Our Rube Goldbergian Supply Chain

The ripple effect of foolish government policy, propagated by an ignorant and biased media, has no end.  The latest knock-on effect continues to play out before our eyes, yet once again, neither the government nor the media will ever cop to it.  We’ve all heard about the supply chain disruption, but the real causes and effects are not being discussed.

The causes are partially rooted in government helicopter money dropped over the past eighteen months.  Stimulus checks, forgivable loans, 30-year SBA loans, rent moratoriums, rent assistance, eviction moratoriums – they all created reasons for people not to go to work.  While many programs have ended, many others continue.  Rent relief checks are still backlogged, and the child tax credit advances continue to deliver income so that people don’t have to work.

Fewer workers means fewer people to manufacture goods, transport goods, and stock the goods.  The result is that supply cannot meet demand, resulting in higher prices across the board (inflation).  No sector is immune.

Tough to keep ahead.

Those aren’t the only ripple effects, though.  Inflation reduces purchasing power.  So all the money that was given to people now buys less than it did, and when they eventually go back to work, their paychecks won’t stretch far enough.  Sure, the labor shortages will temporarily result in higher wages to offset the inflation, but once the labor market reaches equilibrium, those wages will fall again.

Thus, real wages – defined as wages adjusted for inflation – will actually decline.  Those same people the government was purporting to “protect” by telling them to stay home to avoid a virus with a 99.7 percent survival rate, will be unable to make ends meet.  Those that were already struggling will see their situations worsen.  Hourly compensation is up  2 percent, but real hourly compensation (inflation adjusted) is down 2.7 percent.  That’s a 4.7 percent swing in the other direction.

How then do people make ends meet?  By taking out short-term payday and installment loans, as well as pawning items.  That sends them further into debt, so that when the rent and eviction moratoriums end, they are in danger of becoming homeless. Government economic data shows just how bad things are.

Under Barack Obama, the Labor Force Participation Rate hit a 40 year low at 62.4 percent.  It improved to 63.4 percent in the pre-COVID Trump era.  Every single demographic, including women and minorities, hit bottom under Obama and recovered under Trump.

After bottoming out at 60.2 percent, the overall rate is now 61.6 percent.  That 180 basis point difference translates to nearly five million jobs.  It turns out that when five million people stay out of the workforce, there’s a supply chain problem.  Notably, the Bureau of Labor Statistics (BLS) reports nearly 5.7 million people who are not in the labor force who want a job, and of those, less than 10 percent are classified as “discouraged” while the rest are not actively seeking employment.

Job losers on temporary layoff are, for the most part, back to work.  That number was 750,000 in February of 2020 and 1.1 million at the end of September.  These workers are returning to their jobs at a high rate.  That sounds great, except BLS reports that the areas with the weakest job growth in the past month are goods-producing, manufacturing, and wholesale trade.  This has also been the case across three-, six- and 12- month periods.

No thanks, we're on the dole.

Who didn’t lose their jobs during COVID?  Surprise: government workers lost the fewest of all the categories – only 1.7 million total.

The big deal, of course, is inflation.  The 12-month change in the CPI by category is the worst it has been in decades: 5.4 percent for all items, 4.6 percent for food, 4 percent for all items other than food and energy.

Energy is the real killer, however, up a whopping 25 percent.  The worst thing about energy price inflation is it filters through the entire economy.  Energy is needed to manufacture and transport goods to the middleman and end user.  It is required to heat homes, which means colder housing for all those people for whom inflation erodes purchasing power.

Want to make a burger at home?  Ground chuck beef prices are up 15 percent over the last year.  The bread for that burger bun costs 9 percent more. The cost of going out to eat rose at an average rate of about 3 percent over the past twenty years.  The rate of increase is now 4.7 percent.  The Producer Price Index for goods is up 1 percent, the most since 2012.

That’s the data, but there are other issues at play that created the supply-chain issues.  All the free government money, plus the fact that there was nowhere to spend it during the lockdowns, have resulted in surges in demand at the same time as labor shortages.

Not quite bounding over the main.

In addition, the Cato Institute points out that the entire shipping and logistics industries at our nation’s ports have been “warped by long‐​standing policies that have decreased port efficiency and unnecessarily stressed our inland supply chain infrastructure. Most notably, longshoreman unions have leveraged their ability to shut down U.S. ports (and thus much of the economy) during contentious labor negotiations to win contracts that decrease port productivity.”

Another problem goes back to the Merchant Marine Act of 1920, which requires all ships that move freight between U.S. ports to be U.S. built, crewed by U.S. citizens, and flagged in the U.S.  When supply is limited in that manner, it pushes shipping costs higher, and  offloads capacity onto land-based transport.  Trucks and trains that should be servicing the ports are on alternate jobs.

Thus, the supply chain pandemic begins and ends with government.  The lockdowns were unnecessary, causing the government to flood citizens with money, resulting in both labor shortages and demand surges, amidst obsolete logistics laws and regulations unable to cope with it. Who knew Rube Goldberg was running the country?