Tuesday, November 17, 2009
I have been watching and reading the news about Ford's better than expected financials. Each of these reports compare Ford's success to the demise of GM, but none of them link the two. Look, people still need to drive around, and cars still wear out. Which means new cars need to be built and sold. Cars not being sold by GM are cars being sold by other manufactures. It is that simple. Hydraulic really.
In the 1940's an economist named A.W.H. (Bill) Phillips built a hydraulic computer that pumped colored water through system of tubes and reservoirs, controlled by metered valves, and cams to simulate national and international economic monitory flow. It was called the "Moniac".
Less than twenty Moniacs were built, but they were purchased and put into active service by some influential organizations including the British and U.S. governments, international banks, and research institutions like Harvard and the London School of Economics (which subsequently hired Phillips as a professor). It was built as a teaching tool, but found to be an accurate enough predictor of actual economic activity that it looks as if it was employed by governments to play "what if" simulations and inform monitory, fiscal, and tax policy.
The tie-in to Ford should be obvious. Fluids are incompressible – no mater how much pressure you apply, they always take up the same volume. Push a little over here and the fluid has to compensate by leaking out somewhere where the system offers the least resistance. When people hear that a car company is struggling to such an extent that they are shuttering entire devisions (Saturn), they wonder who will honor their new car's warrantee, and they go elsewhere to do their car buying. That elsewhere is foreign manufactures and if it isn't, it is the other domestic manufacturer, Ford.
GM consumers are probably more "buy American" than other auto buyers. Additionally, US reporters are not as likely to track GM exodus to Toyota, Nissan, or Volkswagen.
The comparison of Ford to the other big US manufacturer is too seductive a sound bite, especially considering the government bailout of GM.
But wouldn't be nice to at least ask the question… Is there a connection perhaps, between GM's troubles and Ford's (comparative) success?
Come to think of it, wouldn't the monetary-flow-as-hydrodynamics also work just as well as an explanatory model when applied to the last three boom/bust bubbles (energy speculation, dot-com evaluation, and the securitized real estate boondoggle)? All three came in rapid and linked succession as the investment pressure flowed from the failure of the previous to the "success" of the next. All three can be traced to brand new second and third world money being invested for the first time in first world markets… markets without the requisite productive machinery to support the value of the investment being heaped at them.
And that my friends is as salient an explanation as you will ever find for the reason that booms both happen and why they go bust. New money coming unannounced into an old market that can not effectively scale its productivity to the demands of the new capitalization levels.
A boom/bust event is indication of the need for a new production paradigm. A boom/bust cycle says; the present system can not be scaled beyond its current level… adding capital beyond this current level will not yield commensurate growth.
At such times, the whole system is vulnerable and this vulnerability will not go away until a new technology or infrastructure usurers in a bridge to a new paradigm in which new capital will effectively yield new productivity.
Some background info on the Moniac.