05 December, 2021

“Stay” Might Be an Exaggeration, but neither Are Going Away Soon

Economist: Biden’s supply chain crisis, inflation here to stay | One America News Network (oann.com)

We used to talk about the “inflationary death spiral”, which demonstrates how hard it is to get inflation under control once it’s taken hold. It goes like this:

  1. Costs for many common goods and services go up
  2. People can no longer afford these common goods and services
  3. They demand higher pay from their employers or seek new jobs with higher pay
  4. Whether these people go or stay, the employer has to pay more, because the replacements will demand more pay. Or at best, the same pay for less experience. Which means the productivity vs cost ratio goes down
  5. Employers must raise the cost of their own goods and services to compensate.
  6. Consumers of those good services are now at Step 2 in this process. And it just gets worse and worse

The supply chain issues are similar. Hold ups on a few common goods cause downstream impacts everywhere, and ends up holding up many more goods and services, and it spirals along the same lines as inflation. Eventually things stabilize and then start to improve, but you have to get to that stable point first. We’re not there on either of these issues.

Welcome to Biden’s America.


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