Tuesday, August 11, 2009

Economic shift

Kurt Andersen in Time magazine on line wrote: “as some of the huge, dominant, old-growth trees of our economic forest fall, the seedlings and saplings — that is, the people determined to produce and sell new kinds of transportation and housing and media and other merchandise in new, economically rational ways — will have a clearer field in which to grow”

One big failure of all the economists trying to formulate a government policy is really shown in this choice of metaphor. Yes, in a forest, the big trees die to make way for the next generation of big trees. The problem with his use of the metaphor in today’s economy is that it is incomplete.

The trees can represent the businesses that are constantly growing, dieing and being replaced by the next “tree”. In this metaphor there are no people. Not to push the forest image beyond reality, the people are the birds and animals that live in the forest. When the forest dies of natural causes, one tree at a time, the “critters” that live in the forest have time to adjust and only a very few loose their home or food source.

If our economy is a forest, then current conditions are a forest fire where the fire burns through the forest so fast that the critters don’t have time to escape or adjust. They just die.

In his article, Mr. Andersen talks about Aptera Motors, Fisker Automotive, Tesla Motors, and Bright Automotive as the model replacing GM and Chrysler. Kurt, how many cars will any of these new companies need to sell to get the loans for the kind of money it will take to set up an assembly line to churn out 600,000 cars a year, and remember that the average person can’t afford a $30,000 car. At the same time these new companies need to generate huge sums just to build the plant to make cars, they need to cut the selling price by half.

And if current employment trends continue, that $15,000 car price might have to shrink to $10,000 to $12,000. If the economy takes 5 years to recover, how many people living in the “Obamavilles” (remember in the great depression they called the shantytowns Hoovervilles) will be able to buy those cars?

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