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Exactly. Except the scarcity is largely driven by increased demand due to government stimulus. Look at the 5y chart of retail sales numbers here, and how it j

Exactly. Except the scarcity is largely driven by increased demand due to government stimulus. Look at the 5y chart of retail sales numbers here, and how it jumped significantly right after covid hit. https://ycharts.com/indicators/us_retail_sales https://ycharts.com/indicators/us_retail_sales The reason inflation hasn't shown up much in modern times is because supply chains are more elastic than they used to be, and are able to scale to meet new demand quickly. This way suppliers make money via increased volume rather than by raising price. However, we're now seeing shortages in goods that are hard to scale up quickly. For example, the chip shortage. In general, there are three ways out of a supply shortage. 1) Increase supply. Pretty straightforward. Setup a new factory or scale up production in existing factories. 2) Fall in demand. Perhaps could happen due to fading government stimulus and effective wages declining. However, lots of major corporations are raising wages significantly to compete for unskilled labor due to the current labor shortage. You will find a lot of articles if you google this... so waning stimulus may not be enough. 3) Raise prices. Look at any Supply/Demand chart, one of the axes is price. If supply isn't sufficient to meet demand, price tends to rise until the two are in equilibrium. Otherwise the supplier is leaving money on the table. Assuming increasing output is non-viable. My take is that 1) and 2) are mostly out of the picture for the chip shortage in the short term. I doubt new fabs or production capacity can be scaled up quickly to meet the backlog of demand in a reasonable timeframe... though I'm not an expert in the space. We'll likely end up with 3). Beyond specific shortages, shipping costs in general have skyrocketed, likely beyond the margin of many goods we import, which necessitates price increases on its own. Check the Baltic Exchange Dry Index. There's so much more that can be said here, but will avoid writing a huge essay :)

mywittyname 5y ago
> Except the scarcity is largely driven by increased demand due to government stimulus. How do we know this? The economy swung heavily in favor of labor and wages have been on the rise for a while now, since before the pandemic even. The previous president was celebrating how quickly wages were growing during his tenure. https://tradingeconomics.com/united-states/wage-growth https://tradingeconomics.com/united-states/wage-growth You can see there that wage growth from 2017-2020 was the longest sustained period of growth above 4% since 2004-2007. Given that, a solid explanation is that people are making more money now, thus spending more. Unfortunately, y-charts doesn't go back far enough to really give a long term picture. But even looking back 5 years, the increase of the past few months is pretty much exactly the size of the gap left in march 2020. For all we know, this spike in retail spending is merely pressure being released from the huge loss in retail spending encountered last year. By October, the numbers could very well be back at that normal trend line. The USA was in the middle of an economic bull run when it crashed right into the side of the worst pandemic most have ever seen. The momentum of that growth is still there, but the economy has been tossed around by supply chain issues, reduction in new labor, and workers migrating between industries in an already tightening labor market. We have to appreciate that the economy experiences growing pains, and that the government is not the be-all, end-all of economy growth.
- adam_arthur 5y ago
  There's a clear spike in retail consumption as soon as the stimulus money is sent. It's a few years of growth within one year, which is an anomaly that can't be written off. Frankly the data is self evident. Of course other factors may be at play too such as change in consumption habits due to unique circumstances, but it can't be denied that stimulus money handed directly to people will increase consumption. Savings rates are at highs as well, in conjunction with increased spending. Which opens the door for even more spending if we do get a surge in demand with reopening. I don't have a stance on whether or not that additional spending will materialize, but it would increase the velocity of money.
prirun 5y ago
There is a 4th way out of a supply shortage: stop using the thing in shortage. I live in Indiana, near the Louisville Ford truck plant. There is a humongous derelict WW2 munitions plant in my city that was largely overgrown with weeds and rusting factory-type buildings. The Ford truck plant is now parking trucks on this property because they can't be finished due to the chip shortage. Personally, I don't care for all the electronic crap that is in cars these days. It's one of the reasons I still have an 18-y/o Honda. So if they dial back on the amount of electronic garbage (chips) in a car, I'd be more likely to buy one.

mywittyname 5y ago

> Except the scarcity is largely driven by increased demand due to government stimulus. How do we know this? The economy swung heavily in favor of labor and wages have been on the rise for a while now, since before the pandemic even. The previous president was celebrating how quickly wages were growing during his tenure. https://tradingeconomics.com/united-states/wage-growth https://tradingeconomics.com/united-states/wage-growth You can see there that wage growth from 2017-2020 was the longest sustained period of growth above 4% since 2004-2007. Given that, a solid explanation is that people are making more money now, thus spending more. Unfortunately, y-charts doesn't go back far enough to really give a long term picture. But even looking back 5 years, the increase of the past few months is pretty much exactly the size of the gap left in march 2020. For all we know, this spike in retail spending is merely pressure being released from the huge loss in retail spending encountered last year. By October, the numbers could very well be back at that normal trend line. The USA was in the middle of an economic bull run when it crashed right into the side of the worst pandemic most have ever seen. The momentum of that growth is still there, but the economy has been tossed around by supply chain issues, reduction in new labor, and workers migrating between industries in an already tightening labor market. We have to appreciate that the economy experiences growing pains, and that the government is not the be-all, end-all of economy growth.

adam_arthur 5y ago
There's a clear spike in retail consumption as soon as the stimulus money is sent. It's a few years of growth within one year, which is an anomaly that can't be written off. Frankly the data is self evident. Of course other factors may be at play too such as change in consumption habits due to unique circumstances, but it can't be denied that stimulus money handed directly to people will increase consumption. Savings rates are at highs as well, in conjunction with increased spending. Which opens the door for even more spending if we do get a surge in demand with reopening. I don't have a stance on whether or not that additional spending will materialize, but it would increase the velocity of money.

prirun 5y ago

There is a 4th way out of a supply shortage: stop using the thing in shortage. I live in Indiana, near the Louisville Ford truck plant. There is a humongous derelict WW2 munitions plant in my city that was largely overgrown with weeds and rusting factory-type buildings. The Ford truck plant is now parking trucks on this property because they can't be finished due to the chip shortage. Personally, I don't care for all the electronic crap that is in cars these days. It's one of the reasons I still have an 18-y/o Honda. So if they dial back on the amount of electronic garbage (chips) in a car, I'd be more likely to buy one.