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A Nation of Excess Capacity

Yesterday’s comments included two from younger conservative readers lamenting the fact that the Republican Party’s elected leaders in Washington are going to go along with whatever increased spending package is proposed. They rightfully worry that they will bear the burden of these ongoing “bailouts” in the form of higher taxes in years to come.

Another frequent commenter feels I’m just showing a lack of understanding in how the whole economic stimulus process works:

The idea is to, for example, start building light rail for mass transit. We’ll have to hire people to build the cars, and produce the track, and grade the roadbed, and install the track, and buy cement and wallboard to build the stations … which means that other people will be hired to make the cement, and produce the wallboard, and they in turn will go to Target or Wal-Mart and buy clothes and stuff, so those places will hire salespeople, and people will have to be paid to make the clothes … and around it will go.

But, here’s the thing… this 1930’s approach of the government putting the country to work will not work the same today for a very simple reason. We’ve got too much excess capacity. Think about it for a minute, and you’ll understand.

First, let’s take a look at the rate of growth of the average roof over the average head:

The average American house size has more than doubled since the 1950s; it now stands at 2,349 square feet. Whether it’s a McMansion in a wealthy neighborhood, or a bigger, cheaper house in the exurbs, the move toward ever large homes has been accelerating for years.

Now, consider what all of that extra space has meant. It translated into a boom for the consumer markets as we purchased more furniture, electronics, appliances, etc. to put into those rooms. Not to mention the significant increase in spending we incurred to heat/cool these homes, or bring in additional services cable/satellite services. Yet, when you really think about it, there is no true need for the extra space.

Okay, now let’s move to what’s in the driveway:

One of the most striking changes in the landscape of American travel over the last quarter-century has been the near doubling (181-percent increase) of household vehicles. The rate of increase in cars, vans and sport/utility vehicles for personal travel is six times the rate of population increase. In 1969, 72.5 million household vehicles served 197.2 million people. In 2001, 203.9 million household vehicles served 277.2 million people.

Much of this growth has been in households with multiple vehicles. Whereas the number of households with one car remained about the same over the last 30 years or so (30.3 million in 1969 and 33.7 million in 2001), the number of households with three or more vehicles increased nearly nine times (from 2.9 million in 1969 to 25.3 million in 2001).

Do we really NEED three or more cars per household? Keep in mind that cars are also built to last much longer than their predecessors. A car today is built to go at least a 100,000 miles. But, how many people do you know that keep their cars until they pass that mark? I’m willing to bet in the future you will find you know a lot more.

I could go on and on with different facts about the sizes of tv’s, or the number of computers, or even the number of phone lines per household, but I think you get the idea.

Then there is the one obvious point that no one seems to be talking about. Who has lost the most money in this economic collapse? It’s the baby boomers. As a cohort, they had amassed the largest amount of wealth the world had ever seen, and article after article talked about how the boomers would be spending and transferring that wealth.

But, they’ve watch 30% – 40% of that wealth go up in smoke. Now, do you really think they are going to go out and take jobs building light rails, or do you think they are going to buckle down and cut unnecessary spending? Yeah, I’m betting on the latter. See , with age, comes wisdom. And, as they enter the last quarter of their lives, they are likely to look back and reflect on the following:

In the 20th century, Americans, Europeans, and East Asians enjoyed material and technological advances that were unimaginable in previous eras. In the United States, for instance, gross domestic product per capita tripled from 1950 to 2000. Life expectancy soared. The benefits of capitalism spread more widely among the population. The boom in productivity after World War II made goods better and cheaper at the same time. Things that were once luxu­ries, such as jet travel and long-distance phone calls, became necessities. And even though Americans seemed to work extraordinarily hard (at least compared to Europeans), their avid pursuit of entertainment turned media and leisure into multibillion-dollar industries.

By most standards, then, you’d have to say that Americans are better off now than they were in the middle of the last century. Oddly, though, if you ask Americans how happy they are, you find that theyre no happier than they were in 1946 (which is when formal surveys of happiness started). In fact, the percentage of people who say theyre very happy has fallen slightly since the early 1970s — even though the income of people born in 1940 has increased, on average, 116 percent over the course of their working lives.

Oh, and I almost forgot to mention. All of this extra capacity has been bought and built on credit. So, where does all of this leave us? Back to the drum I’ve been pounding for the last several months. No matter how many trillions the government tries to throw at this problem, the paradigm has forever been changed. They’re just not going to restart the economy of old. It no longer exists.

At the end of the day, there is only one thing we count on. The more the government spends today, the more our children and grandchildren will have to pay it tomorrow.