“Despite a mix of coverage in the media, the prevailing message from officials seems to be “don’t panic.” The Federal Reserve predicts this period of rising prices to be “transitory,” and there are signs that price increases are starting to slow. But in the meantime, Americans are worried about inflation, and most blame the Biden administration, according to recent polls. It’s why Biden switched gears this week, going from celebrating the passage of his bipartisan infrastructure bill to addressing inflation concerns.”
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“Seventy-six percent of U.S. adults said gas prices had gone up “a lot,” and 65 percent said food prices had gone up “a lot,” according to an Economist/YouGov poll conducted Nov. 6-9. One in four Americans said they spent more on groceries in October, compared with September, according to a Morning Consult poll conducted Oct. 29 through Nov. 3. And a Scott Rasmussen national survey conducted Oct. 11-13 found that 77 percent of registered voters had “recently experienced sharp increases in the cost of items they would like to buy.””
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“Increased prices can impact voters’ political views of the economy overall because their effects are felt so immediately, contributing to Biden’s negative approval rating. “There is a psychology to inflation that is different from everything else, and it tends to drive how people view the economy because they experience it every day whether it is at the grocery store, gas pump or buying household goods,” John Anzalone, a Democratic pollster, told the Los Angeles Times.
Polling captures how voters are thinking about inflation as a political issue. A plurality of registered voters (40 percent) said the Biden administration’s policies were “very responsible” for the inflation, and a majority (62 percent) said the administration’s policies were at least “somewhat responsible,” according to a Politico/Morning Consult poll conducted Oct. 16-18. In a Harvard/Harris poll conducted Oct. 27-28, 56 percent of registered voters said they weren’t confident in the Biden administration’s ability to keep inflation at bay, and 53 percent said the same about the Federal Reserve’s ability. A majority (56 percent) said that Congress passing a $1.5 to $2 trillion social spending bill (such as the one they’re currently trying to pass) would lead to more inflation.
While the public reaction is out of step with expert forecasts, their fears should not be brushed aside. Some economists theorize that, left unchecked, fears about inflation can make the situation worse by creating a self-fulfilling prophecy in which employees, afraid of rising prices, demand higher wages, the costs of which employers would then cover through raising prices, leading to higher inflation. This is what happened in the 1970s, and it led to nearly double-digit inflation rates. Regardless of how transitory the Fed thinks these price increases will be, Americans are worried right now.”
“Gadgets are particularly vulnerable to shortages because they include many different components. Consider all the parts that go into a PlayStation 5 or a new laptop, including their chips, outer shells, and screens. Many of these components require their own specialized manufacturing facilities, which are typically in different factories and often in different countries. For a device to be delivered on time, all of these parts need to be made in sync. Right now, that’s not happening.”
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“Demand for these components has run up against efforts to contain Covid-19 in the countries where the production and assembly of many goods actually take place. Amid a recent delta variant outbreak and nationwide lockdown in Malaysia, the government designated electronics manufacturers critical businesses so that production could continue. In May, Vietnam directed vaccines directly to factory workers, while urging smartphone manufacturers working in the country, like Samsung, to do the same. (Vietnam’s Covid-19 challenges haven’t gone away: This past weekend, tens of thousands of workers fled the country’s commercial center after the government, which is still struggling to access vaccines, lifted pandemic lockdown restrictions.)”
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““What will happen is that a phone will be delayed because they’re waiting on their plastic supplier, and the plastic supplier is waiting on the ingredient,” Penfield, the Syracuse professor, said. “It just takes one supplier — and it could be the base ingredient supplier — to fully screw up your supply chain.””
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“All these problems mean that consumers are seeing rising prices and shipping delays for a wide range of products. So those looking ahead to the holiday shopping season might want to get an early start, and not just on consumer electronics.”
“The Wall Street Journal reports that Walmart, Target, Costco, and Home Depot are among the major retailers to adopt the “if you want something done right, do it yourself” approach to importing goods. Worker shortages and COVID-19 protocols have slowed trans-Pacific shipping considerably—it now takes about 80 days to transport items from Asia to the U.S., about twice as long as it did before the pandemic, the Journal reports.”
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“many of the bottlenecks are domestic issues. For example, major ports in Europe and Asia operate around the clock, but American ports run at about 60 percent capacity because they close at night and on Sundays. Even when dozens of ships are waiting to be unloaded, inflexible union rules that govern dockworkers’ and truckers’ hours make it difficult to meet swelling demand.
By chartering smaller, private ships to carry their goods, retailers like Walmart are hoping to bypass the backlogs by landing at smaller ports up and down the east coast. That will cost more money—and those costs will be passed onto consumers—but that’s better than running out of inventory during the Christmas rush. Home Depot, for example, is relying on chartered ships to deliver only a small percentage of its overall inventory with a focus on high-demand items like plumbing supplies, power tools, holiday decor, and heaters, the Journal reports.
Getting goods onshore is only half the battle. There are plenty of other bottlenecks to be navigated, like a 25-mile freight train backup that occurred at a major shipping facility outside Chicago earlier this year. At the port in Savannah, Georgia, The New York Times reports that workers are “running out of places to put things” as they unload ships, snarling both ground- and sea-based transportation.”
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“”The coronavirus pandemic has snarled global supply chains in several ways. Pandemic checks sent hundreds of billions of dollars to cabin-fevered Americans during a fallow period in the service sector. A lot of that cash has flowed to hard goods, especially home goods such as furniture and home-improvement materials. Many of these materials have to be imported from or travel through East Asia. But that region is dealing with the Delta variant, which has been considerably more deadly than previous iterations of the virus. Delta has caused several shutdowns at semiconductor factories across Asia just as demand for cars and electronics has started to pick up. As a result, these stops along the supply chain are slowing down at the very moment when Americans are demanding that they work in overdrive.””
“Right now, distribution networks across the world are massively congested.
“Los Angeles — which is a major port of entry for the United States — New York, and New Jersey are all pretty full up,” says O’Leary. “We’re hearing reports of delays of weeks for getting things cleared.”
“Containers are not moving out of ports and onto trains quickly enough,” explains Chris Tang, a UCLA business professor specializing in global supply chain management. “And on top of that, all of the warehouses in the Midwest are full. So everything is stuck.”
An increase in online shipping in part of what’s driving the congestion. Meanwhile, the complications of Brexit and the internet’s beloved container ship Ever Given — both of which dramatically disrupted global supply chains — certainly aren’t helping ports empty themselves out faster.
Even more pressing, however, is a shortage of truck drivers. There just aren’t enough trucks on the road to pick up as much stuff as we’re currently shipping around the world. “We’re talking tens of thousands fewer truck drivers than we need,” says O’Leary.
And as stuff sits in warehouses, waiting to be picked up by increasingly scarce truck drivers, the price of storage goes up, adding to overall shipping costs. “It used to be around $3,000 per container,” Tang says. “Now the price is closer to $20,000.” The skyrocketing costs mean that companies selling luxury goods will take more warehouse slots, since they can afford them, while lower-priced goods, like books, compete for what’s left.
Barnes & Noble CEO Daunt notes that books do have one big advantage over other goods when it comes to shipping: They’re durable. “The reality is that books are fantastic because they don’t really perish, so you’re able to print lots of them in advance,” he says. “They’re incredibly robust, so you can send them through the most basic of supply chain routes. They’re not strawberries or peaches or delicate things.”
But right now, even the most basic of supply chain routes are finding themselves overwhelmed.”
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“One of the big underlying problems when it comes to printing and shipping books is the same labor shortage that’s currently roiling the rest of the country. There aren’t enough press operators to get books printed, and then there aren’t enough truck drivers to get them to bookstores. Wages have gone up, but there still aren’t enough people working.
“In the whole national workforce, you’ve got 8.4 million unemployed but 10.9 million open jobs,” says Baehr. “That’s a two and a half million-person shortage, period, and that’s across all buckets. The book industry is getting hit with that just as much as the paper industry is getting hit with that just as much as the transportation industry is getting hit with that. It all just compounds on itself. It’s just a rough spot right now for the book business.”
“Simply put, the working-age population in the US has stopped growing,” says Gad Levanon, founder of the Labor Market Institute. “And the working-age population without a BA is shrinking quite rapidly.” That’s a major issue for the industries we’re discussing here because in general, people with college degrees prefer not to work in warehouses, as truck drivers, or in printing presses.”
“The Biden administration, perhaps worried about the political toll that rising food prices could extract in next year’s midterms, announced plans earlier this month to offer up to $500 million in loan guarantees to beef producers. That’s on top of $500 million approved as part of the $1.9 trillion American Rescue Plan that was supposed to “expand processing capacity and increase competition in meat and poultry” industries, according to the U.S. Department of Agriculture.
The second prong of the White House’s plans seems to involve shaming meat-processing companies. “Just four large conglomerates control the majority of the market for each of these three products (beef, pork, and poultry), and the data show that these companies have been raising prices while generating record profits during the pandemic,” Brian Deese, director of the White House’s National Economic Council, said during a press briefing last Friday, the Detroit Free Press reports.
Taken together, the White House’s approach to high meat prices can be summarized as an argument for greater government subsidies based on the idea that stimulating more competition in the meat-packing industry will expand supply and reduce bottlenecks.
But, as David Frum details in The Atlantic today, there are some good reasons to be skeptical of this argument. For starters, it takes about $200 million (and several months, if not longer) to build a single new meat-processing plant. That means the Biden administration’s new loan programs will not purchase much additional capacity, and whatever gains are made will not happen immediately. Even if the plan is successful, smaller producers will likely need ongoing support beyond the initial loans—if there was a market for more, smaller meat processors, the private sector would be investing in them already.
“There’s a real risk,” writes Frum, “that the initial commitment of $500 million in aid and loan guarantees to small packers will expand into continuing intervention in the marketplace to keep smaller competitors in business in the face of the higher efficiency and lower prices of the big packers.””
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“Offering $500 million in loan guarantees to anyone who wants to build a new meat-processing plant isn’t going to address the supply chain problems at the existing plants or end the Western drought.
Higher prices, while politically difficult for the Biden administration, will send signals up the supply chain that result in more workers being hired and more cows being raised.”
“The major backlog at one of America’s busiest ports has been worsened by strict zoning laws that limit where empty shipping containers can be stacked after being unloaded.
Until officials in Long Beach, California, issued an emergency order this weekend to temporarily relax those rules, it was illegal for trucking companies to store more than two shipping containers on top of one another in their yards. That’s contributed to a massive bottleneck at the terminal yards of trucking companies serving both the Port of Los Angeles and the Port of Long Beach—a bottleneck that’s being felt in supply chain shortages across the whole country.”
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“There doesn’t seem to be any safety-based reason for such a policy, as shipping containers are routinely stacked higher at other ports and while being carried across the open sea. Long Beach’s prohibition on stacking more than two-high is “an aesthetic measure intended to preserve visual sightlines in the neighborhood,” according to The Maritime Executive, a trade publication.
Those rules won’t be enforced for the next three months under an emergency order issued this weekend. Now, trucking companies and warehouses will be allowed to stack up to four containers vertically—effectively doubling their capacity. “The city will work during the next 90-day period to assess the situation and effectiveness of this solution and any impacts on the surrounding areas,” Long Beach officials said in a statement.”
“A trade group for air cargo giants like UPS and FedEx is sounding the alarm over an impending Dec. 8 vaccine deadline imposed by President Joe Biden, complaining it threatens to wreak havoc at the busiest time of the year — and add yet another kink to the supply chain.”
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“The deadline has been hailed by public health officials as a way of increasing vaccination rates as the country continues to struggle with the Covid-19 pandemic. But business groups and conservatives have warned that it could have damaging economic impacts. The deadline brushes right up against the peak holiday season and as some of the biggest cargo distribution companies, including UPS and FedEx, are already battling unprecedented labor shortages.”
“the biggest price increases affecting “core” non-gas or food inflation in recent months have come from new and used cars and air travel. The Biden Council of Economic Advisers estimates that at least 60 percent of inflation in June was due to car prices alone, and a big chunk of the rest came from services like air travel increasing in price as everyone rushes back to travel post-pandemic.
A huge part of the rise in car prices is a semiconductor shortage — implying that a better way to tackle inflation than the Fed raising interest rates might be an effort to improve supply of semiconductors, including boosting production in the US. Biden’s recent efforts to get Taiwan to boost production for US car companies is exactly the kind of intervention implied by this analysis.
The Fed itself seems to be thinking this way; Powell recently testified to Congress that “supply constraints have been restraining activity in some industries, most notably in the motor vehicle industry, where the worldwide shortage of semiconductors has sharply curtailed production so far this year.” Lael Brainard, an influential member of the Fed’s Board of Governors, has said the same.
“If you do think that this supply side story is convincing, then that does really change the way you want to think about this,” Steinsson told me. “Somebody’s going to build a new semiconductor factory at some point … that gives you a rationale for not using the blunt tool of raising interest rates for the whole economy.”
Yes, inflation is rising, there is a great deal of uncertainty, and the specter of the ’70s looms large. But given how much economic pain was visited on millions in the fight against inflation decades ago, it’s encouraging that today’s policymakers seem more willing to consider the path their predecessors did not take.”
“On June 10, the Bureau of Labor Statistics (BLS) reported that the Consumer Price Index (CPI) “increased 0.6 percent in May on a seasonally adjusted basis after rising 0.8 percent in April,” bringing the year-over-year price increase on all items to 5.0 percent.
“This was the largest 12-month increase since a 5.4-percent increase for the period ending August 2008,” the BLS noted. And when you take out food and energy, the resulting yearly rise of 3.8 percent was “the largest 12-month increase since the period ending June 1992.””
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“Two main schools of thought contend among those who believe that massive sustained price inflation is either inevitable, or already here: Milton Friedman’s monetarism, and the more bubble-focused analysis associated with the Austrian school of economics.
Friedman’s theory, which was widely accepted in the economics and finance professions decades ago but has been waning since asserts that “inflation is always and everywhere a monetary phenomenon.” The correlations were indeed observable in the 1960s and 1970s, but the theoretical prediction of increased money supply leading to economy-wide price inflation has been failing to come true for many years now.
Why might that connection between money supply and price be slipping? Theories include the Federal Reserve paying banks interest to just sit on uncirculating money. Another is that the “velocity” of money—the rate at which one dollar is used to purchase goods and services in a given time period—has fallen by nearly half since the beginning of the century.
But America has seen a lot more money lately, with the overall supply of the M1 monetary measure more than quadrupling in just the past 15 months. We have also in COVID times seen government injections of cash into the hands of business and citizens into the trillions, with the Federal Reserve committed to buying as much government debt as the government wants to feed into its spending machine.”
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“Austrians, like monetarists, also see a necessary logical connection between increased money supply and higher prices (adjusted for the amount of goods and services available for the money to buy). But they don’t automatically assume that more money will mechanistically translate into economy wide CPI inflation. Rather, inflation might mostly be expressed in specific sectors, such as stocks, crypto, housing, collectibles, and any other available means to get out of dollars and into something with more perceived promise of holding value.
But those specialized areas where dollars flood into can all too often prove to be bubbles of “malinvestment” which, once popped, can produce economic wreckage and damaging policy reaction, the Austrians warn.”
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“Modern Monetary Theory, the hot modern excuse for the government to spend whatever it wants to spend, posits that as long as any resources of labor or capital in the economy are not currently being used productively, then more money in whatever amount presents no inflationary threat. MMTers will tell you that their hypothesis comports to the reality of the past few decades better than the monetarist insistence that more money equals more (inflationary) problems.
So what’s the MMT and/or governing-Democratic explanation for the recent surge in CPI and sectoral inflation? It’s all about unleashed demand as lockdowns fade and bank accounts swell with federal stimulus bucks, with manufacturers temporarily bidding up prices to make sure they are ready for the pent-up, post-COVID buying spree. After the recovery shakes out, the argument goes, prices will stop noticeably rising.”
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“The White House Council of Economic Advisers (CEA) argued in April that the CPI spike seems scary only because of the “base effect” of rising from very low inflation in the pandemic-scarred year 2020. Fed Governor Lael Brainard assured us last month that we just need to be “patient through the transitory surge.” (Inflation hawks are quick to retort that this is what the Federal Reserve folk insisted back in the 1970s, before our nation’s last big inflationary spree, when for three years, 1979–81, CPI was rising over 10 percent per year.)
The Fed swears it will start tapering off its seemingly endless run of buying Treasury and mortgage-backed securities if the central bank’s inflation target of 2 percent looks poised to be breached long-term. Temporary surges worry the bankers less.
And even if CPI inflation continues to increase like it has this spring, the central bankers are confident they can rein it back in. As Brainard wrote: “If, in the future, inflation rises immoderately or persistently above target, and there is evidence that longer-term inflation expectations are moving above our longer-run goal, I would not hesitate to act and believe we have the tools to carefully guide inflation down to target.””