separate cost from the price equation.

Prices are set by supply, demand, cost, and to a lesser degree, other variables .

Of course you can. The only way cost is a consideration is in the long run if less efficient suppliers go out of business which decreases supply.

Many variables affect supply and demand, sure. Is that what you're trying to say?

Call it Crazy says

It's a really good thing your wife handles your checkbook!!

I know you're trying hard to be funny, but that makes no sense as usual. How is budgeting at all relevant?

Look what minimum wage gets you at Checkers

https://www.youtube.com/embed/k6Dvpw03BNY&feature=youtu.be

tatupu70 says

In reality, an increase in minimum wage would probably lead to slightly higher prices as the extra wages translate to extra demand.

This theory might have worked in a closed economy prior to automation and high sunk capital cost. We now have a service-centric economy with companies organized around as little sunk fixed capital as possible. We now have multiple decades of evidence that raising minimum wage does not lead to aggregate wage increase: instead, entry level jobs are either out-sourced or replaced by robotics and automation. The result then is lower employment rate and lower aggregate wage than it would have been if the government had not removed the first few steps in the job ladder.

Lower income folks tend to spend a larger % of their earnings than do higher income folks so a dollar paid to low income will give more demand than a dollar paid to high income.

Income can only be directed into either consumption or investment, both are forms of spending ("Demand"). Bad investment is no different from consumption. Good investment however leads to productivity increase and higher living standard. Redistributing resources from those who have a track record of making good investments to those who either never invest or have a track record of bad investments would only lead to stagnating/declining living standards and economic/social chaos.

Socialism will destroy this country! The only way to save America is to stop all forms of subsidies & handouts to Rep/Con/Teas.

Reality says

Income can only be directed into either consumption or investment, both are forms of spending ("Demand")

What am I investing in when I put my income in my mattress?

Reality says

Redistributing resources from those who have a track record of making good investments to those who either never invest or have a track record of bad investments would only lead to stagnating/declining living standards and economic/social chaos.

lol--your incorrect assumption is that wealthier people have a better track record of investments. And that poor people would do worse than them.

Regardless, we're in a demand driven recession. As I've said many, many times to you--we have an overabundance of cash available to invest. The reason it isn't invested is because there is no demand and we already have excess capacity for basically everything.

spinal stenosis relief...

tatupu70 says

What am I investing in when I put my income in my mattress?

tatupu70 says

Income can only be directed into either consumption or investment, both are forms of spending ("Demand")

What am I investing in when I put my income in my mattress?

Putting your income/money in your mattress would:
1. Defer your purchasing power to someone else either consuming or making investment purchases of other goods;
2. Increase market demand for printed cash; i.e. ink, cotton, and security
3. Increase market demand for mattress. LOL.

BTW, the poor put far higher percentage of their net worth in mattress than the rich do. So if you are afraid of people putting money in mattress, you should advocate taking money from the poor who put their money in mattresses to the rich who are much more thoroughly banked . . . ironically, that's precisely what the fiat money printing does: transfering wealth from the poor who keep much higher percentage of their net worth in cash (and less banked) to the rich who are more banked and leveraged!

tatupu70 says

lol--your incorrect assumption is that wealthier people have a better track record of investments. And that poor people would do worse than them.

The correlation is not 100%, but certainly statistically significant, except for the government enforced cronies getting rich thanks to government granted privileges.

Regardless, we're in a demand driven recession. As I've said many, many times to you--we have an overabundance of cash available to invest. The reason it isn't invested is because there is no demand and we already have excess capacity for basically everything.

"Demand driven recession" is a sad joke invented by the likes of John Law and Keynes. Every recession is "demand driven recession" by their illogic, so there is no point to this label anyway even in their made-up universe. What's really happening now, as in practically every recession, is that previous speculative allocation resources (aka investment) is now revealed to not to match consumer demand. i.e. past investment is now found to be malinvestment. The solution to such a problem is forcing the write-off of old debts associated with those malinvestment, so that new entrepreneurs can emerge better catering to current consumer demand. Those new entrepreneurs can create far more additional productive and good paying jobs than the TBTF banks that the fiat money machine is trying to save.

Hey, this is exactly what we were talking about yesterday. LOL.
http://finance.yahoo.com/news/unintended-consequence-wal-marts-raise-150726331.html
When Wal-Mart Stores Inc. chief Doug McMillon announced plans to boost store workers’ minimum wage earlier this year, he said the move was intended to improve morale and retain employees.
In interviews and in hundreds of comments on Facebook, Wal-Mart employees are calling the move unfair to senior workers who got no increase and now make the same or close to what newer, less experienced colleagues earn. New workers started making a minimum of $9 an hour in April and will get at least $10 an hour in February.
@gsr

Reality says

Defer your purchasing power to someone else either consuming or making investment purchases of other goods

Typically this is called "saving" and is another option that you neglected to mention.

"saving--process of setting aside a portion of current income for future use, or the flow of resources accumulated in this way over a given period of time"

http://www.britannica.com/topic/saving

Rich save at a much, much higher rate than the poor.

Reality says

BTW, the poor put far higher percentage of their net worth in mattress than the rich do. So if you are afraid of people putting money in mattress, you should advocate taking money from the poor who put their money in mattresses to the rich who are much more thoroughly banked . . . ironically, that's precisely what the fiat money printing does: transfering wealth from the poor who keep much higher percentage of their net worth in cash (and less banked) to the rich who are more banked and leveraged!

The mattress statement was to use an extreme to prove a point. Probably lost on you, I realize, but I try. The only ironic thing is that you continue to post this nonsense.

Reality says

What's really happening now, as in practically every recession, is that previous speculative allocation resources (aka investment) is now revealed to not to match consumer demand. i.e. past investment is now found to be malinvestment. The solution to such a problem is forcing the write-off of old debts associated with those malinvestment, so that new entrepreneurs can emerge better catering to current consumer demand. Those new entrepreneurs can create far more additional productive and good paying jobs than the TBTF banks that the fiat money machine is trying to save

This is completely incorrect. Basically you are saying there is no cash available for anyone to invest to "cater to current consumer demand". Interest rates are near all time lows. There is literally a sea of cash looking for anything to invest in. What the hell is stopping new entrepreneurs from forming new businesses now???

Fiat money and/or banks are not stopping this. Nor could they be.

tatupu70 says

Defer your purchasing power to someone else either consuming or making investment purchases of other goods

Typically this is called "saving" and is another option that you neglected to mention.

"saving--process of setting aside a portion of current income for future use, or the flow of resources accumulated in this way over a given period of time"

http://www.britannica.com/topic/saving

Rich save at a much, much higher rate than the poor.

The rich do not save money in their mattresses. When they bank the money, the money becomes loanable to others; in a fractional reserve system, multiple times over! So your mattress nonsense is fundamentally contrary to application to the rich. Make up your mind please, are you against the rich or against people putting much of their money in their mattresses. These two are mutually exclusive groups.

tatupu70 says

BTW, the poor put far higher percentage of their net worth in mattress than the rich do. So if you are afraid of people putting money in mattress, you should advocate taking money from the poor who put their money in mattresses to the rich who are much more thoroughly banked . . . ironically, that's precisely what the fiat money printing does: transfering wealth from the poor who keep much higher percentage of their net worth in cash (and less banked) to the rich who are more banked and leveraged!

The mattress statement was to use an extreme to prove a point. Probably lost on you, I realize, but I try. The only ironic thing is that you continue to post this nonsense.

Nope, it is not lost on me at all: I pointed out the inherent contradiction in your hypothesis. In reality, the rich save by investing! That investment if leveraged creates multiple times the demand that the original cash amount would create! That may actually be somewhat of a valid argument against government incentives for over-stimulate during booms: as leveraged investment demand by the rich may create incentives for malinvestment to meet those demands. That is actually one of the fundamental reasons why central banking creates bubbles and bust: the central banks tend to be too slow in removing their interest rate suppression effort, the result is effectively a negative tax on investment and leveraging when a boom is already underway, leading to bubble! which of course would eventually lead to bust.

tatupu70 says

This is completely incorrect. Basically you are saying there is no cash available for anyone to invest to "cater to current consumer demand". Interest rates are near all time lows. There is literally a sea of cash looking for anything to invest in. What the hell is stopping new entrepreneurs from forming new businesses now???

Lack of after-tax profit opportunity. Why would anyone invest in something that would result in negative after-tax return? thanks to high taxes and cheap money keeping too many competitors in numerous industries living off low interest rate. That's why new money is being poured into SF high tech industry in hopes of a field that might yield high return.

Fiat money and/or banks are not stopping this. Nor could they be.

Only because you are unable to think like a businessman.

Reality says

The rich do not save money in their mattresses. When they bank the money, the money becomes loanable to others; in a fractional reserve system, multiple times over! So your mattress nonsense is fundamentally contrary to application to the rich. Make up your mind please, are you against the rich or against people putting much of their money in their mattresses. These two are mutually exclusive groups.

I not against anyone. Well, I guess I'm against people who post nonsense on pat.net.

Reality says

In reality, the rich save by investing! That investment if leveraged creates multiple times the demand that the original cash amount would create!

With a good portion of their money, yes. The investment doesn't create demand. Demand exists--the investment can help entrepreneurs create products or services that meet the demand that already exists.

Reality says

Lack of after-tax profit opportunity. Why would anyone invest in something that would result in negative after-tax return? thanks to high taxes and cheap money keeping too many competitors in numerous industries living off low interest rate. That's why new money is being poured into SF high tech industry in hopes of a field that might yield high return.

So, let's recap. You're saying that there actually is lots of demand that isn't being met because there is no cash available to invest in capital to meet this demand. What I asked how this is possible with interest rates at near all time lows--you respond that it's not actually lack of cash/capital--it's because entrepreneurs can't compete with the existing producers?? Huh? If the current producers are able to produce at lower cost than any new competitors, why is there unmet demand???

Reality says

Only because you are unable to think like a businessman.

Great non-answer. Actually I do think like a businessman and I understand that there's no reason to invest when there is no unmet demand. And when there is all kinds of excess supply. Funny, I guess supply doesn't create its own demand after all.

tatupu70 says

I not against anyone. Well, I guess I'm against people who post nonsense on pat.net.

Then you should be against yourself.

tatupu70 says

Reality says

In reality, the rich save by investing! That investment if leveraged creates multiple times the demand that the original cash amount would create!

With a good portion of their money, yes. The investment doesn't create demand. Demand exists--the investment can help entrepreneurs create products or services that meet the demand that already exists.

Do you realize that you just proved yourself to be completely ignorant of economics and never even taken Econ 101?! Investment spending of course creates Current Demand. The Output/Return (if any) in the future from current Investment doesn't appear in the Current Demand or Current Supply.

tatupu70 says

Reality says

Lack of after-tax profit opportunity. Why would anyone invest in something that would result in negative after-tax return? thanks to high taxes and cheap money keeping too many competitors in numerous industries living off low interest rate. That's why new money is being poured into SF high tech industry in hopes of a field that might yield high return.

So, let's recap. You're saying that there actually is lots of demand that isn't being met because there is no cash available to invest in capital to meet this demand.

Stop lying. I said no such thing. You are trying to put your own nonsense in my mouth. A negative after-tax return means the "Want" does not constitute Qualfied Demand (== defintion of Demand) at all. Let me give you an example: say a Marjuana grower using current technology in a particular location can generate 20% pre-tax profit after capital and labor cost, yet because the federal income tax code doesn't allow deduction of expenses for running a pot growing business and the guy is in the 25% tax bracket. That means the guy is not able to run a pot growing business regardless how much market Want for pot is out there at the current price, and regardless how much money he can borrow. The more he borrows and grows, the more he'd just lose money after tax! He can run a pot growing business and hire people only if:

1. the effective tax rate is lowered either by lowered rate or by allowing deduction of business expenses;

2. new technology making pot growing yield higher than 33% in the locality: $75k expenses would yield $100k revenue, and at 25% tax on revenue would leave $75k after-tax, his break-even point, not counting any of his own time and labor.

3. competitors go out of business and allow prices to go up so that he can generate more than 33% profit

What I asked how this is possible with interest rates at near all time lows--you respond that it's not actually lack of cash/capital--it's because entrepreneurs can't compete with the existing producers?? Huh? If the current producers are able to produce at lower cost than any new competitors, why is there unmet demand???

Tax code, regulations, sunk cost, etc. etc. See example above. Artificially low interest rate enable the Ponzi borrowers to stay in business and drag down prices.

tatupu70 says

Great non-answer. Actually I do think like a businessman and I understand that there's no reason to invest when there is no unmet demand. And when there is all kinds of excess supply. Funny, I guess supply doesn't create its own demand after all.

You obviously don't understand what Demand means in economics: Demand means Qualified Demand, which is a Want combined with the Ability to Pay at a Price level that someone can profitably Supply (Qualified Supply). Human Want is unlimited. However, resources are always limited. A factory that turns metal and leather into obsolete Lada cars that are worth less than the original metal and leather are worth does not produce Qualified Supply; however, to the idiots like you, it would be called "excess capacity" for car production.

The solution for that "excess capacity" is not printing up money to give cars away and waste more metal and leather to keep the Lada factory running, but to dismantle the obsolete factory and liberate the workers to work for more productive factories making more up to date cars.

Reality says

Do you realize that you just prove yourself to be completely ignorant of economics and never even taken Econ 101?! Investment spending of course creates Current Demand. The Output/Return (if any) from Investment in the future doesn't appear in the Current Demand or Current Supply.

Nope--I'm well aware of economics and you're wrong.

Reality says

Let me give you an example: say a Marjuana grower using current technology in a particular location can generate 20% pre-tax profit after capital and labor cost, yet because the federal income tax code doesn't allow deduction of expenses for running a pot growing business and the guy is in the 25% tax bracket.

In this example it has nothing to do with malinvestment or TBTF banks. He's not efficient enough. Are you arguing that the problem with our economy is current businesses are more efficient than entrepreneurs? How is that a bad thing?

Reality says

Tax code, regulations, sunk cost, etc. etc. See example above. Artificially low interest rate enable the Ponzi borrowers to stay in business and drag down prices

I figured you'd circle around to this nonsense at some point. Interest rates are set by the MARKET. Nobody is borrowing from the Fed window to finance business.

And, again, even if they were (which they're not), that would be a good thing. They could lower prices which would lead to more sales and, hopefully, more jobs.

Reality says

You obviously don't understand what Demand means in economics: Demand means Qualified Demand, which is a Want combined with the Ability to Pay at a Price level that someone can profitably Supply (Qualified Supply).

Ridiculous. Please show me any definition that includes the qualifier about someone being able to profitably supply. You're just making shit up now.

Reality says

A factory that turns metal and leather into obsolete Lada cars that are worth less than the original metal and leather are worth in the market does not produce Qualified Supply; however, to the idiots like you, it would be called "excess capacity" for car production.

Nope--excess capacity is factories that are currently operating at 50% of rated capacity.

Reality says

The solution for that "excess capacity" is not printing up money to give cars away and waste more metal and leather to keep the Lada factory running, but to dismantle the obsolete factory and liberate the workers to work for more productive factories making more up to date cars.

You'd have a point if that's what we were talking about. And how does that obsolete Lada factory keep new entrepreneurs from entering the auto market and making more up to date cars that will sell for more money??