Shortages of goods cause inflation – not government spendingAug 31, 2021 11:26AM ● By Bryan Gray
The opinions stated in this article are solely those of the author and not the Davis Journal
It is human nature: If you tell yourself something over and over, you will strongly believe it – and that belief will soon become a “fact” even if there is little evidence of its accuracy.
In some circles, we are seeing the same thing today. The belief that current inflation can be solely traced to government spending is a spawn of talk radio. Hey, Joe Biden is not perfect, but he’s not the villain jacking up the price on gasoline or causing a shortage of khaki pants at the department store.
Shortages exist. There is a lag time on production of paint and glass and new automobiles and air conditioning units. The restaurant I visit most weekdays is having difficulty sourcing bacon; a high-end dinner restaurant in my neighborhood eliminated halibut from its menu due to supply problems.
When shortages exist, inflation rears its head. It is simple economics of demand sprinting faster than the supply. Granted, the government stimulus checks placed a bundle of money in American wallets, but some 60% of that money went to paying bills or padding bank accounts, not for purchases. The increased unemployment benefits had obviously led to a shortage of workers, but labor costs can only be attributed to a partial part of inflation.
The major cause of our recent inflation is directly related to the pandemic. With fewer people traveling, for instance, airline fares dropped like a rock and employees were furloughed. With the vaccine, people have flooded the reservation lines and the airlines scrambled to get the pilots, flight attendants, and baggage handlers back to work. The result was a doubling (and sometimes tripling) of prices. Don’t blame Joe Biden if it costs more to fly to Hawaii.
Increased demand is not the only factor in current inflation. A major hurdle is that it is taking longer to get products (computer chips, aluminum, apparel, etc.) from overseas factories. We have seen photos of ships lined up in our harbors, the freight stacked up like Utahns attending a Garth Brooks concert. Then, when the shipping containers are finally loaded off on the docks, there are fewer truck drivers to transport the goods to stores and warehouses. It’s not Joe Biden’s fault that trucking has an older labor force with fewer young people wanting to replace the retiring drivers.
Then throw in the higher gasoline prices due to more people driving…You have rising costs which will be passed on to consumers.
If demand goes down due to rising prices or manufacturers increasing output to reduce shortages, inflation will be tamed. We have seen it lately with slightly lower lumber prices. (As far as gasoline is concerned, I’m still pondering why prices in Utah are a dollar more per gallon than in many states, but a dollar less than in some.)
Most government economists insist inflation will decrease by this fall as suppliers ramp up production and employees trickle back to work. Customers will have the final word by deciding how to spend their money. Cut back on coffee and the price at Starbucks will drop due to low demand.
There’s good news too. My breakfast restaurant is once again serving bacon and to be fair, Joe Biden should not get credit for that either.