Now that Transportation secretary Pete Buttigieg has returned to his job, he is claiming that the current supply-chain crisis is occurring because, well, President Biden is just so darned good at his job. He told CNN’s Jake Tapper, “Demand is up because income is up because the president has successfully guided this economy out of the teeth of a terrifying recession.” The problem is that virtually everything the administration is trying to do will likely make the problem worse.
Take demand. The administration is pushing a $1 trillion infrastructure bill and a reconciliation bill for which the final cost, though yet to be determined, would likely be upwards of $2 trillion. The aim of these bills is to put more money into the economy. That money will fuel more demand, both directly — in the form of, say, increased purchases of parts for electric-charging stations — and indirectly, as child-care subsidies push consumers to spend more in other areas.
That will all place extra stress on the supply chain, which is really more like a network, where distortions in one area can cause more distortions in others. Heightened demand for one good can lead factories to produce it around the clock, which can in turn increase those factories’ energy demand. This not only pushes up energy prices, but creates shortages or inflation in other goods now produced in lower quantity.
That, in turn, will help cause inflation. Inflation, quite simply, happens when too much money is chasing too few goods. So dumping more money into the economy when the supply side is under strain will likely lead to higher prices and the erosion of savings.
But that’s not all. The administration’s preferred policies will significantly affect the supply side as well. Take trucking. The administration wants a federal version of California’s AB5 bill to turn more freelancers into employees with employment benefits. However, the trucking industry is mostly made up of freelance owner-operators. Last year, the California Trucking Association (CTA) sued Sacramento to stop AB5 from applying to truckers, and won an initial victory but lost on appeal. The CTA has taken its case to the Supreme Court, and a temporary injunction has allowed owner-operators to keep working, but the industry is hanging by a thread. The Biden Labor Department is likely to implement regulations similar to AB5, and the Protect the Right to Organize (PRO) Act, part of the president’s pro-union plan, would write that into law.
Then there is energy. Energy costs have risen over the past year, and, while that is partly related to recovery from the pandemic, much of it is due to administration policy. As Walter Russell Mead noted recently in the Wall Street Journal, “America’s greatest single achievement of the past decade was replacing the Middle East as the swing producer in world energy production.” However, restrictive policies put in place this year have chilled American energy production and swung power back to OPEC. While America has plenty of energy available if the administration would allow it, we are literally paying the price of the president’s green agenda. That constrains both domestic manufacturing and transportation at a time of surging demand.
One sector that has responded well to the crisis is America’s freight railroads, which have adapted operations to increase traffic. However, the administration has sought to impose new regulations that will make that more difficult, leading the Association of American Railroads to warn: “Congress, the Federal Railroad Administration and the Surface Transportation Board should proceed cautiously when considering new requirements or regulations on the industry that could have unintended consequences that could further snarl the supply chain.”
Normally, of course, the response to all of this would be to source more production offshore. But the president’s trade policies, essentially a continuation of Trump policies with green or pro-labor dressing, make that more difficult. Tariffs have contributed to the microchip shortage. Elsewhere, the administration earlier this year imposed a 221 percent tariff on truck-trailer imports from China at the worst possible time. Not only has this led to a shortage, but as Scott Lincicome of the Cato Institute points out, the laws authorizing these tariffs prevent the administration from reversing them, even if it wanted to, without an Act of Congress.
The supply-chain problem is complex and tied more to the pandemic than to anything else — in that sense, Secretary Buttigieg has a point — but to date, most of the administration’s policy moves are sure to make it worse.