Dunno Ritchie, I\’m about to try it

Anyone who believes that in the current circumstance where demand is disappearing around a U-bend seemingly to never be seen again the chance that any business is going to take advantage of low interest rates, low tax rates and high investment incentives to decide now is just the perfect time to build a new factory or office or to innovate new products needs their head examined. It’s just not going to happen.

I\’m getting very close to the decision about whether or not to launch a company to do exactly that, innovate an entirely new product.

For, you see, innovation, the onward march of technology, isn\’t one of those things that is dependent upon aggregate demand. Better, cheaper, faster, these are all still desirable whatever the growth rate or not of the wider economy.

15 thoughts on “Dunno Ritchie, I\’m about to try it”

  1. The company I work for is currently in the final stages of putting together the financing for the largest investment in its history.

  2. “demand is disappearing around a U-bend”: does this mean that it will soon pass through a short-lived maximum?

  3. Poor fellow. He has no idea. Innovation is one of the answers to the crisis. Investments are being made and will be made and those who made widgets and sold them for 10 at a cost of 7 will find a way to make widgets to sell for 7 and make ’em at 3 (or 1 if they can get some of Tim’s scandium into the bloody thing)

    And those that do it are worthy of a round of applause. (Please repeat this sentence).

    The Mr. Murphys of this world have a profound dislike of trade in its widest sense (is it beneath them?), and refuse to really admit that that is where wealth comes from. Trading and adding value.

    Their beloved taxes come from that activity but those of us engaged in it are pestilent scum who are born crooked.

    Such is life. I’m on holiday so I think I can genuinely say that today I don’t give a tuppenny *hit.

  4. For, you see, innovation, the onward march of technology, isn’t one of those things that is dependent upon aggregate demand.

    Well, it is a bit.

    First, there is more incentive to innovate in a booming market than one crawling along.

    Second, if your facilities are running at full capacity then it is easier to see where bottlenecks are.

    There are always strong incentives to innovate, everyone wants their Schumpeterian rents, but Ritchie isn’t being (for once) as dense as you make out.

  5. left outside – has anyone done any work on, for example, correlations between patents applied for by Edison and the state of the US economy? Just curiosity.

  6. Left Outside – funding/credit/investors may be scarce, but the need to innovate, to find ways of making more from less, is rather sharper.

    As for bottlenecks, that’s only one aspect of efficiency.

  7. diogenes, nice idea, don’t believe it has been done, it would be interesting to see. I am always highly skeptical of using patents as proxies for innovation though, too difficult to pin down..

    Niels, true the extent of innovation will be more supply determined than demand, but I still think demand will play a role to some extent. I just wanted to caveat Tim.

  8. My new employer is expanding is number of front end staff by 20%, of whom I will shortly be one.

    But it is in intellectual property, which is kinda big right now, what with the Chinese and all…

  9. The problem will always remain: however innovative the mouse trap you invent (and all that) ,it will still be easier and safer to invest in real estate which you can always live in if necessary. Best of luck with this Romantic gesture.

  10. Just a thought.

    A client of mine lost €50,000,000 last year. This year they are opening a plant in the US. The whole planning process started when they were in profit and continued once the crisis started and committment took place with theat loss looming.

    Not unique in my neck of the woods.

    Of course, in Spain you can’t sell anything these days so they have to look overseas.

  11. left outside is quite correct when he/she says “well it is a bit” since an increase in demand for a particular product will increase aggregate demand.
    HOWEVER an increase in demand for unrelated products will do nothing to encourage innovation in a particular product. Furthermore, since a significant improvement in an individual product, improving quality and reducing cost will increase demand for that product, left-wing economists will claim that the rise in demand is a cause of, rather than a consequence of, the innovation.
    As to bottlenecks – when I was young (a long time ago) I worked for a major UK manufacturer and every time it built a new plant it knew where the bottlenecks were. The components where building a unit to handle 0.5 million tonnes pa didn’t cost very much more than one to handle 0.25 million tonnes were built large; those where it cost a lot to build a larger plant/component had lower capacity until it was established that demand justified the cost of extending the plant/component. It doesn’t require a genius to work that out (I did meet two, but the policy did not rely upon their input).

  12. DBC Reed – we have been through this before. People can only buy real estate if other people are selling it. The people who sell the real estate then have a bunch of money to do something with.

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