Friday, October 4, 2013

Tired of Malinvestment?

The following chart shows the number of employees at tire dealers divided by annual vehicle miles traveled.

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.

Source Data:
BLS: Employment
St. Louis Fed: Total Vehicle Miles Traveled


Anonymous said...

This doesn't make sense - why would tire dealers or any other retailers hire more people than they have traditionally needed. It's not like monetary policies are making it advantageous to hire superfluous employees, or is it? Something else must be going on - maybe they also now sell snacks, dope, stolen iphones?


Stagflationary Mark said...


There was pent-up demand for maintenance during the Great Recession. Maintaining cars is something that can generally be postponed a bit, but not forever.

There is real short-term demand right now as people get their cars fixed and put new tires on them. It's the demand we'd normally see plus the deferred maintenance that had built up. Tire dealers must hire more than normal to meet that extra demand.

Once people have fixed their cars and put new tires on them, then what? In my opinion, we'll see less demand and too many workers to meet it. That's especially true if per capita driving continues to fall. The less we drive, the less maintenance we should need.

If so, then tire dealers will have to start letting people go. If most businesses begin to do the same, then we'll experience another employment bust.

That employment bust will reduce demand for auto maintenance even further. The reduced demand will lead to even more people being let go.

That's a recipe for a business cycle that's been forced to experience a serious sugar rush. Sigh.

Just opinions!

TJandTheBear said...
This comment has been removed by the author.
TJandTheBear said...

Since government is such a huge percentage of GDP malinvestment is the order of the day. As long as you can afford a good lobbyist you can get yours!

Stagflationary Mark said...


But... but... the code of ethics!

The 8 Rules of Fight Club

The 9 Rules of Lobbying

The 17 Rules of the NAR

The longer and more visible your code of ethics, the more likely you are to behave ethically!

Time: 25 People to Blame for the Financial Crisis

When the chief economist at the National Association of Realtors, an industry trade group, tells you the housing market is going to keep on chugging forever, you listen with a grain of salt. But Lereah, who held the position through early 2007, did more than issue rosy forecasts. He regularly trumpeted the infallibility of housing as an investment in interviews, on TV and in his 2005 book, Are You Missing the Real Estate Boom?. Lereah says he grew concerned about the direction of the market in 2006, but consider his January 2007 statement: "It appears we have established a bottom."

Stagflationary Mark said...

From the lobbyist link:

To help preserve and advance public trust and confidence in our democratic institutions and the public policy advocacy process, professional lobbyists have a strong obligation to act always in the highest ethical and moral manner in their dealings with all parties.

So much trust! So much confidence!

We definitely need to preserve it, lol.

Anonymous said...


One thing I noticed is that the average tire size/width keeps increasing. a few years ago 17" wheels were huge, today there are many cars with 18" and 19" wheels. In general larger/wider tires are more expensive... (granted.. I agree with your argument).


Stagflationary Mark said...


Perhaps one worker is needed to install 17" wheels but 3 workers are needed to install 19" wheels?

Why not just 2 workers?

Once you get to 2 workers, clearly someone needs to supervise!

Perhaps I'm only half-joking, lol. Sigh.