current example of a malinvestment?

Economics Economics Questions
1

i have read the word malinvestment alot on mises and lrc sites.

malinvestment, i assume, not just from poor entrepeneurship, but that exacerbated by unreadable mysterious credit expansion by the central bank and commercial banks?

i dont know if its true or not.

if so, well there are many thrift stores where i live. if the millions over the years put into new furniture manfacturing went instead into furniture repair, or more furnished condos or more roads, etc., would this have been an example of the mises and lrc notion of malinvestment?

any other real examples??

2

need we look further than all those new houses built that no one needed?

3

i am not in one of those areas. so i dont know.

years ago (late 80s) i saw a condo comples get 7/8 completed…the builder bailed and they sat for a few years before having to get refurbished. now they are full and resided (they had to be) reroofed (they had to be) and mold and mildew removed too.

that was in an economically healthy city in the southeast…experiencg nationally recognized growth.

you may be full of shit.

4

Dubai, Nevada, and pretty much everything else. The American economy is one giant malinvestment.

5

one big malinvestment??

“when prices are adjusted for inflation, Americans today spend '40% less on clothes, 20% less on food, more than 50% less on appliances, about 25% less on owning and maintaining a car’than they did during the early 1970s. Over that same period, Census Bureau tables show, US median household income rose by at least 18% in constant dollars . . .”

http://blog.mises.org/archives/010741.asp

once adjusted for malinvestment…

40 percent less on clothes…a necessary item for most places. 20 percent less on food… a 0.7 percent decrease per year or so…50 percent less on refrigerting food and things to cook food and things to cool the cool the home…25 percent less on owning a vehicle (faster than taking the bus)

and this is called malinvestment?? did paper products go through the roof?? gertiol prices skyrocket even after adjusting?

just wondering.

6

I’m not sure we are on the same page. Malinvestment as I understand it is a very simple concept. It is when someone takes steps to produce things nobody wants. Like if he starts building a house that no one is going to buy [whether he finishes it or not]. Even if five years later someone does buy the house, it was a malinvestment when he built it, because there was no market for it then.

So I don’t get at all what you mean by “adjusted for malinvestment”. Nor do I get any of what follows in your post.

7

Malinvestments are production methods which either can’t be completed at all, on time, or will be completed, but only at the expense of more warranted investments. I don’t want to get too technical, but it’s investment activities which requires perpetual inflation and reductions in interest rates in order to remain profitable (which is impossible)–it’s the source of crises. There’s not enough savings for their completion, and when the adjustments take place, costs will rise faster than prices for their finished products.

8

So I don’t get at all what you mean by “adjusted for malinvestment”. Nor do I get any of what follows in your post.

it wasnt to you.

this comment was made earlier…unless you are jsu tone person using several differnt names.

“the american economy is one giant malinvestment”

9

This is a tell-tale sign of significant malinvestment.??

whatever…a steadily declining price level for necessary goods that you call malinvestment – thats absurd.

appliance companys are still around, automakers, wal-mart and various brands still making food items? at declining prices…that sounds nothing at all like malinvestment.

can you speak to a specific malinvestment, not just a bad business decision, that conforms to your belief (you arent lying are you) in a business cycle blunder? billions of dollars in some type of bank reg induced credit expansion that somehow fools millions of people into misplacing their money?

if they wouldnt keep money in checking accounts would that do it?

10

Its hard to really say what is malinvestment until the market prices are established, the price controls lifted. And that hasnt happened in the banking sector.

11

can you speak to a specific malinvestment, not just a bad business decision, that conforms to your belief (you arent lying are you) in a business cycle blunder? billions of dollars in some type of bank reg induced credit expansion that somehow fools millions of people into misplacing their money?

if they wouldnt keep money in checking accounts would that do it?

12

can someone here chart a business cycle blunder.

specifically.

did it start with the federal reserve purchaisng up a bunch of bank junk assets with instatn money??

what did teh federal do with the junk asset?

did the banks take the new money and fire it into a few sectors…starting the described boom?

was this money generated fast enough to deceive many other investors that the such and such growth was sustainable and necessary??

is that what happens? when did malinvesntment cycle last occur?

13

m1 since 1990 to 2007 hasnt doubled.

from 97 to 01 looked relativly flat…was the 40 some percent increase between 1990 and 95 enough to create a malinvestment cycle somehow??

was there one?

http://www.economagic.com/em-cgi/daychart.exe/form

14

Hmm, it seems like you absolutely misunderstand simple economic terms, such as investment, consumption, ect. Those finished goods are not investments, they are consumption goods of the lowest possible order, also called “current goods.” Investment takes place in the higher orders of production and have to do with the creation/employment of intermediary goods, and various inputs required for those finished goods. It also deals with certain production methods.

Again, a simple example of malinvestment–building the Burj Dubai tower, building entire housing communities in Nevada, increasing oil exploration, ect..

15

I think I’m beginning to see what you are asking.#### Let’s start with the wikipedia definition of malinvestment:#### Malinvestment#### From Wikipedia, the free encyclopedia#### Jump to: navigation, search

Malinvestment is a concept developed by the Austrian School of economics that refers to investments of firms being badly allocated due to 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.#### [edit]

I think you are looking for examples of bad investments that were made not noly because of stupidity, but because of low interest rates and an increase in money supply.

OK so far so good. First, let’s point out that this definition is a bit obsolete ad has to be revised, because it comes from a time when most loans were made to businesses, not private individuals. With the huge amounts of money now being lent to private people, we need to omit the words “of firms” and replace it with “in huge amounts”.

That said, our eye are opened to see that we have to look for an artificially low cost of credit, which means low interest rates. Have we had this odd phenomenon recently? Can we agree on an unqualified yes? Good.

OK, now let us search for the next thing. Have we had investments badly allocated because of low interest rates recently?

Case 1. Have people been BUYING houses thinking they are “investing” and going to make a profit when actually they are throwing their money away and about to take tremendous losses? I think the whole world agrees by now that yes, this has happened.

All we need do now is connect the dots, meaning we need to show that the only reason people bought houses they could not afford was because of ridiculous lending standards and low teaser interest rates. Well I think nobody disagrees with that, unless they have been living in a cave on a desert island these last few years.

Case 2. Also, has there been a whole industry that a] started BUILDING houses that they would not be able to finish and/or b] nobody was going to buy? All we need to do is turn on our trusty google and find out. I leave this to the reader as an exercise. Here’s one quote that summarizes the situation:

“…there is a huge glut of empty new houses. Builders are being forced to drop prices even faster than owners, because builders must sell to keep their business going. They need the money now. Builders have huge excess inventory that they cannot sell at current prices, and more houses are completed each day, making the housing slump worse.”

Case 3. Right before the NASDAQ bubble, were interest rates artificially low, like 1% or so? Yes they were. Did people as a result buy stocks that could not possibly be viable businesses, thinking they were “investing”? You bet. Can I prove that the reason people suddenly had money to buy worthless stock is because they got loans at low rates or because of an increase in money supply? I can’t because I don’t know enough. But you now know what to look for. Perhaps there is another source for all that money. Let me know if you find it.

16

The American military empire.

17

Perhaps malinvestments are actions taken that invest value into economy without deriving value from economy, where investment of time and capital are lost and the benefit of seeing net return on the investment is unrealized over an undetermined period of time in which opportunity costs exceed the value of the initial investment.

18

an appliance…perhaps a refirgerator, technology that is in the household and the food processor?

keeps food items from perishing? brings down the cost of storing food? and thats a lower order good born from malinvestment??

clothing…maybe the rip stop nylon down jacket? less material keeping people war in order to do more winter work? malinvestment?

food? less on food? a malinvestment?

19

to the extent that the shamerican military empire has been funded over the decades by bank credit…some prices (even after adjusting for inflation) may have been even lower than they curently are.

i will look into that.

20

of the more than $4.5 trillion spent on defense since the end of WWII.

http://dwardmac.pitzer.edu/dward/classes/powpart/silentdepression.html

well…m2 from 1959 went from 200 billion to 6 trillion in 2009…i am not sure of the extent of military spending that was some type of bank credit (whatever the stuff is called that leads to malinvestment from so called austrians)

if only 2 trillion was spent on the military since that time there could have been 50 billion per year spent on something else i guess. better railroads? cheaper cars instead of tanks and artillery?

i am not sure.