Welcome to the Bumpy Plateau
News reports about shortages are coming in just about every day. Every sector of the economy seems to have been affected. Some of the shortages can be attributed to panic buying -toilet paper last year and gasoline in the past few weeks both come to mind immediately -but others are exposing deeper flaws in our economy, from the way our supply chains are structured to our demand for insatiable, unceasing growth on a planet that, last time I checked, remained stubbornly finite.
This is how Bloomberg recently described it: “Copper, iron ore and steel. Corn, coffee, wheat and soybeans. Lumber, semiconductors, plastic and cardboard for packaging. The world is seemingly low on all of it. “You name it, and we have a shortage on it,” Tom Linebarger, chairman and chief executive of engine and generator manufacturer Cummins Inc., said on a call this month.””
Years of just-in-time supplies pushed by MBAs with a belief that nothing could ever disrupt global manufacturing and supply chains have wrung all of the elasticity out of the economy. Finance gurus urge individuals to have a financial cushion saved up in case of an emergency, but companies have no such cushion to fall back on. Materials are supposed to arrive just in time to be used, or at most within a few days. Just in time supply dictates that, ideally, a shipment of semiconductors will roll up to the loading dock, be unloaded, and go right onto the assembly line. This worked tolerably well for decades when there were not any major disruptions to supply chains.
Cue covid, which exploded like a supernova across the entire economy (among other things -I’m not discounting the human toll of the pandemic, but for the purposes of this article I’m focusing on the economic impacts). The result has been prolonged and increasingly severe shortages in certain sectors. Automobile manufacturing plants have had to close down due to a lack of semiconductors. Baby bed makers have had to turn down orders because materials aren’t available. We’ve all seen what happens when shipping gets backed up; the March fiasco in the Suez Canal is a clear lesson in that.
Supply chain disruptions are only one of the causes of the shortages plaguing the economy right now. There are two others and together they form a three-legged stool of clusterfuckery that is currently wreaking havoc in our economy and society.
The second cause is also familiar to everyone. It is surging demand. I’m not talking about people panic buying gasoline and storing it in plastic bags in the trunk of their SUVs (good luck to them, though -at least one woman has already been badly burned after an explosion due to this). I’m talking about real increases in overall demand for certain goods. Used cars and lumber are the two that most readily come to mind. The shortage in new cars due to the shortage in chips has led to a shortage in used cars (see how these connect? Everything is interconnected in our global economy), but there has also been a notable increase in demand for cars overall. On top of the usual demand for new or used vehicles, you have people who put off buying a vehicle last year due to the pandemic and people who are returning to work in person but want to drive themselves instead of taking possibly covid-ridden public transit, plus a shortage of used cars going on the market both because some individuals have decided to ride out the bubble before trading in their old car and because rental car companies didn’t trade out their fleets last year like they normally do. The latter is a big source of the used car supply in the U.S.; every year, these companies buy a bunch of new cars and send the ones that are one or two years old to auction. They didn’t buy new cars last year and can’t get enough of them this year, so the result is that they are hanging onto their current fleet longer, thus causing a drop in the supply of used cars at the same time demand is increasing. The result is naturally an increase in prices; they rose 10% in April alone. Some people have been priced out of the market, but others are paying the inflated prices because they can, and they need a vehicle.
Lumber is another area where increased demand has led to shortages. People staying home decided to start home improvement projects and others decided to move and build or renovate their new houses, leading to a spike in demand. As the growth rate of trees isn’t affected by the vagaries of human demand, the result was a shortage and a huge price spike. As of this writing, it shows no signs of abating.
Are these two causes the whole of the problem? I wish it were that easy, but of course, it isn’t. The third leg of this misshapen stool isn’t going to get coverage in the press, though it probably should because it is the most important of the three and the one that won’t go away. To be blunt: We are bumping up against the hard limits of the ability to grow our economies and ourselves into prosperity.
We’ve reached the “bumpy peak” -the plateau -of the availability of multiple resources, and we’ve done so simultaneously. Resource constraints are hampering our ability to function normally, much less continue economic growth, at the same time we are facing multiple intertwined crises in the political arena AND a global pandemic. This is of course the way of things when a civilization reaches its zenith and begins to tip over into decline. We’ve known this was coming and would hit around this decade since before I was born. Smarter people than me have tried warning society. One of the best models remains the World3 model from the much-reviled Limits to Growth study first published in the 70s. We are still tracking their Business-as-Usual scenario almost exactly, and when did it predict resource constraints would hit? The 2020s. We’re right on schedule. I’ve included the link to an update on that study published just last year.
These shortages aren’t just one-offs. Things aren’t going to go back to “normal” when the pandemic is over. Sure, there will be periods of good times and bad times, just as there always were, but we’ve crossed over the top and the rollercoaster is going downhill. There’s no going back.
Sources and Further Reading
https://slate.com/business/2021/05/used-car-prices-shortage-supply-chain-semiconductors.html
