Archive for February 2nd, 2021

The Economy Has No “Pause” Button (1)

LG vows washing machine leadership
LG Washing Machine Assembly Line

From Saturday’s Wall Street Journal, we learn that appliance manufacturers are having trouble keeping up with orders because of supply chain difficulties, and that their production levels are being suppressed by Wuhan coronavirus workplace rules:

Many manufacturers continue to suffer from inventory shortages, a remnant from when plants were closed last spring. In addition, measures to prevent the spread of Covid-19, such as adding space between workers, are weighing on production. As a result, manufacturing backlogs hit a two-and-a-half year high in December, according to the Institute for Supply Management.

Slowdowns are compounding along supply chains, from ports to warehouses to factory floors, leading to higher costs. “You are seeing logistic costs going up, trucking costs going up, airfreight going up,” 3M Co. Chief Executive Mike Roman said in an interview.

The problem is obvious: every contributor along the supply chain is suffering from the same problems – lack of inventory and work rules creating friction and raising costs along the way.

Some of the problem, no doubt, is the drastic spike in demand seen in the chart below, but the issues persist, even as demand has started to fall back and the economy as a whole shows unnerving signs of sputtering:

It’s quite clear that the economy as a whole is suffering from the bait-and-switch from “two weeks to flatten the curve” to “as long as it takes to kill the virus.” No amount of “stimulus” is going to solve this problem – it’s quite clear from the chart that there’s already plenty of pent-up demand.

There are, however, plenty of things that the administration can do to make things worse, and every evidence that they’re going to try them. They’re going to politicize even routine business decisions on the justification of race and “domestic terrorism,” as they will brand Republicans. They’re going to increase the cost of all forms of energy under the banner of climate change and the environment. None of those things is going to make anything fairer or healthier, but they will increase the cost of doing business to no good end.

At the time, some of us warned that deliberately shutting down the economy for an extended period of time would be a disaster, that a dynamic economy has no such thing as a “pause” button. I’m wrong plenty, but rarely when I’m right do I wish so much to have been wrong.

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