AMAC Exclusive
After the specter of COVID loomed over the holidays last year, Americans are eager for a normal holiday season, but last week, their hopes were dashed yet again. According to the Wall Street Journal, Christmas trees and other seasonal items might be difficult to find and more costly to buy this December. But decorations aren’t the only thing that may be missing from the festivities. In recent months many Americans have been left wondering why, under the Biden economy, even basic necessities seem pricier and harder to find than ever.
While early pandemic supply shortages were mainly due to panicked shoppers and the hoarding of common goods, almost all products have subsequently been hit by significant supply disruptions, from furniture to used cars. In many ways, the shortages have less to do with a massive supply disruption and more a “perfect storm” of many smaller supply disruptions. While economists are still puzzled about how to solve the shortages, the three most common reasons cited for them are overreliance on international supply chains, shifting demand, and uncertainty over the longevity of the pandemic.
An example from recent history may shed some light on how overreliance on offshore supply chains has led to the current predicament. In 2018, American wellness centers and hospitals were shocked to find a 600% markup on saline I.V. bags, an essential product in the medical industry. The reason for this major increase? Forty-three percent of I.V. bags are made in Puerto Rico. The island had been decimated by Hurricane Maria, and production of the essential medical devices came to a screeching halt for weeks.
This reliance on international shipping for medical products doesn’t simply end at I.V. bags. Eighty percent of all pharmaceuticals are produced overseas, mainly in China and India. In 2018, more than 20 percent of all goods imported to the United States came from one country, China. Many of these imports came directly from Wuhan, China, the site of one of the largest shipping centers in the country. These international supply chains are so reliant on efficiency and optimization that, when one container ship, the Ever Given, ran aground in the Suez Canal, it delayed an additional $9.6 billion in goods from reaching their destination for every day it was stuck. The ship was finally freed after 106 days.
This overreliance on trade with China has massively exacerbated the international economic damage of COVID-19. To address this imbalance, many countries are actively incentivizing companies to relocate closer to home. Most notably, Japan is spending $2 billion of its stimulus package to encourage companies to move production back to Japan. Returning manufacturing to America was a cornerstone of former President Trump’s economic policy. However, despite calls for Biden to shift essential manufacturing, like pharmaceuticals, back to America, the new administration has taken little action to do so.
The second major cause of shortages cited by economists is shifting demands. This is most plainly seen in the massive lumber shortages earlier this summer. While it may seem a distant memory to many Americans, the pre-pandemic economy was one of the best the country had seen in almost 50 years. Most notably, wages had seen some of the largest increases in recent history. Only months after most stay-at-home orders were issued, the average personal savings rate jumped up to 33%. By 2021, Americans had amassed a record $15 trillion in total savings.
Most Americans were trapped at home, and those who weren’t had few places to go. With this greater emphasis placed on domestic life, demand for homes and home improvement skyrocketed. The lumber industry, still hobbled from supply shortages along with closed logging centers due to COVID, was caught entirely flat-footed by the demand and is still struggling to fill orders. Even as Americans eye an end to the pandemic, many do not wish to return to the office. According to one poll, a record 31% of workers wish to work from home permanently.
But perhaps the biggest culprit of current shortages and price increases is Joe Biden and his administration’s response to the pandemic. When President Joe Biden took office, the summer of 2020 was predicted to be the summer in which the American economy would roar back to life. Two hundred and seventy million COVID-19 vaccines, developed under the Trump administration, had already been administered by May. Restless Americans, with record savings rates, would revive the economy with a wave of spending. The businesses that had survived the pandemic were ready to rehire employees and open their doors once again. Social media influencers had already dubbed the months to come “Hot Vax Summer.”
But that is not what happened. Despite some early progress, economic growth slowed significantly. The Delta variant caught the global community by surprise and shops closed their doors once again. At the same time, Democrats’ insistence on a lengthy extension of historically generous unemployment benefits, understandable at the peak of the pandemic-induced economic crisis, substantially slowed the recovery as businesses were unable to induce employees to return to work.
This gigantic degree of government spending is also a popular explanation for the notably high inflation that even the Federal Reserve has identified as a drag on the economy.
The woefully inconsistent messaging emanating from the White House did nothing to help. Many Americans are asking themselves whether this permanent pandemic is the “new normal?” That question is at the heart of why so many businesses are hesitant to increase production to meet demands and why so many individuals are hesitant to participate in the economy.
If a wave of COVID variants every few seasons will now be the norm, businesses can resume production at full capacity while taking reasonable precautions. If this is still a pandemic, then they are incentivized to keep production, and production costs, low to ensure they have the liquidity to survive another economic downturn. The same choices apply to individuals. Many Americans still have the memory of mass layoffs, delayed weddings, and businesses collapsing in the early days of the pandemic. They may be hesitant to book a vacation, make a major purchase, or reschedule major events delayed by the pandemic until they are assured that the economy won’t grind to a halt once again.
Now, as Americans brace and stock up for what the farmer’s almanac predicts to be the coldest winter in years, Americans are still hard pressed to find even the basic necessities. Until the federal government effectively, and honestly, conveys what the expectations are for American citizens, the situation is unlikely to improve. “Hot Vax Summer” may have been a myth, but rest assured, “Cold, Expensive Winter” will very much be a reality.