The next major legislative standoff in Congress is going to be over infrastructure. If this sounds familiar, it’s because Congress has promised an infrastructure overhaul practically since the founding of the Jamestown Colony.
And also, like most things in Congress these days, it’s a day late and a dollar short when it comes to addressing the key things that matter in the world right now.
Infrastructure is not the main issue facing the U.S. economy at the moment. There are three more pressing issues worth keeping eyes on: renormalizing the economy, avoiding inflation, and dealing with the critical shortage of semiconductors.
On the first point, the U.S. economy is in yet another moment of transition. After dealing with more than a year of COVID-19 and pandemic-related shutdowns, small and large businesses across America are being told to reopen at full capacity and resume commerce. That’s easier said than done. It’s not something you can flip a switch on. Global supply chains have been reshaped in every way conceivable.
For instance, take basic things you don’t think about, like toilet paper or little ketchup packets. Right now, for the regular consumer, toilet paper is in ample supply. That hasn’t always been the case, as standard supply chains, which provided that product to both consumers and businesses, were suddenly overwhelmed on the consumer side last spring, and had to figure out how to divert their business products to retail stores.
As the economy reopens, the demand has shifted back to normal. Consumers and businesses now have a more equal need for the supply of toilet paper, meaning distribution will take time to figure out again.
Ketchup packets are also in short supply. The Wall Street Journal reports a black market for ketchup packets has emerged on websites like eBay and more.
One woman found 20 ketchup packets in her kitchen and listed them on eBay for $8.00. She sold them in 12 hours.
This shift comes from a behavioral change; more germ-conscious customers want single-use items instead of the easier-to-produce ketchup bottles. And now that restaurants are reopening, demand has skyrocketed for those packets.
None of those things holds a candle to the cost of simple building materials like lumber, however. The cost of lumber has shot up so high that people are comparing it to gold: “[E]stimates from the National Association of Home Builders shows the surge in lumber prices between April 2020 and April 2021 has added $35,872 to the price of an average single family home.”
Nothing in the economy is normal right now. There’s going to be a considerable adjustment period wherein things will have to shake out. Pushing more money into the system, which Democrats want to do, increases demand and puts pressure in places we can’t fathom. It’d be better to be prudent, put a pause on any further intervention, and see where the problem spots arise.
This brings us to the second point worth watching. I wrote at the end of April that inflation was a growing issue. Pouring more money into the system through an infrastructure stimulus or another massive legislative package raises inflation risk, which is why the Biden administration is already secretly watching that issue, despite only just passing a huge — and expensive — COVID-19 relief deal.
People want to compare the current economy and rising inflation to the last inflationary period of the 1970s, which is natural. But there’s a complication with our data: we’re emerging from a year-long pandemic, where everything has gotten shaken and tossed.
We don’t have a clear understanding of how deeply the pandemic impacted the economy’s health or what juicing it even more will do. The COVID-19 relief bills of 2020 and 2021 were about surviving the shutdowns, not juicing demand.
We do not know what the state of the economy is or how things will shake out as the pandemic clears America’s shores while continuing to rage overseas. The pandemic’s impact could hide critical inflationary data, which is why waiting before sending more money to juice the system is prudent.
Finally, the last issue impacting both the economy and U.S. national security is the shortage of semiconductors. A semiconductor is a crucial component of most electronic devices. There’s also a global shortage of them, which is causing slowdowns on the manufacturing side.
For instance, Ford and General Motors have had to cut vehicle production due to the semiconductor shortage, which could cost them upwards of $2 billion. We could also experience impacts on the computer and cell phone industries from semiconductor shortages, resulting in higher prices for consumers.
The other issue here is that China and the United States are in a great power competition over the control of the semiconductor sector, which further complicates the shortages.
The post-COVID summer, which could already be here depending on where you live, will cause an explosion in the economy. People are going to surge out and buy and enjoy themselves. The question is: When the dust settles, what does the economy look like? What are the lingering issues left by the pandemic? We won’t know that for some time.
Infrastructure is the white whale for D.C. politicians, but it’s also the least essential thing in the country right now. More money in the system will amplify the issues we’re already experiencing. It’d be wise to wait on that spending, let both the economy and society settle into a post-COVID world, and then figure out what kind of government action is needed, if it’s needed at all.
It’s unclear if there’s much wisdom in Congress or the White House these days.
The post DANIEL VAUGHAN: We don’t need more stimulus money. We need patience. first appeared on Conservative Institute.
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