The Great Inflation Scare

By SAM URETSKY

Sen. James Lankford (R-Okla.) told Newsmax that the current state of inflation under President Joe Biden is “not transitory.” In other words, it’s here to stay.

Former presidential adviser Dick Morris predicted hyperinflation later in 2021, explaining on Newsmax TV prices will explode due to previous federal stimulus packages, pent up demand created by restrictions placed on consumers and producers and the Biden administration’s proposed additional $1.9 trillion spending.

Headline:”Inflation rose by 5.4% which is the highest in 13 years.” “The [Biden] administration has had its head in the sand with regard to inflation,” Former US International Trade Commission Chief Economist Peter Morici told Newsmax.

This is all helpful information for people who get their information from Newsmax. There is a problem — it’s not necessarily from President Biden’s recovery programs.

Actually, CNBC said pretty much the same thing (“Rising prices for everything from meat to used cars are giving our wallets a kind of workout they haven’t seen in years”) above a report on the least expensive states to live in (Indiana followed by a tie between Tennessee and Georgia). Prices have increased for used cars and groceries, and according to one report, fast food franchisers are hoarding chicken in anticipation of price increases. This could be a problem.

On the other hand, it may be transitory, an effect of at least some nations coming out of the COVID-19 lockdown, and confronting bottlenecks in delivery of essential supplies. Housing prices jumped, in part, because of a shortage of lumber, but lumber prices have fallen by 50% over the past two months. There is a shortage of shipping containers, which delays deliveries, and so raises prices. The bad news is that the increase in used car prices is due to a shortage of new cars – GM and Ford are temporarily idling or extending downtimes at several plants in North America. The shortage of new cars is due to a shortage of  semiconductor chips, and the chip shortage affects – well almost everything except toilet paper. Paul Krugman wrote in the NY Times, “… these days almost everything contains silicon chips. So an insufficient supply of chips is a problem not just for producers of computers and smartphones; there are chips in just about all durable goods, including household appliances and, crucially, cars.” Both Ford and GM have predicted that the chip shortage will cost the companies between $1 and $2 billion this year.

While the effect on automobile manufacturing has gotten the most attention, Apple was forced to delay the release of the iPhone 12 by two months, and Samsung, the world’s second-largest chip manufacturer delayed the release of its own line of smart phones.

On July 6, Foreign Affairs posted a report “The Missing Chips – How to Protect the Semiconductor Supply Chain.” The problem stems, in no small part, from having had a president who claimed he knew more about trade, the economy (“”I think I know about it better than [the Federal Reserve]” and technology than anybody else. His knowledge of foreign policy and international trade led him to withdraw or weaken US participation in at least 11 multinational organizations, including NATO, the World Trade Organization, the the Trans-Pacific Partnership and the Paris Climate Agreement.

Dr. Brown notes that part of the automobile problem was that car manufacturers failed to understand the impact of the COVID-19 lockdown and slashed their orders for computer chips. “By the time the auto companies realized their mistake, chipmakers were already at capacity supplying the suddenly booming market for work-from-home goods.”

Also, as part of its trade war with China, President Trump imposed a tariff on Chinese chips, and imports from other nations were inadequate to replace the missing chips – this even as Chinese technology companies were hoarding chips in order to maintain their own supply. The Wall Street Journal (7/26) published an opinion piece headed “The Really Critical Infrastructure Need: American-Made Semiconductors: About 40% of new chip-production capacity projected to be added in the next decade will be in China.”

The economy has become more globalized, and a great deal of trade depends on multinational agreements, but President Trump never understood the complexity of global treaties. President Biden is trying to resume multinational trade, which is made more difficult since the US is no longer seen as a reliable trading partner. These treaties can become incredibly complex, particularly when international rivalries get involved.

The price increases we see now are not the result of built in inflationary patterns, but rather of what should be transient shortages.  The question is – how long will it take to put Humpty Dumpty together again, and what can be done to prevent a repeat? Well – the Wall Street Journal (8/1) had a report “Investors Bet Price Pressures Will Ease.” Could the WSJ be right and Newsmax wrong?

Sam Uretsky is a writer and pharmacist living in Louisville, Ky. Email sdu01@outlook.com.

From The Progressive Populist, September 1, 2021

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