Click to enlarge.
Since the depths of the recession, we've been hiring more and more tire dealer employees. We're seeing no increase in total miles traveled though. Think that's going to be sustainable over the long-term?
If the trend channel in blue represents rising productivity, then what does the trend in red represent? Rose-colored glasses?
Malinvestment is a concept developed by the Austrian School of economic thought, that refers to investments of firms being badly allocated due to what they assert to be an artificially low cost of credit and an unsustainable increase in money supply, often blamed on a central bank. This concept is central to the Austrian business cycle theory. Austrian economists such as Nobel laureate F. A. Hayek advocate the idea that malinvestment occurs due to the combination of fractional reserve banking and artificially low interest rates misleading relative price signals which eventually necessitate a corrective contraction—a boom followed by a bust.
Based on the chart above, malinvestment at tire dealers seems more than likely to me. Where else do you suppose it is appearing? Or did I just get lucky and think this one up in isolation?
Before you answer, I started with the premise that I would see malinvestment in tire dealers. I then went looking for malinvestment. Being able to include the "tired" pun was just a bonus.
It would not surprise me if this very same malinvestment theory could be applied to retail trade in general. For example, picture retail salespeople and mall traffic. I do not have easy access to reliable mall traffic though, so this chart will have to suffice for now.
Who really believes that malinvestment based growth is sustainable over the long-term? I sure as heck don't.
This is not investment advice.
St. Louis Fed: Total Vehicle Miles Traveled