Delta-variant scare tactics notwithstanding, the United States economy is exiting the coronavirus age. The government’s emergency actions over the past year that forestalled an economic crash are now catching up with us, with a White House seemingly unable to recognize the scale of the potential issue. Various measures, including extending the unemployment bonus program, will further accelerate the fastest inflationary pressure in 40 years. Without swift action, the American economy soon will face the hangover due to disruptions in the supply chain of raw materials and finished goods.
There are various reasons for the current inflation surge. Perhaps the largest is yet another coronavirus-related emergency action that has outlived its purpose: The role of federal extended unemployment benefits. The payouts, which started at $600 per week, expired and were replaced with $300 per week. Our economy has not healed itself completely, but paying people not to work is one of the major forces harming our fragile recovery from COVID-19 shutdowns.
While the official unemployment numbers show a rate of 5.8 percent, there is far more to the story. In fact, the economy has regained only about half of the pre-pandemic workers who left the workforce so far. Forty-eight percent of small businesses cannot fill open positions, with 9.3 million job openings as of April. The lack of workers is resulting in both ubiquitous “help wanted” signs and a surge in wages. While increasing wages are often a sign of an expanding economy, the current increase is both below the average of recent years and below the rate of inflation. These issues reinforce themselves. Wages falling behind inflation increases the likelihood that someone would stay on the enhanced unemployment. The more people who do so, the higher the chance of surging inflation due to disruptions to the supply chain. Fewer workers driving trucks or working at warehouses and ports, and limitations on raw materials and finished goods, are all pushing prices up.
Reductions in factory employment, truck drivers, and raw material workers all are impacting the current price of goods on the shelf. Meat prices have spiked by up to 50 percent in the past two months because of a shortage of truckers. Shortages and rising prices are causing significant menu price hikes. Hauling companies are offering $4,000 signing bonuses and the same amount for referring new drivers. Similar bonuses offer incentives for warehouse employees. One Texas company is so desperate, it’s offering drivers $14,000 per week. The trucker shortage is so acute that Colorado gas stations ran out of gasoline.
Overall, food service and warehouse companies are short about 12 percent of total positions. Even Amazon — yes, that Amazon — is losing employees faster than they can hire them. Each of these logistical issues will result in a combination of new techniques to fill labor (such as robots), pay increases, commodity shortages — or perhaps a series of combinations. Each option will have radical short- and long-term effects on the national economy. Spiking wage increases, coupled with “free” government money will likely combine into an inflationary juggernaut.
The federal government’s various efforts to revive the economy — stimulus funding and easy credit — has resulted in an uneven recovery. Demand is high for consumer goods without either the supply or distribution system adequate to meet it. Meanwhile, easy credit allows for almost frenzied borrowing for houses and vehicles. Much like the rumblings in 2006 and 2007, a likely massive credit bubble is now backed by printed money and legions of unemployed workers. Extending the emergency measures of early 2020 into late 2021 is creating an economic maelstrom that may make 2008 look tame by comparison.
Perhaps President Biden isn’t thinking that far ahead. Or perhaps it won’t matter to him as long as he’s not the one in charge when the bubble bursts. Regardless, there is more that he can do via legitimate executive fiat right now to prevent this altogether — a lot more. Slowing Federal Reserve fiat pumping would provide the most robust solution, ending the tandem with supply chain issues that are rapidly pushing up inflation. Canceling the enhanced unemployment program would have an immediate positive impact on the labor crisis. In fact, among states that ended the unemployment bonuses, unemployment fell by nearly 14 percent. The longer federal unemployment checks get distributed, the more employees will be lost permanently. While some may return to jobs that paid them less than extended unemployment, their skills may have atrophied beyond repair in a year and a half off the job. The American consumer ultimately will pay the price.
Napoleon is alleged to have said that amateurs talk strategy and experts talk logistics. Joe Biden and the White House team are looking at the economy through the lens of Keynesian — dare I say — voodoo economics. Ignoring the practical effects of expired policy is causing a sharp increase in prices — and this will only accelerate through this year. Reducing the workforce in critical supply chain functions acts as a tax on American consumers because of federal policy. President Biden may not yet understand the effects of ignoring logistical hurdles, but the average American will very soon.
Kristin Tate is a libertarian writer and an analyst for Young Americans for Liberty. She is an author whose latest book is “How Do I Tax Thee? A Field Guide to the Great American Rip-Off.” Follow her on Twitter @KristinBTate.