Inflation and supply

It is beyond time for policymakers to address supply issues. We have run the experiment and can see inflation threatening a red hot economy. Industry after industry is complaining of shortages of workers, supplies; while we have people sitting on cash bidding up limited resources. What is worse, we have more stimulus bills not focused on ending bottlenecks or increasing supply. The government needs to change this. We need to focus on loosening immigration laws, ending or decreasing tariffs, and loaning business’s the necessary capital to bring manufacturing or secure resources.

I know there is a debate over immigration and the impact it has on inflation. Some focus on the fact immigrants are consumers and bid up prices. Others focus on the fact immigrants add to the supply of labor, keeping labor costs low or sometimes driving down the cost. Both are incomplete assessments. They are both consumers and workers, and they fill many needed jobs and allow businesses to continue to operate. The repercussions of a tight labor market are inflation. Without sufficient workers now businesses are closing, have inconsistent operating hours, and worker fatigue. This can all be corrected by allowing my visas and streamlining the immigration process. The additional supply to the labor market will help sort out kinks in the system and keep the economy growing. I know some worry that they will take American jobs, or depress wages I retort we have a 61% labor force participation rate and more jobs than active job seekers at the moment. Moreover, immigrants are also consumers and drive demand, often demand for higher-skilled, or more technical jobs Americans can and should take. There is also no reason government can not invest in protecting or transitioning any American workers that feel or might be displaced.

Tariffs manipulate supply and hurt consumers, and I will refer to them as what they are taxes. Regardless of what politicians say, consumers pay these taxes. Businesses pass on any costs they incur to the consumer. I support free trade, but I am not opposed to all taxes, just the dumb ones. Many businesses are saying the taxes Trump started and that Biden has ramped up in some instances have contributed to bottlenecks. This is bad for consumers. When lumber went up we saw housing costs rise. Not only did new construction prices rise, but the taxes also constrained the supply of existing homes. We saw the same with steel and industries that had it as an input. One of the worst-hit industries is agriculture and farming. Even as Trump dumped subsidies into the industry it could not cover the retaliatory measures of China cutting purchasing of our agriculture. We saw farmers destroying crops, and killing livestock (partly because of drops in demand but even when it recovered they did not have enough workers again immigration could have helped there). Beyond China, we had issues with our imports as we continued bullying Latin America. While the fight with Mexico is over, we have sanctions and embargos on Cuba and Venezuela. If we ended them, we could alleviate some supply issues.

The last focus is manufacturing. Honestly, if we are serious about this we need to look at subsidizing industries, government partnerships, government lending, and maybe even nationalizing industries. I do not take nationalizing an industry lightly but the ability for the government to nationalize oil was an option it was down to 700 billion during the worst parts of the pandemic, and that is the entire industry. Many projects are unprofitable and only possible when oil is above varying prices. We saw low prices pre-pandemic as other producers tried to flood the market that plus the pandemic dropping demand was a catastrophe for the industry. It not only forced them to lose valuation but scrap most of their projects, the low prices we good when demand was low but the suppliers were unable to ramp back up when demand rose. The government missed a chance to nationalize it and control energy prices. The government unlike private businesses can run unprofitable ventures, especially if it is in an attempt to help Americans, there is no reason they also could not sell some overseas to offset losses. Conservatives often retort nationalized oil fails. But they forget the places they cite do not work out because of US interventions. We do not have to worry about such interventions. Another manufacturing issue is semiconductors, which go in everything from car parts to computers and are not cheap. The government seems to be willing to risk war with China over them. Why not use the money a skirmish like that would cost to subsidize industries? Intel and Nvidia are already doing this work, and Ford is looking to. There is already some stashed away in the Bipartisan Infrastructure Package the Senate passed. But if it is a national security threat, maybe we should put it in the military budget. That not only keeps prices down but creates decent jobs for Americans.

Policymakers should consider policies that help ease the supply lines and fight inflation. They can do that while protecting workers and consumers. They need to make tough choices.