The Shortage Economy — Does Joe Biden Get It?
Author: Greg Valliere
April 26, 2021
PRESIDENT BIDEN WILL UNVEIL sweeping infrastructure and social spending proposals this week, costing about $4 trillion, but not addressing the one issue that’s now a clear headwind for the economy — shortages everywhere you look.
LIKE SO MANY WASHINGTON POLICIES, Biden’s are well-intended and designed by brilliant policy wonks. But these proposals overlook what’s happening in ground-level America, where “Help Wanted” signs are sprouting like spring tulips.
THE THEME OF THE SPRING is shortages — an acute labor shortage (skilled and unskilled), a shortage of lumber and copper, a shortage of semiconductor chips, a shortage of cargo vessels at clogged U.S. harbors, a shortage of vaccines from Ottawa to India, a shortage of housing, etc.
BIDEN’S REFLEXIVE RESPONSE has been a sharp leftward lurch, proposing to spend and tax more than any Democrat in decades. We thought he would be a center-left president, but we were wrong. With few exceptions, he has sided with his party’s progressives; Rep. Alexandria Ocasio-Cortez says he has exceeded her expectations.
WEDNESDAY NIGHT’S SPEECH to Congress will be Biden’s opportunity to begin selling his $2.4 trillion infrastructure program, his $1.8 trillion social safety net plan, and his taxes on “the rich,” which poll well and fit with the progressive narrative.
BUT WE SUSPECT BIDEN WILL OVERLOOK the obvious — the economy already is recovering, thanks to enormous medicine from fiscal and monetary policy. The economy is roaring, with first quarter growth possibly hitting 8% in Wednesday’s first quarter GDP report.
THERE AREN’T ENOUGH WORKERS to fill the job surge Biden is promising; companies are already in a bidding war for new employees, offering sign-up bonuses. And Biden is reluctant to allow large numbers of immigrants into the country.
THIS HAD LED ALL REPUBLICANS AND SOME DEMOCRATS to question the Biden agenda. There’s decent support for spending on highways, bridges, water, infrastructure, etc. — but there will be a fierce fight in Congress to reduce (or kill) Biden’s tax hikes and new social spending programs. This fight will be a very long slog, dragging into the fall.
BOTTOM LINE: The economy probably will withstand shortages and tax hikes, but the markets are priced for perfection. Biden and Janet Yellen and Jerome Powell are determined to “go big” — and the greatest risk is an overheating economy and inflation, which is a risk they’re apparently willing to accept.
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HIGHLY RECOMMENDED READING: Check out the article in this past weekend’s Wall Street Journal (the best read in American journalism) on the the future of autos. Written by the legendary Daniel Yergin, it details the coming transformation of the industry, as companies from the U.S. to China embrace new electric technology.
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