The Tyranny of Average Cost - part the twelfth

The gist of these missives is to show real-world examples of over capitalization and the effects on users and owners. Some over capitalization is intentional, if still misguided. Other times the over capitalization is accidental. But the result is always the same: a lack of revenue, when demand and output fall, to pay the vig. As production moves from mostly labor to mostly capital, the cost curve becomes ever more dependent on shifting output. There's increasingly less wiggle room in that cost curve to reduce cost, even temporarily,

An earlier essay on the death of an island, our second home of sorts, Block Island just got another chapter. Public infrastructure, even when privately owned, is by definition such a production process. Now the Island faces a 50% reduction in revenue for some of that infrastructure. It does not bode well.

"Some customers may just go out of business. I hate to say that. But if they're at 50 percent of their budget, they're not going to make it," said McNerney, referencing the fact that many, if not most businesses will not be able to run at full capacity for most of the summer. "I have some concerns," said McNerney.