My Briefing paper was posted on Nov. 28, 2021 by the Adam Smith Institute. I explore the implications of my Openness book for a faster fuller post-Covid economic recovery.
Category: Economic Crisis
Higher Demand and Lower Supply Cause Higher Electric Bike Prices
(p. A1) For a glimpse at why inflationary pressures aren’t likely to ease anytime soon, consider the bicycle.
Bike prices in the U.S. and Europe rose sharply at the start of the pandemic because of booming consumer spending and snarl-ups in global supply chains that meant long delays and higher costs for manufacturers.
Now, manufacturers are working on building bikes for 2022 in a continuing environment of economic uncertainty—with more questions added recently by the emergence of the Omicron variant of the coronavirus. Today’s rampant demand and strangled supply are already pushing next year’s prices higher.
“The cost of our product is not going down,” says Richard Thorpe, chief executive of Karbon Kinetics Ltd., which sells Gocycle electric bikes world-wide from its base in Chessington, southern England. “If that is inflation, I wouldn’t call it transitory.”
. . .
(p. A12) Mr. Thorpe resisted pushing up prices for Gocycles in 2021 because he spent a chunk of the year explaining to unhappy customers why supply-chain disruptions meant there would be delays to their orders. . . .
He says he is pressing ahead with price increases for 2022 because he doesn’t expect these supply-chain issues to get much better. He estimates the cost to the company of producing a single bike has shot up by 20% to 25% compared with the cost before the pandemic, as competition between manufacturers for common parts pushes prices skyward.
Seatpost prices have gone up 20% in the past 12 months. So have prices for the cranks the rider turns when pedaling. Handlebars are up 11%. Brake levers and calipers are up 14%. Chain prices are up 17%, and reflectors are up 50%, according to Karbon Kinetics.
Mr. Thorpe learned by email Wednesday that higher prices for magnesium—used in Gocycle wheels—mean future shipments of wheels will be 17% more expensive than they are now.
Multiple industries are competing for the batteries, semiconductor chips and tiny electronic components Gocycle uses for its dashboard displays, power management systems and charging ports.
. . .
Shipping a container full of parts from China costs him around $20,000, Mr. Thorpe says. It used to cost $4,000. Shortages of pallets and blockages at ports mean he can’t be certain when shipments will arrive. He estimates shipping costs for a single bike have effectively doubled, on average, depending on where exactly it is destined.
The flood of demand for bikes as the pandemic arrived took the industry by surprise, executives say, an example of how unprepared the global economy was for the mass switch in consumption to goods from services as the pandemic forced people to stay home.
. . .
Part of the explanation for consumer demand for bikes is a Covid-19-related trend that is pushing up prices for all sorts of manufactured goods. The pandemic has meant people are less able to spend their income on eating out, overseas travel and other services, so have been splashing out on gadgets and recreational products instead.
Retailers say consumer demand pushing up bicycle prices is still intense. Some bike buyers are seeking ways to avoid traffic or public transport as they return to the regular commute, a trend that is fueling adoption of pricey electric bikes in particular. Some retailers say they are seeing recent converts to cycling upgrade basic models for more expensive rides.
For the full story, see:
(Note: ellipses added.)
(Note: the online version of the story has the date December 1, 2021, and has the title “Is Inflation Sticking Around? Bicycle Makers Offer Some Clues.”)
Firms Nimbly Pivot to Build Innovative Products That Use Fewer Chips
(p. A1) Manufacturers struggling with a shortage of semiconductor chips are finding workarounds, executives said, redesigning products, shipping uncompleted units and focusing on older, lower-tech models.
. . .
Boss Products typically used hand-held controls with computer chips to angle snow truck blades. The company, which is owned by Toro Co., hasn’t been able to find enough chips. So employees started looking for ways to use fewer of them. Some remembered that joysticks, without computer chips, were used to control these features until electronics became affordable and commonplace.
“Let’s go back to the old design,” said Rick Rodier, a Toro executive. “It still does the job. It was done this way for 30 years. It was reliable. It was fine. It was just a little more cumbersome to build and assemble.”
. . .
(p. A6) T3 Motion, which makes electric stand-up vehicles for airport and university security officers, is redesigning its products to use fewer computer chips and electronics.
William Tsumpes, the company’s CEO, said instead of multiple components to control features like batteries, lighting and sirens, the redesigned vehicle will use a centralized, integrated board with a single processor to control all the parts of the vehicle. This move will eliminate the other five individual circuit boards, he said. Mr. Tsumpes said it was tough to quickly execute the redesign, but the moves, and an engine change, will lead to increased vehicle range.
“It’s spurring innovation,” Mr. Tsumpes said.
For the full story, see:
(Note: ellipses added.)
(Note: the online version of the story has the date November 14, 2021, and has the title “Chip Shortage Sees Manufacturers Pitch Lower-Tech Models.”)
California Labor and Environment Policies Reduce Nimble Response to Supply Chain Backups
(p. A17) The backup of container ships at the Long Beach and Los Angeles ports has grown in recent weeks despite President Biden’s intervention to get terminal operators to move goods 24/7.
. . .
The two Southern California ports handle only about 40% of containers entering the U.S., mostly from Asia. Yet ports in other states seem to be handling the surge better. Gov. Ron DeSantis said last month that Florida’s seaports had open capacity. So what’s the matter with California? State labor and environmental policies.
Some 20 business groups recently asked Gov. Gavin Newsom to declare a state of emergency and suspend labor and environmental laws that are interfering with the movement of goods. Opening the Port of Los Angeles 24 hours a day “alone will do little without immediate action from the state to address other barriers that have created bottlenecks at the ports, warehouses, trucking, rail, and the entire supply chain,” they wrote.
One barrier is a law known as AB5. Before its enactment in 2019, tens of thousands of truck drivers worked as independent contractors, which gave them more autonomy and flexibility than if they were employees. As contractors, truck drivers can work for multiple companies, which allows them to nimbly respond to surges in demand.
. . .
Another problem: a shortage of storage space. “There is absolutely no available capacity in the warehousing sector due to the difficulty in developing any new capacity,” the businesses noted in their letter. The vacancy rate for warehouses near the Los Angeles and Long Beach ports was a mere 1%, compared with 3.6% nationwide.
If warehouses don’t have space in their facilities or parking lots to unload goods, drivers can’t make deliveries. Some truck drivers are leaving container boxes along with the chassis outside storage facilities and are picking them up later, but that results in a shortage of chassis at the ports. (About half of chassis are leased to truckers from a common pool supplied by private companies.)
. . .
. . . in California warehouse growth ignited opposition from environmental groups, which complain of pollution and noise. Many cities have limited new logistics facilities.
For the full commentary, see:
(Note: ellipses added.)
(Note: the online version of the commentary has the date November 4, 2021, and has the same title as the print version.)
Shifting to Small Ports Requires Also Finding Containers, Trucks, and Storage at Small Ports
(p. B1) When Flexport Inc. learned in the past month that an ocean carrier planned to shift cargo from the congested operations at the Port of Los Angeles to little Port Hueneme some 80 miles up the California coast, the freight forwarder found that trucking companies weren’t ready to go along with the changing direction of the imports.
“We talked to trucking carriers throughout the market in L.A. and Oakland and the sense was that they could not support the volume if it moved through Port Hueneme,” said Jason Parker, the company’s head of trucking.
The San Francisco-based company shifted gears, pulling 200 containers from the ocean booking and instead routing many of them to Los Angeles despite a likely longer wait there to offload goods.
“The two-week delay coming to Los Angeles versus the Hueneme routing was going to cause less headache for the customers,” Mr. Parker said.
. . .
(p. B2) Sailing to alternative ports can add weeks to the time it takes to get goods from Asia to the U.S., however, and can pile on new costs and complications.
Rachel Rowell, a spokeswoman for freight middleman C.H. Robinson Worldwide Inc., said shifting the flow of goods requires container availability, space on a vessel, truck capacity and equipment including the chassis that attaches to trucks to allow them to carry containers. All of those may be in short supply.
“Shifting entire chains is a more challenging ordeal than a cab shifting which street it takes, which is why shifting ports is not often a preferred option and why it is difficult to do last-minute,” she said.
For the full story, see:
(Note: ellipses added.)
(Note: the online version of the story has the date October 24, 2021, and has the title “Shippers Find New Supply-Chain Hurdles at Alternate Ports.”)
Higher Stock Market and Unemployment Benefits Allow Many Workers to “Be More Picky About the Jobs They Take”
(p. A1) Fall was meant to mark the beginning of the end of the labor shortage that has held back the nation’s economic recovery. Expanded unemployment benefits were ending. Schools were reopening, freeing up many caregivers. Surely, economists and business owners reasoned, a flood of workers would follow.
Instead, the labor force shrank in September. There are five million fewer people working than before the pandemic began, and three million fewer even looking for work.
The slow return of workers is causing headaches for the Biden administration, which was counting on a strong economic rebound to give momentum to its political agenda. Forecasters were largely blindsided by the problem and don’t know how long it will last.
. . .
(p. A13) Ms. Eager, who is vaccinated, said that she had always been careful with money and that she built savings this year by staying home and socking away unemployment benefits and other aid. “My financial situation is OK, and I think that is 99 percent of the reason that I can be choosy about my job prospects,” she said.
Americans have saved trillions of dollars since the pandemic began. Much of that wealth is concentrated among high earners, who mostly kept their jobs, reduced spending on dining and vacations, and benefited from a soaring stock market. But many lower-income Americans, too, were able to set aside money thanks to the government’s multitrillion-dollar response to the pandemic, which included not only direct cash assistance but also increased food aid, forbearance on mortgages and student loans and an eviction moratorium.
Economists said the extra savings alone aren’t necessarily keeping people out of the labor force. But the cushion is letting people be more picky about the jobs they take, when many have good reasons to be picky.
In addition to health concerns, child care issues remain a factor. Most schools have resumed in-person classes, but parents in many districts have had to grapple with quarantines or temporary returns to remote learning. And many parents of younger children are struggling to find day care, in part because that industry is dealing with its own staffing crisis.
. . .
When Danielle Miess, 30, lost her job at a Philadelphia-area travel agency at the start of the pandemic, it was in some ways a blessing. Some time away helped her realize how bad the job had been for her mental health, and for her finances — her bank balance was negative on the day she was laid off. With federally supplemented unemployment benefits providing more than she made on the job, she said, she gained a measure of financial stability.
Ms. Miess’s unemployment benefits ran out in September, but she isn’t looking for another office job. Instead, she is cobbling together a living from a variety of gigs. She is trying to build a business as an independent travel agent, while also doing house sitting, dog sitting and selling clothes online. She estimates she is earning somewhat more than the roughly $36,000 a year she made before the pandemic, and although she is working as many hours as ever, she enjoys the flexibility.
“The thought of going to an office job 40 hours a week and clocking in at the exact time, it sounds incredibly difficult,” she said. “The rigidity of doing that job, feeling like I’m being watched like a hawk, it just doesn’t sound fun. I really don’t want to go back to that.”
For the full story, see:
(Note: ellipses added.)
(Note: the online version of the story has the date October 19, 2021, and has the title “The Economic Rebound Is Still Waiting for Workers.”)
Union Pacific Buying More Chassis to Carry More Containers
(p. B6) Union Pacific is buying more chassis that can carry shipping containers, and opening facilities outside of Los Angeles and in Minnesota to handle the increased volume.
Mr. Foote of CSX said that while supply chains are strained globally, the railroads are handling their role of moving goods between destinations well. A bigger problem of late has been what happens after the cargo gets to its destination.
He said containers carrying finished goods often sit idle because of a lack of truck drivers, equipment to put shipping containers on trucks and warehouse workers to unload them.
For the full story, see:
(Note: the online version of the story has the date October 21, 2021, and has the title “Rail-Yard Congestion Holds Down Shipping Volumes,’ CEO Says.”)
Much Is Still Unknown About How the Macroeconomy Works
(p. B5) It has long been a central tenet of mainstream economic theory that public fears of inflation tend to be self-fulfilling.
Now though, a cheeky and even gleeful takedown of this idea has emerged from an unlikely source, a senior adviser at the Federal Reserve named Jeremy B. Rudd. His 27-page paper, published as part of the Fed’s Finance and Economics Discussion Series, has become what passes for a viral sensation among economists.
The paper disputes the idea that people’s expectations for future inflation matter much for the level of inflation experienced today.
. . .
“Macroeconomics behaves like we’re doing physics after the quantum revolution, that we really understand at a fundamental level the forces around us,” said Adam Posen, president of the Peterson Institute for International Economics, in an interview. “We’re really at the level of Galileo and Copernicus,” just figuring out the basics of how the universe works.
“It requires more humility and acceptance that not everything fits into one model yet,” he said.
Or put less politely, as Mr. Rudd writes in the first sentence of his paper, “Mainstream economics is replete with ideas that ‘everyone knows’ to be true, but that are actually arrant nonsense.”
For the full commentary, see:
(Note: ellipsis added.)
(Note: the online version of the commentary was updated October 15 [sic], 2021, and has the title “THE UPSHOT; Nobody Really Knows How the Economy Works. A Fed Paper Is the Latest Sign.”)
The paper by Rudd, mentioned above, is:
“Our Cities Protect Insiders and Leave Outsiders to Suffer”
(p. A15) Mr. Glaeser’s “Survival of the City: Living and Thriving in an Age of Isolation,” written with Harvard health economist David Cutler, shares the pleasing style of its predecessor, an engaging mixture of history and analysis. It has none of the triumphalism of its predecessor, however. In the move to social distancing that began in the spring of 2020, Messrs. Glaeser and Cutler see nothing less than “the rapid-fire deurbanization of our world.”
“Uncontrolled pandemic,” the authors write, poses “an existential threat” to the urban world. Nor is the coronavirus the only problem that cities face. “A Pandora’s Box of urban woes has emerged,” they continue, “including overly expensive housing, violent conflict over gentrification, persistently low levels of upward mobility, and outrage over brutal and racially targeted policing and long prison sentences for minor drug crimes.” These are not disparate problems. Rather, they “all stem from a common root: our cities protect insiders and leave outsiders to suffer.”
In Messrs. Glaeser and Cutler’s view, something has gone deeply wrong with how policy is set in many American cities. Insiders have captured control of how cities operate—and used that control to enrich themselves while providing limited opportunities for newer, younger residents. Consider Los Angeles. In 1970, housing costs in Southern California were much the same as those nationwide. By 1990, building limitations and strong demand had sent prices soaring in many coastal cities. The result: a massive redistribution of wealth from the young to the old.
For the full review, see:
(Note: the online version of the review has the date September 9, 2021, and has the title “BOOKSHELF; ‘Survival of the City’ Review: Saving Our Urban Future.”)
The book under review is:
Glaeser, Edward L., and David Cutler. Survival of the City: Living and Thriving in an Age of Isolation. New York: Penguin Press, 2021.
Chinese Proletariat Yells: “Evergrande, Give Back My Money I Earned With Blood and Sweat!”
(p. B1) When the troubled Chinese property giant Evergrande was starved for cash earlier this year, it turned to its own employees with a strong-arm pitch: Those who wanted to keep their bonuses would have to give Evergrande a short-term loan.
Some workers tapped their friends and family for money to lend to the company. Others borrowed from the bank. Then, this month, Evergrande suddenly stopped paying back the loans, which had been packaged as high-interest investments.
Now, hundreds of employees have joined panicked home buyers in demanding their money back from Evergrande, gathering outside the company’s offices across China to protest last week.
Once China’s most prolific property developer, Evergrande has become the country’s most in-(p. B7)debted company. It owes money to lenders, suppliers and foreign investors. It owes unfinished apartments to home buyers and has racked up more than $300 billion in unpaid bills. Evergrande faces lawsuits from creditors and has seen its shares lose more than 80 percent of their value this year.
Regulators fear that the collapse of a company Evergrande’s size would send tremors through the entire Chinese financial system. Yet so far, Beijing has not stepped in with a bailout, having promised to teach debt-saddled corporate giants a lesson.
. . .
As rumors rippled through the Chinese internet that Evergrande might go bankrupt this month, Mr. Jin and some of his colleagues gathered in front of provincial government offices to pressure the authorities to step in.
In the southern city of Shenzhen, home buyers and employees crowded into the lobby of Evergrande’s headquarters last week and shouted for their money back. “Evergrande, give back my money I earned with blood and sweat!” some could be heard yelling in video footage.
For the full story, see:
(Note: ellipsis added.)
(Note: the online version of the story was updated Sept. 22, 2021, and has the title “Evergrande Gave Workers a Choice: Lend Us Cash or Lose Your Bonus.”)
“Unemployment Rises Like a Rocket and Falls Like a Feather”
(p. B7) Robert Hall, an economics professor at Stanford University, says the job matching process has progressed in two stages. Last year, millions of people were called back to their jobs from temporary layoffs and the unemployment rate descended quickly from 14.8% to 6.7%. This year, the progress has slowed markedly; the jobless rate fell from 6.3% in January [2021] to 5.9% in June.
Mr. Hall and Marianna Kudlyak at the Federal Reserve Bank of San Francisco studied the past 10 recoveries and concluded that U.S. job recoveries have a common pattern. In normal times, they find, “unemployment rises like a rocket and falls like a feather.”
“The easy stuff has been accomplished,” Mr. Hall said in an interview. The rest of the job recovery, he concluded, is going to take some time.
For the full story, see:
(Note: bracketed year added.)
(Note: the online version of the story has the date July 9, 2021, and has the title “Why Aren’t Millions of Unemployed Americans Finding Jobs?”)