While people stew about supply chain disruptions and our own media do little or nothing to provide a clear picture of what’s going on I wanted to call attention to this article at the BBC which includes the handy infographic above. They do their best to explain things away:
“I don’t think anyone foresaw this huge surge in demand – especially after ships were laid up during the pandemic,” says Ms Porter.
The sight of ships waiting off the Californian coast has led to wider debates about the state of American supply chains. There have long been calls to upgrade infrastructure generally.
which I do not find particularly satisfying. My answer is that isn’t encouraging consumer demand the point of the stimulus packages passed last year and this? If they didn’t expect them to encourage demand what was the point?
So we’ve got a certain amount of pent-up demand, policy that encourages demand, and facilities which by design don’t have a lot of excess capacity (the figure I’ve read is 5%—if you know better please provide a citation. I would think that long lines at the ports would be an expected consequence rather than a complete suprise.
As I’ve said before I’m not a minarchist or an anarcho-capitalist. I think that federal spending to encourage facilities to maintain more capacity is a perfectly reasonable thing to do. But so is encouraging more domestic or nearshore production. Of the two I’d rather do the latter.
I guess there’s a debate about the goals of the packages passed last year and this (along with monetary policy).
Were they relief packages or were they stimulus packages?
At some point, the aim changed from preventing the economy from imploding and people becoming destitute to trying to goose the economy and various other goals.
It would be an interesting “what if” scenario if most countries let their economic response to COVID-19 expire in the fall of 2020 once the initial lockdown phase ended. Would we still see the high inflation, supply shortages?
It looks to me that companies cut orders in spring of 2020, suppliers cut production and positions and hours worldwide in anticipation of a financial apocalypse due to Covid. They were trying to survive.
What you see now is rebound.
Does it make sense to anyone now why President Trump was trying to de-emphasize the dangers of contagion?
Because it has a cost.
Life has risks and rewards, American voters ,(apparently) want safety without risk, with reward. Not surprisingly, some politician offered them that.
There are multiple things going on all at the same time including rebound, changes in preferences, an incentive to buy now rather than later (inflation), etc.
This is a recurring theme. Economic incentives push towards minimizing excess capacity, large inventories, etc, basically any redundancy. I really dont see how we can avoid this. We will inevitably run into problems when we need a surge in capacity or inventory. Unless it is something that happens often we wont prepare since it costs too much.
Steve
I think all 4 comments have interesting, if different, insights. I resisted the impulse I usually succumb to, which is to immediately comment. Time is money and all that….
I will note that steve makes a balanced point (angels sing). Yes, economics say run the ragged edge. Consumers force that. Don’t kid yourselves. And then properly observes: “I really don’t see how we can avoid this. We will inevitably run into problems when we need a surge in capacity or inventory.”
But as always, its more complicated. We don’t need policies that are self defeating.
In a previous comment I (rhetorically) queried “where are the truckers etc” to move product. Well, its, ahem, “multi-factorial.”
Covid worries, govt pay subsidies, dock worker shortages and so forth for sure. But little known, there is what’s known in the trade as shooting your dick off.
In CA a new environmental law is kicking in. It requires that trucks must be less than 3 years old, or comply with emission restrictions. Well, it turns out that this precluded 50% of the truck fleet from operating in CA. Most importantly, the ports. Bummer. Think that created a bottleneck? So now shippers must unload, figure out a way to get to the AZ, NV etc border. Reload and go. Efficiency, green, or Soviet, style.
So what have some companies done? Well, they have established alternative ports (can you say Amazon, Costco, Wal-Mart?) in Houston, or all the way through the Suez to East Coast Ports.
Nice. That takes big money. Green screwing the small businessman. Advantage, the Large Corporate interests, the new Democrat Constituency. I know Dave is highly critical of large corporate. Is he similarly critical of Joe and his Democrat allies, who are not just an alleged small group of progressives, but most of the Democrat leadership, favoring Large Corporate? This is a huge problem, not to be dismissed as transitory, non-inflationary or, bizarrely, some indicator of a robust economy.
As I say: subsidize the excess capacity.
Somebody help me out. Where are the Gulf & East Coast port workers going to live?
So the California law is causing stuff to stack up in Savannah?
Steve