Issue 36: September 20, 2021
Inside this Issue:
- Inflation Deceleration: No Fooling, Prices Cooling
- No Lies, Few Supplies: Supply Chain Strain Still Causing Pain
- Without Affordability, No Mobility: Why Americans Aren’t Moving
- Atoms Versus Bits: The Worrisome Lack of Productivity Gains in Things Not Digital
- Qualcomm: On 5G, Semicons and ARM’s independence
- Gains in Gotham: The Latest Real Estate Trends in New York City
- A Global Dollar Shortage? More Movement in Money Markets
- Silicon Suspicions: FTC Again Reveals Discontent with Big Tech Takeovers
- Out of this World: The Origins of SpaceX
- Louisiana Look Back: Economic Conditions in the Time of Huey Long
- And This Week’s Featured Place: Boise, the Idaho Dynamo
Quote of the Week
“In supply chain management they call it the bullwhip effect, where these waves of impacts just flow through the industry. And automotive is a perfect example of that, where all it takes is a semiconductor chip not being available. All it takes is tightness in the area of steel or rubber or aluminum. It can literally bring an industry down.”
– Mike Wall, executive director of automotive analysis for IHS Markit
You can’t get a car because there aren’t enough semiconductors. You can’t take a good job in the booming city because there’s no affordable place to live. You’re waiting forever for that new sofa you bought. And waiting forever for your food to arrive—the restaurant is short-staffed. That knee replacement surgery you need? Gotta wait. Not enough nurses. Who’s gonna watch the kids while you’re at work? Can’t find affordable daycare. Can’t find anyone to take care of grandpa.
Welcome to the Shortage Economy, where quite simply, there’s not enough stuff. This scarcity, in turn, is causing prices to rise, especially for companies. But less so for consumers, as the latest inflation figures show. Reassuringly, many of the economy’s bottlenecks are tied to temporary Covid-related disruptions, the latest being factory shutdowns in Asia. That said, the reason for worker shortages remains mysterious, with low labor participation rates a feature of the American economy for two decades now. Likewise, an increasingly unstable climate, another cause for current production and inventory shortages, appears to be more than just a momentary reality.
Make no mistake: The current shortages aren’t that bad in a historical context. Consider the gas lines of the 1970s? The ruined factories of Europe after World War II? The food shortages plaguing all-too-large parts of humanity today? Besides, the not-enough-supply economy of 2021 feels a whole lot better than the not-enough-demand economy that characterized the aftermath of the 2008/09 financial crisis.
Currently, demand throughout the economy remains strong, if softening somewhat from earlier in the year. Covid remains an obstacle to maintaining brisk levels of growth. But most of Corporate America, including the vital financial sector, remains healthy and profitable. Jobs are plentiful for those who can and want to take them. Inflation, as mentioned, seems a modest threat at worst. Household balance sheets are solid, as are the finances of most state and local governments (SLGs are very large and generally well-paying employers). The federal government’s finances don’t look so good, but there’s a big debate about how much that matters. To be sure, if the federal government hadn’t spent so much money to bolster incomes and balance sheets, the rest of the economy might be in much worse shape.
Longer term, better infrastructure should help ensure more resilient supply. To many in Washington, that means better roads, bridges, power grids and so on. To others, particularly those focused on solving the labor participation riddle, the answer is a larger federal role for ensuring access to quality affordable health care, childcare and eldercare. The supply side of the economy would also benefit, President Biden believes, from a more vigorous application of competition laws. As for housing supply, that’s a tougher nut to crack, constrained by a constellation of local opposition to new building. A housing shortage, naturally, means more wealth for those who currently own houses, as the past year’s super-spike in prices makes clear. So the resistance to new construction isn’t surprising. A separate obstacle when it comes to producing new homes: A dearth of innovation in home construction. It’s not like with most consumer goods including computers, which have seen sustained productivity gains and price declines for decades. It’s a problem in higher education too, and an extreme problem in health care.
America’s Three H dilemma—housing, health care and higher ed costs—won’t get resolved any time soon. Nor, it seems, will the semiconductor shortage, wreaking havoc on the vital auto sector most troublingly. Earlier this summer, it looked as if the shortage would be easing by now. Instead, the new consensus is sometime during the second half of 2022. Auto sales, sure enough, declined sharply in August—there’s plenty of demand for new cars, just not enough supply.
Sales of other retail items, along with restaurant sales, did however increase by nearly 2% in August, according to the latest Census data. Even including autos and auto parts, total retail sales rose 0.7%, allaying fears after July’s roughly 2% decline. Sales remain strong for categories like home furnishings and groceries. Restaurant and bar sales alone were flat, with declines expected this month as Covid concerns worsen.
You can say this about the economy in 2021: If you’re making things, moving things or selling things, you’re probably earning strong profit margins. It’s true for even supply-chain-challenged manufacturers of cars (if not airplanes). It’s certainly true of logistics companies like FedEx and UPS. And it’s true of big retailers like Walmart and Amazon. Amazon’s Big Tech colleagues are certainly doing well this year too, perhaps too well—as you’ll read below, antitrust momentum continues to build, with support from both Democrats and Republicans.