The chip shortage has a silver lining

“Manufacturers haven’t overcome the worldwide semiconductor shortage. Gaming consoles like the PlayStation 5 are still scarce, automakers are delivering cars with missing features, and Apple may end up producing 10 million fewer iPhones in 2021. For a few companies, however, these supply chain woes may have an unexpected upside.

The manufacturing delays abroad and relentless demand for consumer electronics have turned into a windfall for some chipmakers in the United States. Even lesser-known American manufacturers with aging or secondhand equipment have seen a surge in sales for the legacy chips, or microcontrollers, they produce. These parts are inexpensive to make but are a critical component for many devices, and as supply chain troubles have affected larger companies that focus on more advanced technologies, demand for the more basic chips has grown. Flush with customers, the companies that make these microcontrollers are now on a spending spree to boost their overall manufacturing capacity.”

Democrats have no plan to fight housing inflation

“Over the course of the pandemic, home prices have skyrocketed; the underlying issue is simply that there are not enough homes for the people who need them (in particular in the places where people need to live for their jobs). This supply crisis is forcing a growing number of people to bid on a small number of available homes, thus increasing prices.
But not all “housing investments” are created equal. Generally, there are two ways you can attack an affordability crisis: 1) You work to make the item itself less expensive (supply-side policies), or 2) You give people more money to be able to afford the item (demand-side policies).

Both have their place in policymaking. But if you pursue demand-side policies when you are facing a massive supply shortage, you end up increasing prices, not decreasing them. And the nation is facing an estimated 3.8 million unit shortage.”

“The major constraint on building housing in the places where people are demanding it the most is zoning laws. These laws restrict what kinds of homes can be built and where, and regulate the size of homes to the point that smaller or “starter” homes are becoming incredibly scarce. For instance, a law mandating that lots of land be no less than 4,000 square feet means that starter homes (smaller than 1,400 square feet) are illegal. The history behind these laws is complicated, but essentially they are a way for some homeowners to block change in their communities, and in their original form were a tool of segregationists.

Beyond even small, single-family homes, it is illegal in most of the United States to build duplexes or small apartment buildings that could bring down the cost of housing. The White House has repeatedly acknowledged this problem, but in the Build Back Better bill, Democrats have metaphorically thrown up their hands, abrogating responsibility for the driving force behind skyrocketing home prices.

The best way to have tackled this problem would have been to tie the dollars in the bipartisan infrastructure framework to zoning reform. Iowa law professor Greg Shill suggested tying existing highway dollars to zoning reform, quipping that “there’s no reason Iowans should be subsidizing a highway from Silicon Valley to SF when the Valley makes it illegal to build homes under $1M.”

Essentially, if California wants federal dollars to build highways or transit, it’s going to need to reform policies like parking minimums and minimum lot sizes to get it. Instead, states are being handed money from the federal government to construct transportation networks that exclude large swaths of the American public from using them.

The federal government has held highway funding hostage for other reasons in the past — notably was the 1984 National Minimum Drinking Age Act, which “requires that States prohibit persons under 21 years of age from purchasing or publicly possessing alcoholic beverages as a condition of receiving State highway funds.” President Ronald Reagan also conditioned highway dollars on setting a national minimum speed limit; this was later repealed, which one study shows may have cost over 12,500 lives

If Democrats are serious about attacking housing inflation, they should put real money into incentivizing states to hold localities accountable. States are ultimately in control of local zoning policy “

Josh Hawley Wants to Make the Supply Chain Crisis Permanent

“In an op-ed for The New York Times published Friday, Hawley uses the temporary supply chain problems as an excuse to push for a permanent expansion of federal power over the affairs of private businesses. We must “fundamentally restructure our country’s trade policy,” Hawley demands, and that means injecting both the Pentagon and Commerce Department bureaucrats into companies’ purchasing decisions. Under the terms of a bill that Hawley is proposing, any product determined to be “critical for our national security and essential for the protection of our industrial base” would have to have at least 50 percent of its value made in the United States.

Why is it necessary for the government to get significantly more involved in the system of global trade that’s allowed Americans to enjoy unparalleled prosperity in recent years? Because “the global pandemic has exposed this system for what it is—a failure,” Hawley writes.

One must assume that if the lights in his home went out due to a storm, Hawley would respond by declaring electricity to be a mistake and demanding that the government require homes to be lit with candles and gas lamps. After all, what is the electrical grid but a complicated supply chain that leaves Americans woefully dependent on production and distribution systems (power plants, substations, and lines) that they do not fully control? Better to produce your own lighting, right? If that means you have to live without television or the internet, well, those are just the trade-offs required to achieve self-sufficiency.

A storm—or a pandemic—can create temporary problems in the highly complex systems that run so much of the modern world. That’s hardly a reason to abandon them. If Hawley is imagining a world in which the United States is wholly self-sufficient, then he’s asking you to accept a scenario in which the United States is significantly poorer than it is today.”

“Hawley says the supply chain crisis is the result of “a crisis of production.” Wrong again. American manufacturing is stronger than it has ever been, in part because outsourcing low-level production has allowed companies here to focus on higher-value goods (which means higher wages for the people who make and sell them). The true cause of the current mess is a disconnect between supply and demand—supplies have been constrained by a number of pandemic-related issues like temporarily closed factories and worker shortages, while demand has shifted in unexpected ways.”

“If his thesis is correct, then items that are already mostly produced domestically should be exempt from the problems with foreign supply chains, right? Except, no, that’s not true. As Scott Lincicome, a senior fellow with the Cato Institute, points out, the vast majority of food consumed in the United States is grown, raised, and otherwise produced here. And yet Americans are seeing higher prices and supply issues at the grocery store too.

“That a mostly‐domestic U.S. food supply chain hasn’t protected American consumers from recent shortages and price increases is unsurprising,” Lincicome writes. “For starters, many of the same things that stress global supply chains—COVID-19 outbreaks; supply‐demand imbalances; labor shortages in the trucking and warehousing industries; misguided trade, transportation, and immigration policies; etc.—stress domestic ones too.””

Stop The Steel: Biden Is Replacing Trump’s Tariffs With Import Quotas

“The Biden administration has reached a deal with the European Union to withdraw tariffs imposed by President Donald Trump on European-made steel. Unfortunately, the agreement likely won’t translate into lower costs for American manufacturers and consumers.
That’s because the Biden administration is replacing Trump’s tariffs with a new form of protectionism that will continue to artificially inflate the cost of steel imported from Europe. Instead of charging 25 percent tariffs on all steel imports, as Trump did, Biden’s deal includes a so-called “tariff-rate quota” that will allow 3.3 million metric tons of steel to be imported annually without tariffs. Once that threshold is met, the 25 percent tariffs will apply to subsequent imports. For reference, the U.S. imported nearly 5 million metric tons of steel from Europe in 2017—the last full year before Trump’s tariffs caused imports to fall sharply.”

What the 14th Century Plague Tells Us About How Covid Will Change Politics

“The effects of mass death on the economic fortunes of workers were profound. On the eve of the Black Death, Europe was characterized by feudalism, a hierarchical social and economic system with military aristocrats (and the clergy) at the top and a large mass of peasant laborers at the bottom. Because the economy was overwhelmingly agricultural, the elite’s capital was held almost exclusively as land. Peasants were tied to this land through a highly exploitative system of forced labor called serfdom, which demanded the uncompensated provision of labor and greatly restricted workers’ mobility.

The demographic collapse wrought by the Black Death was a fundamental shock to this system — at least it was in the areas where the toll of the plague was high. The basic laws of supply and demand explain why. In areas where the plague hit hard, it decimated the labor force. At the same time, the disease left the upper classes’ main capital asset, land, completely untouched. Thus, one factor of economic production, labor, suddenly became scarce and expensive, while the other, land, became abundant and cheap. The result was a massive increase in peasants’ bargaining power. Thus, workers were able to demand better working conditions, improve their access to land and, given the challenges elites faced in policing their movement, migrate to the cities. In the years immediately following the Black Death, serfdom collapsed and was replaced by a wage economy based on free labor.

Yet this reaction to the Black Death did not take place across the whole of Europe. Although much of Western Europe (including some western areas of what we now think of as Germany) suffered from the plague with particularly high intensity, leading to those massive changes to the bargaining power of labor, Eastern Europe, which was less exposed to trade and had sparser human settlement, saw significantly less death. Consequently, in the eastern parts of Europe, including the east of German-speaking Central Europe, the system of serfdom persisted for centuries longer than it did in the West.

These differences in labor freedom had important consequences for local politics and institutions. We find that areas of Central Europe that experienced high mortality from the Black Death — leading to an early end for serfdom — developed more inclusive political institutions at the local level, such as the use of elections to select city councils. These changes initially resulted from shifts in the organization of agriculture. In areas where the Black Death hit hard, elites were forced to decentralize much of the everyday control over agricultural management to the peasants themselves. This created a local need for coordination, since agricultural production at the village-level could only be successful if peasants agreed on the crops to be harvested and the division of labor in the agricultural round. As a consequence of these early experiences with self-governance, peasant villages began to demand the right to elect their own officials. Over time, this led to wider and wider participation in collective self-governance at the local level. Such experiences fostered a lasting culture of civic engagement and cooperation that proved essential for safeguarding the freedoms of laborers from future attempts by elites to roll back the gains won in the wake of the Black Death.”

Inflation Will Make Government Budget Problems Worse

“inflation is real. The all-item consumer price index (CPI) was up more than 5 percent on a year-over-year basis for July, August, and September, and now shows a 6.2 percent increase for October—the largest jump since 1990. The Fed considers 2 percent inflation to be its bright-line monetary policy goal. Obviously, there is a large gap between that and what we are seeing on the ground.”

“Individuals whose salaries, wages, Social Security payments, and even mortgage interest or rental rates are automatically adjusted for inflation have much less to worry about than their neighbors on fixed salaries, who must cope with ballooning grocery bills or pay twice as much at the pump. On these grounds, inflation may be devastating for some and almost meaningless for others. These gaps widen as inflation gets worse.”

“The rate of inflation gets captured in interest rates that borrowers must pay, especially for longer-term debt. Lenders hope to be paid back with at least as much purchasing power. If they believe inflation will tick away at 4 percent, interest rates tend to rise with this baked-in expectation.
In any case, higher interest rates mean higher interest costs on all forms of public and private debt. As a result, mortgage rates will rise, all forms of construction will suffer, and businesses will postpone making large investments in plants and equipment.

Now consider the public debt—especially the federal debt that ballooned from large deficits in recent years. (In 2020, federal revenues were $3.4 trillion and spending was $6.6 trillion.) The interest cost of the national debt in 2008 was $253 billion and remained at about that level through 2015. Even though the debt doubled in those years, sharply falling interest rates and low inflation worked to contain costs.

But that was yesterday. With today’s higher inflation and rising interest rates (perhaps with more to come), the Congressional Budget Office (CBO) estimates the interest cost of public debt to be $413 billion in 2021. Obviously, any dollar spent on interest cannot be spent on government benefits and services to taxpayers.”

Immigrants could fix the US labor shortage

“Companies across the United States can’t find enough employees. One immediate solution is simple: Bring in more foreign workers.

The US needs roughly 10 million people, including low-wage and high-skilled workers, to fill job openings nationwide — and only 8.4 million Americans are actively seeking work.

And despite job openings hitting historic highs in July and extended unemployment benefits ending in September, Americans aren’t returning to work, especially in low-wage industries. At the same time, workers are resigning in record numbers. And though consumer spending has surged this year, businesses don’t have the people to meet demand — to cope, some companies are raising their prices. Supply chain bottlenecks are even threatening to ruin Christmas.

When the economy is fragile, there’s an instinct to shut borders to protect American workers. And indeed, that’s what the US has done during the pandemic, practically bringing legal immigration to a halt and closing the southern border to migrants and asylum seekers. In a normal year, the US welcomes roughly 1 million immigrants, and roughly three-quarters of them end up participating in the labor force. In 2020, that number dropped to about 263,000.

Generally, economic research has shown that the arrival of low-wage foreign workers has little to no negative impact on native-born workers’ wages or employment. And under the current circumstances, welcoming more low-wage foreign workers could address acute labor shortages in certain industries, helping hard-hit areas of the country recover while staving off higher inflation.

The industries currently facing the worst labor shortages include construction; transportation and warehousing; accommodation and hospitality; and personal services businesses like salons, dry cleaners, repair services, and undertakers. All four industries had increases in job postings of more than 65 percent when comparing the months of May to July 2019 to the same time period in 2021, according to an analysis conducted for Vox by the pro-immigration New American Economy think tank. Immigrants make up at least 20 percent of the workforce in those industries.”

Service workers are getting paid more than ever. It’s not enough.

“Employers in almost every industry say they’re struggling to find workers, but the situation is especially severe in the leisure and hospitality sector. While workers in these industries are getting paid more than ever, it still doesn’t seem like enough. Bars, restaurants, and hotels across the country are posting signs advertising open jobs — or asking customers to be patient since they don’t have enough staff. In August, the latest available month for openings and turnover data from the Bureau of Labor Statistics (BLS), there were a near-record 1.7 million open jobs in leisure and hospitality — 10 percent of all jobs in the sector — and a record of nearly a million people quitting.”

“when individual states rescinded their unemployment benefits this summer, it didn’t have a meaningful impact on the worker shortage in many industries, including leisure and hospitality. Data from September, when the benefits were cut on a federal level, show a similar story, suggesting there are reasons beyond financial keeping people from taking these jobs.”

Most Americans Are Afraid Of Inflation

“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.”

“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.””

“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.”