Month: October 2009

Recession and Recovery

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One of the broad assumptions behind recessions and recoveries is that during the “boom”, excess capacity is built into the system as manufacturers & service providers expand to meet increasing needs (today, and in the future). During the recession, manufacturers & service providers pare back, leaving capacity idle.

Part of the reason that the recovery (typically) gains steam is that bringing back this idle capacity (both in physical and human capital) is cheaper than building (or training) new, and it allows the economy to “roar” back into high gear. In some high level sense WW2 leveraged all of the physical and human capital that was idled by the great depression; while huge plants were built and millions of workers mobilized much of the initial lift was caused by leveraging what we had that was unused at the time.

When I look at this “boom” and recession, however, from the point of view of the USA, it doesn’t seem that we over-invested in productive capacity. Much of the investment was in residential real estate and commercial real estate for distribution, retail and services.

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“All children live in blocks of flats or in houses,” says Amalie. “Every house has rooms. All the houses together make one big house. This big house is our country. Our fatherland.”

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From the Herta Müller novel The Passport. As previously mentioned on chicagoboyz, Herta Müller is the 2009 winner of the Nobel Prize in literature. The above excerpted passage continues:

Amalie points at the map. “This is our Fatherland,” she says. With her fingertip she searches for the black dots on the map. “These are the towns of our Fatherland,” says Amalie. “The towns are the rooms of this big house, our country. Our fathers and mothers live in our houses. They are our parents. Every child has its parents. Just as the father in the house in which we live is our father, so Comrade Nicolae Ceausescu is the father of our country. And just as the mother in the house in which we live is our mother, so Comrade Elena Ceausescu is the mother of our country. Comrade Nicolae Ceausescu is the father of all the children. And Comrade Elena Ceausescu is the mother of all the children. All the children love comrade Nicolae and comrade Elena, because they are their parents.”

Chilling, no?

Gulliver, Meet the Lilliputians

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California state officials have been busy writing regulations:

The California Air Resources Board (CARB) just passed a new regulation that requires glazed glass in automobiles that is supposed to reduce the need to use air conditioning. The catch is that the same properties that block electromagnetic sunlight radiation also blocks lower frequency electromagnetic radio waves. That means radios, satellite radios, GPS, garage door openers, and cell phones will be severely degraded. Even more surprising is that it requires this glass even for jeeps that have soft covers, plastic windows, and no air conditioning. Furthermore, the rules are so stringent that they effectively make sunroofs black, even though many consumers use the covers.

Also, the California State Energy Commission is promulgating stringent energy-consumption requirements for flat-screen TVs. At a minimum, these will surely increase prices to consumers (if manufacturers could increase energy efficiency without raising prices, they would have already done it, since efficiency is a selling point) and may effectively ban some size-technology combinations. This is being done on the theory that it will reduce overall electricity consumption and help avoid the need to build new power plants.

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