So high utilization of capacity, it leads to prices increasing.

So those are the two side effects of high utilization.

And, likewise, if you have very high utilization, it's hard to avoid inflation.

But, in general, prices will go up when you have high utilization, right?

So if we look here, in the late 60's, we have very high utilization.

Filesystem Utilization Viewer

But, when you're at a relatively high utilization, it really pays to increase your price hurdle.

A couple of days ago, I made these videos on cupcake economics, where I talked about what happens when the cupcake factories have high utilization or low utilization.

And when people say low utilization, I imagine idle factories, and when high utilization, I imagine factories that are running at three shifts and things are moving feverishly.

So the orange line is utilization. Up here we had like 90 utilization.

Low utilization, prices will decrease.

So, as long as we have a pretty high utilization and people debate on what is the level of utilization in lot of industries where it makes sense to raise prices.

So up here this is 90 utilization and then down here this is 70 utilization.

Capacity utilization is driven by demand.

This orange line represents capacity utilization.

He's only running at 25 utilization.

And capacity utilization had really preceded that.

I'm fully utilized, right? I have 100 utilization.

My answer is, just watch the capacity utilization numbers.

Capacity utilization drives inflation. We can all buy that.

Let's say it has a slight impact on utilization.

Low utilization, you have kind of the opposite situation.

And that's the real big take away I wanted you to get at, is that high utilization of anything, of our aggregate capacity, prices will increase.

So we're all tapped out, we're at 100 capacity utilization.

ShinHwa High! ShinHwa High! ShinHwa High!

And you'll have very high utilization of all of the capacity in the island and you might have inflation, even though the money supply is one seashell.

And the traditional notion of capacity utilization, and this is what my brain does when someone mentions it, is I think of industrial capacity utilization.

So you have the situation now, where you have low utilization.

And notice, it was preceded by an uptick in capacity utilization.

On top of that, if they get close to fully utilization,

Or if they see that fully utilization is down the road,

These are our two major bouts of inflation, in the early 70's and in the early 80's, and those were when we had extremely high capacity utilization.

And won't the wholesale printing of money drive demand to go up, and then we'll have very high capacity utilization, and then we'll have inflation or even hyper inflation?

They wanted to get to nearly 100 percent of the energy utilization.

That when you have low utilization, it's everyone's incentive to lower prices.

And going back to where we started this video, in terms of capacity utilization and what that might do to prices, this tells us that labor utilization is

Actually, I'll throw another thing in here that's a little unrelated to inflation, but high utilization makes prices go up and it also makes people want to add more capacity, right?

High

High

high

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high

But that's a good level. You want to be at around 80 utilization.

In a service based economy, the best measure of utilization really is unemployment.