1 00:00:04,280 --> 00:00:07,320 Speaker 1: On this episode of News World, the price of a 2 00:00:07,400 --> 00:00:11,239 Speaker 1: gallon of gas, empty store shelves, longer shipping times for 3 00:00:11,360 --> 00:00:16,400 Speaker 1: merchandise we order online. Americans across the country are shouting 4 00:00:16,440 --> 00:00:19,639 Speaker 1: to experience what inflation is like. The last time we 5 00:00:19,680 --> 00:00:22,600 Speaker 1: went through a cycle like this was forty years ago 6 00:00:23,079 --> 00:00:26,640 Speaker 1: with Jimmy Carter. Then at end the supply chain issues. 7 00:00:27,160 --> 00:00:29,680 Speaker 1: We've all seen the hundreds of container ships off the 8 00:00:29,720 --> 00:00:33,680 Speaker 1: coast of southern California waiting to come into port full 9 00:00:33,720 --> 00:00:37,360 Speaker 1: of goods meant for empty store shelves. So what will 10 00:00:37,400 --> 00:00:41,360 Speaker 1: inflation and supply chain issues mean for the upcoming holiday season. 11 00:00:42,479 --> 00:00:47,199 Speaker 1: I'm really pleased to welcome my guest. Christine McDaniel is 12 00:00:47,240 --> 00:00:51,600 Speaker 1: a senior Research Fellow at the Mercadis Center at George 13 00:00:51,640 --> 00:00:58,000 Speaker 1: Mason University. Her research focuses on international trade, globalization, and 14 00:00:58,120 --> 00:01:02,280 Speaker 1: intellectual property rights. She previously worked at Sidney Austin, a 15 00:01:02,360 --> 00:01:06,520 Speaker 1: global law firm, where she was a senior economist. She's 16 00:01:06,560 --> 00:01:10,760 Speaker 1: held several positions in the US government, including Deputy Assistant 17 00:01:10,800 --> 00:01:14,760 Speaker 1: Secretary at the Treasury Department and Senior Trade Economist in 18 00:01:14,800 --> 00:01:17,959 Speaker 1: the White House Council of Economic Advisors, and has worked 19 00:01:17,959 --> 00:01:21,080 Speaker 1: in the Economic offices of the US Department of Commerce, 20 00:01:21,600 --> 00:01:36,560 Speaker 1: US Trade Representative, and US International Trade Commission. Christine, thank 21 00:01:36,600 --> 00:01:39,880 Speaker 1: you for joining us. Thank you for having me so. 22 00:01:40,280 --> 00:01:42,480 Speaker 1: Fox News did a recent poll at the end of October, 23 00:01:42,880 --> 00:01:46,280 Speaker 1: and eighty seven percent of Americans are extremely or very 24 00:01:46,800 --> 00:01:50,720 Speaker 1: concerned about inflation and higher prices. Do you think they're 25 00:01:50,880 --> 00:01:56,920 Speaker 1: right to be that concerned. Well, rises do tend to 26 00:01:57,000 --> 00:02:00,240 Speaker 1: have this sort of sticker shock or the psychological goal 27 00:02:00,320 --> 00:02:05,600 Speaker 1: shock on consumers. And while they'd like to see their 28 00:02:05,640 --> 00:02:07,880 Speaker 1: way just go up, they certainly don't like to see 29 00:02:08,040 --> 00:02:12,959 Speaker 1: prices at the market go up. So it's very understandable 30 00:02:13,520 --> 00:02:18,840 Speaker 1: that we're seeing the sticker shock and relative dips in 31 00:02:19,080 --> 00:02:22,720 Speaker 1: consumer confidence. I look at the Long Beach situation and 32 00:02:23,120 --> 00:02:26,799 Speaker 1: the Los Angeles sports situation. Even in wartime, I don't 33 00:02:26,840 --> 00:02:31,000 Speaker 1: remember this kind of chaotic build up. What do you 34 00:02:31,080 --> 00:02:34,800 Speaker 1: make of the whole supply chain problem. Well, there's a 35 00:02:34,800 --> 00:02:39,840 Speaker 1: lot of different things contributing to this backlog. Basically, you 36 00:02:39,919 --> 00:02:46,079 Speaker 1: have a pretty big misalignment between supply and demand right now. Now. 37 00:02:46,120 --> 00:02:50,919 Speaker 1: There are some other government regulations and policies that are 38 00:02:50,919 --> 00:02:55,880 Speaker 1: making things worse. Some even well intentioned, are questionably helping. 39 00:02:56,000 --> 00:02:59,519 Speaker 1: And all these things are working together to worse in 40 00:02:59,560 --> 00:03:02,040 Speaker 1: the back log. So, first of all, if you just 41 00:03:02,120 --> 00:03:07,320 Speaker 1: look back, even before the COVID pandemic, we had some 42 00:03:07,480 --> 00:03:11,480 Speaker 1: supply chain frictions starting to build up with tariffs, right 43 00:03:11,919 --> 00:03:15,160 Speaker 1: taxes on US imports, taxes on US exports as other 44 00:03:15,200 --> 00:03:22,120 Speaker 1: countries retaliated. But that was fairly mild compared to what 45 00:03:22,160 --> 00:03:25,800 Speaker 1: we saw with COVID. But nevertheless, we did start to 46 00:03:25,840 --> 00:03:28,800 Speaker 1: see some frictions there from the trade ward build up. 47 00:03:29,280 --> 00:03:33,480 Speaker 1: And then you also started to see some manufacturers moving 48 00:03:33,520 --> 00:03:36,840 Speaker 1: out of China trying to find other locations to escape 49 00:03:36,840 --> 00:03:40,440 Speaker 1: the trade war or maybe for their own other geopolitical reasons. 50 00:03:41,000 --> 00:03:45,720 Speaker 1: Then when COVID hit, you had this big drop in demand. 51 00:03:45,760 --> 00:03:48,000 Speaker 1: I mean, demand just went boom, right off a cliff, 52 00:03:48,120 --> 00:03:53,680 Speaker 1: right people stayed home. When people stayed home, they weren't working, 53 00:03:54,040 --> 00:03:58,200 Speaker 1: and at first they weren't buying as much. And then 54 00:03:58,240 --> 00:04:02,040 Speaker 1: what happened is suppliers started to acting. So shipping companies 55 00:04:02,080 --> 00:04:06,080 Speaker 1: they started cutting capacity, they slowed things down, They even 56 00:04:06,120 --> 00:04:10,000 Speaker 1: shut down some ports factories, shut down companies that would 57 00:04:10,040 --> 00:04:13,480 Speaker 1: buy from other companies. They cut orders, and shipping companies 58 00:04:13,640 --> 00:04:18,040 Speaker 1: saw that looking ahead, they waylaid ships, they canceled roots. 59 00:04:19,279 --> 00:04:22,680 Speaker 1: Then meanwhile, what happened. It's all these people staying home. 60 00:04:23,120 --> 00:04:25,200 Speaker 1: I know it happened to me, maybe it happened to you. 61 00:04:25,279 --> 00:04:28,400 Speaker 1: But we started ordering things again. But the things that 62 00:04:28,440 --> 00:04:32,359 Speaker 1: people started ordering were more goods than services, So the 63 00:04:32,480 --> 00:04:39,640 Speaker 1: relative demand for goods increased, and that happened across the board, 64 00:04:40,400 --> 00:04:43,440 Speaker 1: and all that cutting capacity turned out to be a 65 00:04:43,560 --> 00:04:49,039 Speaker 1: huge mistake because demands started taking back up. But it's 66 00:04:49,080 --> 00:04:51,400 Speaker 1: not as easy to crank up those supply chains again, 67 00:04:52,080 --> 00:04:55,240 Speaker 1: and so we have this misalignment with supplying demand, and 68 00:04:55,320 --> 00:04:58,559 Speaker 1: it's really piled up on itself in a pretty big way. 69 00:04:59,080 --> 00:05:01,719 Speaker 1: All those shipping containers that usually come from China to 70 00:05:01,760 --> 00:05:05,080 Speaker 1: the US, they were off all around the world delivering 71 00:05:05,720 --> 00:05:10,040 Speaker 1: ppe equipment to places that aren't usually accustomed to getting 72 00:05:10,080 --> 00:05:12,680 Speaker 1: those shipments. So you've got a lot of shipping containers 73 00:05:12,680 --> 00:05:16,760 Speaker 1: getting sent back to China empty. Meanwhile, the US was 74 00:05:16,800 --> 00:05:20,320 Speaker 1: in demand for goods, and so there were big delays 75 00:05:20,320 --> 00:05:22,320 Speaker 1: waiting for these ships to get back to China come 76 00:05:22,320 --> 00:05:24,720 Speaker 1: back to the US. Now what we're seeing is this 77 00:05:24,960 --> 00:05:28,839 Speaker 1: huge line at US ports and ports around the world 78 00:05:29,080 --> 00:05:32,159 Speaker 1: as shipping containers are waiting to get into the port 79 00:05:32,520 --> 00:05:38,240 Speaker 1: and unload. So we have a pretty big misalignment right now, 80 00:05:38,360 --> 00:05:43,200 Speaker 1: and that's really snowballed into a really extra long line 81 00:05:43,200 --> 00:05:47,159 Speaker 1: at the ports. And this is just adding to higher 82 00:05:47,200 --> 00:05:51,560 Speaker 1: prices for US consumers and might even lead to some 83 00:05:51,680 --> 00:05:57,440 Speaker 1: unhappy holiday shopping experiences. You mentioned the container problem, if 84 00:05:57,480 --> 00:06:02,200 Speaker 1: I understand it correctly, Before the pandemic, shipping a container 85 00:06:02,279 --> 00:06:06,120 Speaker 1: from Shanghai to Los Angeles costs around two thousand dollars. 86 00:06:07,000 --> 00:06:09,720 Speaker 1: By early this year that jumped up to twenty five 87 00:06:09,839 --> 00:06:12,880 Speaker 1: thousand dollars. So that has to put some kind of 88 00:06:12,880 --> 00:06:17,360 Speaker 1: inflationary or cost pressure into the system. And of course 89 00:06:17,400 --> 00:06:21,039 Speaker 1: you now have Walmart and Costco and Amazon and I 90 00:06:21,160 --> 00:06:25,840 Speaker 1: think Target all organizing their own supply chains because they 91 00:06:25,880 --> 00:06:29,560 Speaker 1: aren't comfortable that the traditional supply chain is going to 92 00:06:29,600 --> 00:06:33,000 Speaker 1: get shaken out in time to deal with the holidays. 93 00:06:34,000 --> 00:06:36,680 Speaker 1: In fact, the people in the shipping company that I 94 00:06:36,720 --> 00:06:39,320 Speaker 1: talked to you say they never thought prices would ever 95 00:06:39,839 --> 00:06:42,120 Speaker 1: get this high. And as you said, I mean, these 96 00:06:42,160 --> 00:06:46,640 Speaker 1: big retailers are even contracting for their own ships, again, 97 00:06:46,720 --> 00:06:49,640 Speaker 1: something we haven't seen at least in my memory. Well, 98 00:06:49,680 --> 00:06:52,279 Speaker 1: and some of them, like Walmart, have a huge trucking fleet, 99 00:06:52,320 --> 00:06:54,680 Speaker 1: so if they can get it to the US, they 100 00:06:54,680 --> 00:06:57,360 Speaker 1: can pick it up because they have enough drivers that 101 00:06:57,520 --> 00:07:00,560 Speaker 1: work directly for Walmart that they're not up in this 102 00:07:00,640 --> 00:07:05,120 Speaker 1: independent trucking problem. It reminds me of Anne Ram's Atlas Shrugged, 103 00:07:05,560 --> 00:07:08,520 Speaker 1: and that the system just kind of feels like in 104 00:07:08,680 --> 00:07:12,720 Speaker 1: places it's breaking down. We're trying to remodel a house 105 00:07:12,840 --> 00:07:16,080 Speaker 1: right now, the houses in Naples, Florida. We wanted to 106 00:07:16,080 --> 00:07:19,120 Speaker 1: get some paint and Sherwyn Williams had to literally reach 107 00:07:19,160 --> 00:07:22,480 Speaker 1: out across all of Florida to be able to assemble 108 00:07:22,520 --> 00:07:25,120 Speaker 1: the paint because it didn't exist in the warehouses. And 109 00:07:25,240 --> 00:07:27,600 Speaker 1: the whole series of these kind of things under way 110 00:07:28,080 --> 00:07:31,600 Speaker 1: that either aren't available, or they cost more, or they're 111 00:07:31,600 --> 00:07:33,960 Speaker 1: just going to take a lot longer. They'll take five 112 00:07:34,000 --> 00:07:36,320 Speaker 1: months instead of a month sort of thing. But as 113 00:07:36,360 --> 00:07:40,400 Speaker 1: you're describing how a supply chain compounds itself, I don't 114 00:07:40,440 --> 00:07:43,120 Speaker 1: know why, and this is probably takes me back to 115 00:07:43,760 --> 00:07:46,040 Speaker 1: when my children were young, but I couldn't help but 116 00:07:46,160 --> 00:07:49,800 Speaker 1: think of a slinky. If you remember slinkies, They would 117 00:07:49,800 --> 00:07:53,320 Speaker 1: come downstairs and one would start down and then it 118 00:07:53,360 --> 00:07:55,560 Speaker 1: would pull the rest of itself, which would go to 119 00:07:55,600 --> 00:07:59,440 Speaker 1: the next stair, and it's kind of like different pieces 120 00:07:59,480 --> 00:08:02,520 Speaker 1: of the supply eye chain get jammed up and you 121 00:08:02,600 --> 00:08:05,480 Speaker 1: think you're solving one, but then you're like General Motors 122 00:08:05,480 --> 00:08:08,760 Speaker 1: announced that they had a dramatic drop in vehicle sales 123 00:08:09,280 --> 00:08:13,480 Speaker 1: because they can't get any ships, and modern cars run 124 00:08:13,600 --> 00:08:17,360 Speaker 1: so heavily on computing and need things like computer ships 125 00:08:17,360 --> 00:08:20,440 Speaker 1: that that adds us the inability to buy ships, even 126 00:08:20,440 --> 00:08:23,360 Speaker 1: if you're a company aside a GM screwed up the 127 00:08:23,400 --> 00:08:27,280 Speaker 1: whole system. Then in that sense, we're learning how truly 128 00:08:27,560 --> 00:08:31,960 Speaker 1: interlocked the system had become and how much it had 129 00:08:32,000 --> 00:08:35,200 Speaker 1: depended on just in time delivery. Do you think we'll 130 00:08:35,200 --> 00:08:38,880 Speaker 1: probably move back towards a little bit more redundant modeling 131 00:08:38,920 --> 00:08:43,320 Speaker 1: and a little bit more willingness to either overstock in 132 00:08:43,360 --> 00:08:48,280 Speaker 1: case of a shortage or accept longer supply times. That's 133 00:08:48,280 --> 00:08:50,920 Speaker 1: a really good question. I mean, that's what a lot 134 00:08:50,960 --> 00:08:54,960 Speaker 1: of economists are asking as well. And we're trying to 135 00:08:55,000 --> 00:08:58,880 Speaker 1: talk to the supply chain logistics managers to see what 136 00:08:58,920 --> 00:09:02,600 Speaker 1: they're thinking. They're doing all these cost benefit analyzes, and 137 00:09:02,760 --> 00:09:05,200 Speaker 1: it varies across sectors and according to the size of 138 00:09:05,240 --> 00:09:08,559 Speaker 1: your company. But it's interesting you go back, remember when 139 00:09:08,640 --> 00:09:11,320 Speaker 1: Japan had that earthquake. There's been a really nice paper 140 00:09:11,360 --> 00:09:14,679 Speaker 1: that just came out that looked at how firms responded 141 00:09:15,080 --> 00:09:20,840 Speaker 1: to that event, and what they found was that it 142 00:09:20,920 --> 00:09:25,800 Speaker 1: wasn't this really big change in, oh, let's do business differently, 143 00:09:26,200 --> 00:09:29,319 Speaker 1: but it was just let's spread these costs out get 144 00:09:29,320 --> 00:09:32,720 Speaker 1: through this event, built a little bit more redundancy into 145 00:09:32,760 --> 00:09:36,200 Speaker 1: the supply chain, but they didn't completely redo how they 146 00:09:36,240 --> 00:09:38,960 Speaker 1: did things. We have to remember, I mean, firms locate 147 00:09:39,040 --> 00:09:41,480 Speaker 1: in the places they locate. They make the decisions that 148 00:09:41,559 --> 00:09:45,240 Speaker 1: they do because it's in their best interests. These are 149 00:09:45,320 --> 00:09:49,080 Speaker 1: profit maximizing entities. If it was more profitable to make 150 00:09:49,120 --> 00:09:53,400 Speaker 1: things in a different country, they would. Some companies have 151 00:09:53,600 --> 00:09:57,480 Speaker 1: moved out of China, some autopart supplier companies and moving 152 00:09:57,480 --> 00:10:02,240 Speaker 1: into Vietnam, Malaysia, Thailand. But then with COVID and Vietnam 153 00:10:02,320 --> 00:10:05,440 Speaker 1: just got off of a three month lockdown. Now those 154 00:10:05,480 --> 00:10:09,280 Speaker 1: suppliers got killed by that decision that they know. So 155 00:10:09,920 --> 00:10:13,360 Speaker 1: there's no easy answer here. Even with the tariffs, we 156 00:10:13,440 --> 00:10:17,600 Speaker 1: haven't really seen companies move out of China to escape 157 00:10:17,600 --> 00:10:21,959 Speaker 1: that ten twenty five percent tariff. So it's going to 158 00:10:22,080 --> 00:10:27,440 Speaker 1: take a lot more than tariffs or even a global 159 00:10:27,440 --> 00:10:53,680 Speaker 1: pandemic for companies to completely rethink their supply chain. There 160 00:10:53,679 --> 00:10:57,880 Speaker 1: are fascinating secondary effects. I grew up three miles from 161 00:10:57,920 --> 00:11:01,080 Speaker 1: Hershea accident how to swim at Hershey Park. So I've 162 00:11:01,120 --> 00:11:03,920 Speaker 1: always been very fond of the Hershey company, which has 163 00:11:03,920 --> 00:11:07,880 Speaker 1: been a great citizen. But their chief executive officers said recently, 164 00:11:08,240 --> 00:11:11,320 Speaker 1: this is a quote, the supply chain challenges just wouldn't 165 00:11:11,400 --> 00:11:14,400 Speaker 1: enable us to be able to meet further demand that 166 00:11:14,559 --> 00:11:18,120 Speaker 1: we would create through our very impactful advertising. It just 167 00:11:18,160 --> 00:11:20,719 Speaker 1: didn't make sense. So they're actually cutting back on their 168 00:11:20,760 --> 00:11:25,360 Speaker 1: advertising because they have more customers than they can meet. Now, 169 00:11:25,640 --> 00:11:29,199 Speaker 1: that is an interesting second order impact of the supply 170 00:11:29,280 --> 00:11:33,079 Speaker 1: chain problem. Yeah, that's really interesting. There's always a threshold though, 171 00:11:33,160 --> 00:11:37,240 Speaker 1: right if they foresaw a sustained increase in consumer demand, 172 00:11:37,320 --> 00:11:40,040 Speaker 1: you know what would it take for them to invest 173 00:11:40,320 --> 00:11:44,520 Speaker 1: and expand. Hershey is very efficient and they can produce 174 00:11:44,559 --> 00:11:47,560 Speaker 1: lots of candy. I think their problem is getting the 175 00:11:47,679 --> 00:11:51,000 Speaker 1: cocoa and getting the sugar and getting the nuts. I mean, 176 00:11:51,040 --> 00:11:53,360 Speaker 1: I think that that's why she's referring to the supply chain. 177 00:11:53,480 --> 00:11:56,680 Speaker 1: It's not a manufacturing problem. It's that they literally can't 178 00:11:56,720 --> 00:12:00,320 Speaker 1: get the goodies in to turn them into chocolates. Yeah, 179 00:12:00,320 --> 00:12:02,520 Speaker 1: so theirs supply sort of stuck at where it is. 180 00:12:02,640 --> 00:12:05,480 Speaker 1: That's right. I had the similar experience when the government 181 00:12:05,480 --> 00:12:08,600 Speaker 1: announced that this would be the most expensive Thanksgiving in history. 182 00:12:09,240 --> 00:12:11,080 Speaker 1: I happened to have been at a meeting with Vice 183 00:12:11,120 --> 00:12:14,040 Speaker 1: President Pence and one of his friends, who was there 184 00:12:14,080 --> 00:12:17,680 Speaker 1: from Indiana is one of the largest turkey growers in America. 185 00:12:17,679 --> 00:12:20,480 Speaker 1: I think he grows fourteen percent of all the turkeys 186 00:12:20,880 --> 00:12:24,720 Speaker 1: sold in America, and so I asked them to check 187 00:12:24,760 --> 00:12:27,880 Speaker 1: back with him to see if there'd be a shortage. Well, 188 00:12:27,920 --> 00:12:30,160 Speaker 1: the answer was much more complicated. He wrote back and 189 00:12:30,200 --> 00:12:31,680 Speaker 1: he said, oh no, we're not going to have a 190 00:12:31,679 --> 00:12:35,360 Speaker 1: shortage of turkeys. However, we're going to have a shortage 191 00:12:35,360 --> 00:12:38,800 Speaker 1: of the right size turkeys. He said, most Americans want 192 00:12:38,800 --> 00:12:41,840 Speaker 1: to buy a ten to twelve pound turkey. The problem 193 00:12:41,880 --> 00:12:45,840 Speaker 1: we have is because of labor shortages, we can't process 194 00:12:46,000 --> 00:12:49,440 Speaker 1: enough turkeys when they weigh ten to twelve pounds and 195 00:12:49,559 --> 00:12:53,280 Speaker 1: they keep eating. So the turkeys are going to be 196 00:12:53,320 --> 00:12:55,400 Speaker 1: bigger than people want, and we're going to be a 197 00:12:55,400 --> 00:12:58,200 Speaker 1: shortage of ten to twelve pound turkeys. A pretty good 198 00:12:58,280 --> 00:13:02,440 Speaker 1: number of thirteen to sixteen pound turkeys, and far more 199 00:13:02,920 --> 00:13:05,920 Speaker 1: over sixteen pound turkeys than we will be able to sell. 200 00:13:06,280 --> 00:13:10,160 Speaker 1: But that's actually being caused not by the turkey shortage. 201 00:13:10,360 --> 00:13:13,600 Speaker 1: The turkeys are doing their part. That's being caused by 202 00:13:13,600 --> 00:13:17,040 Speaker 1: the labor shortage to process the turkeys. Now, that's an 203 00:13:17,040 --> 00:13:20,599 Speaker 1: example of what you study in the sense that it's 204 00:13:20,720 --> 00:13:24,200 Speaker 1: a modern economy, and this is why bureaucracies can't manage it. 205 00:13:24,200 --> 00:13:28,000 Speaker 1: It is so unbelievably complex that just when you think 206 00:13:28,040 --> 00:13:30,719 Speaker 1: you understand something, you realize that there are three or 207 00:13:30,760 --> 00:13:33,199 Speaker 1: four more things that are going on that you never 208 00:13:33,240 --> 00:13:36,120 Speaker 1: even dreamed of. And I think that's why I've always 209 00:13:36,160 --> 00:13:39,920 Speaker 1: been very much pro market and anti bureaucrat, because no 210 00:13:40,000 --> 00:13:44,479 Speaker 1: bureaucrat could take the things you're looking at and understand 211 00:13:44,520 --> 00:13:46,679 Speaker 1: them well enough to make the right kind of decisions, 212 00:13:47,080 --> 00:13:50,000 Speaker 1: and that you need the churning and the constant evolution 213 00:13:50,040 --> 00:13:52,360 Speaker 1: of the market in order to be able to do that. 214 00:13:52,720 --> 00:13:54,880 Speaker 1: I mean, do you have that same sense that the 215 00:13:54,920 --> 00:14:00,760 Speaker 1: world you study is like unbelievably complicated. Yes, absolutely. I 216 00:14:00,800 --> 00:14:04,160 Speaker 1: mean it reminds me of a few weeks ago I 217 00:14:04,280 --> 00:14:08,439 Speaker 1: heard one of the Biden administration's appointees working on the 218 00:14:08,480 --> 00:14:12,600 Speaker 1: supply chain, describing his role as government as honest broker. 219 00:14:13,080 --> 00:14:16,640 Speaker 1: But I just thought to myself, well, okay, maybe well intentioned, 220 00:14:16,640 --> 00:14:20,000 Speaker 1: but that doesn't really work like that, right. I mean, 221 00:14:20,280 --> 00:14:23,160 Speaker 1: we already have an honest broker. It's called the market, 222 00:14:23,800 --> 00:14:28,640 Speaker 1: and if you just let that play out, yes there 223 00:14:28,640 --> 00:14:31,640 Speaker 1: will be adjustment pains an adjustment costs, but it will 224 00:14:31,680 --> 00:14:34,400 Speaker 1: be a lot less painful and a lot less costly 225 00:14:34,480 --> 00:14:38,960 Speaker 1: for the market to do what's work. Then the government 226 00:14:39,080 --> 00:14:44,160 Speaker 1: coming in and trying to micromanage that process, however well intentioned. 227 00:14:44,160 --> 00:14:46,640 Speaker 1: I mean, the government here is really like a bull 228 00:14:46,680 --> 00:14:49,600 Speaker 1: in a china shop. Just look at what's happened when 229 00:14:49,600 --> 00:14:52,800 Speaker 1: they're trying to figure out which companies they should give 230 00:14:52,880 --> 00:14:56,120 Speaker 1: exclusions to on the tariffs and which companies they should not. 231 00:14:56,680 --> 00:15:00,440 Speaker 1: And that whole process is so messy that the Government 232 00:15:00,440 --> 00:15:03,160 Speaker 1: Accountability Office to release that report a few months ago 233 00:15:03,720 --> 00:15:06,840 Speaker 1: and came down pretty hard on the agency is doing 234 00:15:06,840 --> 00:15:09,280 Speaker 1: it no fault of their own, they were told to 235 00:15:09,280 --> 00:15:13,440 Speaker 1: do it. But it's an impossible position for government to 236 00:15:13,520 --> 00:15:17,640 Speaker 1: be in to try to micromanage supply chains, to try 237 00:15:17,680 --> 00:15:22,160 Speaker 1: to micromanage demand, micromanaged supply. You fix one thing and 238 00:15:22,640 --> 00:15:25,760 Speaker 1: four other problems pop up, and those problems lead to 239 00:15:25,840 --> 00:15:29,680 Speaker 1: other problems, and you get this cascading effect. And again, 240 00:15:29,760 --> 00:15:34,400 Speaker 1: well intentioned bureaucrats, well intentioned policymakers, but we just know 241 00:15:34,520 --> 00:15:38,520 Speaker 1: from experience again and again that the market is really 242 00:15:38,840 --> 00:15:41,520 Speaker 1: best to sort these things out. If the government wants 243 00:15:41,520 --> 00:15:43,880 Speaker 1: to do something, what they can do is to roll 244 00:15:43,960 --> 00:15:47,600 Speaker 1: back some of these costly rules and regulations that keep 245 00:15:48,080 --> 00:15:51,080 Speaker 1: prices from adjusting to supply and demand. I did a 246 00:15:51,120 --> 00:15:54,080 Speaker 1: podcast little good while back with a guy who wrote 247 00:15:54,200 --> 00:15:57,960 Speaker 1: a book on the nineteen twenty one depression, which happened 248 00:15:58,040 --> 00:16:01,800 Speaker 1: so quickly that it didn't imprint on the popular mind. 249 00:16:02,280 --> 00:16:04,920 Speaker 1: We came out of World War One, the economy went 250 00:16:05,040 --> 00:16:08,640 Speaker 1: straight down for about seven or eight months, liquidated all 251 00:16:08,760 --> 00:16:13,360 Speaker 1: of the excess prices, and began bouncing back up so fast. 252 00:16:13,840 --> 00:16:17,000 Speaker 1: And it's a very v shaped kind of depression, and 253 00:16:17,200 --> 00:16:20,400 Speaker 1: it didn't shape the twenties at all, Whereas the Great Depression, 254 00:16:20,400 --> 00:16:22,800 Speaker 1: which lasted for a decade and which was in part 255 00:16:22,880 --> 00:16:25,680 Speaker 1: cause because the government kept trying to fix things and 256 00:16:25,920 --> 00:16:28,200 Speaker 1: made it worse, became a really deep part of the 257 00:16:28,200 --> 00:16:31,320 Speaker 1: American culturally spreads. But it was fascinating talking to this 258 00:16:31,360 --> 00:16:34,960 Speaker 1: guy about He said, the key was that the Republicans 259 00:16:34,960 --> 00:16:37,440 Speaker 1: who came in really did believe in the market, and 260 00:16:37,440 --> 00:16:39,960 Speaker 1: they said, yes, this is going to be painful for 261 00:16:40,000 --> 00:16:42,680 Speaker 1: a very short time, but then it's going to be over. 262 00:16:43,280 --> 00:16:45,640 Speaker 1: And it turned out they were right. Now. By contrast, 263 00:16:46,040 --> 00:16:51,320 Speaker 1: the distinguished and highly esteemed bicycle writing Secretary of Transportation 264 00:16:51,720 --> 00:16:55,960 Speaker 1: Buddha Judge said recently, quote for the near term changes 265 00:16:56,000 --> 00:16:59,040 Speaker 1: that need to happen in private companies, we'll be the 266 00:16:59,120 --> 00:17:03,160 Speaker 1: honest brokers partners and will provide carrots and sticks where 267 00:17:03,200 --> 00:17:06,359 Speaker 1: we can. Well, I'm always struck that big government socialists 268 00:17:06,840 --> 00:17:09,800 Speaker 1: are so arrogant they actually think they know enough to 269 00:17:09,800 --> 00:17:13,000 Speaker 1: provide carrots and sticks. I'm quoting Buddhajis. Of course he 270 00:17:13,080 --> 00:17:16,240 Speaker 1: doesn't know enough to provide carrots and sticks. I mean 271 00:17:16,240 --> 00:17:20,400 Speaker 1: he will simply screw up everything by intervening on topics 272 00:17:20,400 --> 00:17:24,959 Speaker 1: he doesn't appreciate, with complexities he can't possibly comprehend. And 273 00:17:25,040 --> 00:17:28,280 Speaker 1: I think that it's a central problem of government that 274 00:17:28,560 --> 00:17:31,560 Speaker 1: Harley comes out of Ludendorff's war economy in World War One, 275 00:17:32,080 --> 00:17:36,359 Speaker 1: and governments can be really powerful. For about three years, 276 00:17:36,520 --> 00:17:39,320 Speaker 1: I spent a lot of time studying different efforts like 277 00:17:39,359 --> 00:17:42,760 Speaker 1: in World War Two, where we got a tremendous amount done. 278 00:17:43,119 --> 00:17:46,359 Speaker 1: But if you don't start dismantling it within three years, 279 00:17:46,720 --> 00:17:50,080 Speaker 1: it becomes its own worst enemy, because you end up 280 00:17:50,119 --> 00:17:53,159 Speaker 1: with corruption, you end up with favoritism, and you end 281 00:17:53,240 --> 00:17:56,320 Speaker 1: up with decisions that simply don't work, which leads you 282 00:17:56,359 --> 00:17:58,639 Speaker 1: to then make another set of decisions that are even worse. 283 00:17:58,960 --> 00:18:01,280 Speaker 1: And presently the whole thing is a mess of paperwork. 284 00:18:01,720 --> 00:18:04,520 Speaker 1: And it seems to me that the best government really 285 00:18:04,600 --> 00:18:09,280 Speaker 1: is the government which allows the entrepreneurs, the customers, and 286 00:18:09,359 --> 00:18:12,919 Speaker 1: the market to work together to sort out problems and 287 00:18:13,000 --> 00:18:16,119 Speaker 1: to find solutions. And I don't know what your studies 288 00:18:16,160 --> 00:18:18,480 Speaker 1: indicate to you, but it strikes me you get much 289 00:18:18,560 --> 00:18:22,520 Speaker 1: faster recovery and much lower cost if you allow the 290 00:18:22,680 --> 00:18:26,600 Speaker 1: entrepreneur in the market to actually function. Yeah, that's exactly right. 291 00:18:26,760 --> 00:18:30,720 Speaker 1: The media shock can be costly, and maybe a little 292 00:18:30,720 --> 00:18:33,280 Speaker 1: bit more of that v shaped is further down, but 293 00:18:33,359 --> 00:18:38,840 Speaker 1: it's short lived and the bounce back is much quicker 294 00:18:39,200 --> 00:18:43,280 Speaker 1: to respond when you don't have that interference with the 295 00:18:43,359 --> 00:18:48,280 Speaker 1: government trying to micromanage supply and demand and prices, trying 296 00:18:48,280 --> 00:18:52,560 Speaker 1: to subsidize this group provide import competition protection from this 297 00:18:52,560 --> 00:18:55,640 Speaker 1: other group. Like you said, then you get these vested interests, 298 00:18:55,920 --> 00:18:58,520 Speaker 1: and then they knock, knock knocked. They're at your door 299 00:18:58,640 --> 00:19:02,520 Speaker 1: the next day, wanting to keep those extra protections, extra 300 00:19:02,600 --> 00:19:05,639 Speaker 1: subtadays on asking for more, and you just get this 301 00:19:05,720 --> 00:19:09,720 Speaker 1: vicious cycle. Just look at what happened with the stimulus checks. 302 00:19:10,000 --> 00:19:13,680 Speaker 1: Well intentioned, to be sure, but there is research coming 303 00:19:13,680 --> 00:19:16,520 Speaker 1: out now showing that they probably went on longer than 304 00:19:16,680 --> 00:19:20,840 Speaker 1: was optimal in terms of providing disincentis for people to 305 00:19:20,920 --> 00:19:25,080 Speaker 1: re enter the labor force. I've never been an elected official, 306 00:19:25,240 --> 00:19:28,840 Speaker 1: it's probably hard to not try to be responsive to 307 00:19:28,880 --> 00:19:32,880 Speaker 1: those concerns. But the market in the long run, from 308 00:19:32,920 --> 00:19:36,240 Speaker 1: economist perspective, really is more efficient and it's less costly 309 00:19:36,280 --> 00:19:40,000 Speaker 1: for everyone and less painful for everyone in the longer term. 310 00:19:40,080 --> 00:19:44,960 Speaker 1: To let supply and demand sorted out, prices will respond 311 00:19:45,520 --> 00:20:07,600 Speaker 1: and overall the costs will be less. If you don't mind, 312 00:20:07,640 --> 00:20:10,639 Speaker 1: I want to ask you about something that involves economics 313 00:20:10,640 --> 00:20:13,720 Speaker 1: at a sort of fundamental level where I may be 314 00:20:13,840 --> 00:20:15,920 Speaker 1: totally wrong, and if you don't mind, I'm going to 315 00:20:16,000 --> 00:20:18,959 Speaker 1: run it by you and you can correct me. I 316 00:20:18,960 --> 00:20:22,359 Speaker 1: always told years ago that the origin of the Austrian 317 00:20:22,440 --> 00:20:26,160 Speaker 1: school of economics came when they went down to the 318 00:20:26,240 --> 00:20:29,160 Speaker 1: fish market in Vienna. This is before you had refrigerators, 319 00:20:29,560 --> 00:20:32,560 Speaker 1: and they monitored what people were doing. It's actually very 320 00:20:32,600 --> 00:20:35,520 Speaker 1: similar to what Hernando de Soto did in Peru in 321 00:20:35,560 --> 00:20:38,480 Speaker 1: the nineteen seventies, and that they actually went out to 322 00:20:38,520 --> 00:20:41,199 Speaker 1: the real world to watch what was actually happening and 323 00:20:41,240 --> 00:20:42,760 Speaker 1: to record it and to try to figure out what 324 00:20:42,760 --> 00:20:46,240 Speaker 1: it meant. And what they discovered was that people would 325 00:20:46,280 --> 00:20:49,480 Speaker 1: come to the market and depending on what they were 326 00:20:49,480 --> 00:20:52,480 Speaker 1: going to make that day, they would buy different fish 327 00:20:52,600 --> 00:20:55,040 Speaker 1: at different times of the day, paying a different price. 328 00:20:55,680 --> 00:20:57,880 Speaker 1: So if they were going to have people over they 329 00:20:57,880 --> 00:21:00,320 Speaker 1: want to impress, they would show up early the morning, 330 00:21:00,520 --> 00:21:03,160 Speaker 1: they would get the freshest, best fish, and they'd pay 331 00:21:03,160 --> 00:21:06,560 Speaker 1: for it'd be more expensive if they were, let's say 332 00:21:06,640 --> 00:21:08,199 Speaker 1: towards the end of the month, they didn't have very 333 00:21:08,280 --> 00:21:10,440 Speaker 1: much money. They would go towards the end of the 334 00:21:10,520 --> 00:21:13,119 Speaker 1: day and the price of fish would actually drop all 335 00:21:13,240 --> 00:21:16,800 Speaker 1: day because they didn't have refrigeration. And so by the 336 00:21:16,920 --> 00:21:18,600 Speaker 1: end of the day they're buying fish, it probably goes 337 00:21:18,600 --> 00:21:21,160 Speaker 1: into a fish stew because you don't want to serve it, 338 00:21:21,359 --> 00:21:24,560 Speaker 1: and so as they watched this, the people who were 339 00:21:24,560 --> 00:21:28,280 Speaker 1: studying and said, you know, no bureaucracy could possibly have 340 00:21:28,440 --> 00:21:33,400 Speaker 1: the data to know for you what you value at 341 00:21:33,440 --> 00:21:37,359 Speaker 1: this moment and to recognize that that might be different 342 00:21:37,359 --> 00:21:40,960 Speaker 1: than what you valued yesterday or what you'll value tomorrow. 343 00:21:41,160 --> 00:21:43,399 Speaker 1: And it led them to an absolute belief in the 344 00:21:43,440 --> 00:21:46,280 Speaker 1: market because the market put power in the hands of 345 00:21:46,280 --> 00:21:49,359 Speaker 1: the consumer and you got to decide what it is 346 00:21:49,400 --> 00:21:51,800 Speaker 1: you valued and how much you want to pay for it. Now. 347 00:21:52,080 --> 00:21:56,800 Speaker 1: Is that an accurate story? Yes, that's exactly it, right, 348 00:21:56,840 --> 00:22:00,960 Speaker 1: I mean, that's a microcosm of why the invisible hand 349 00:22:01,160 --> 00:22:05,000 Speaker 1: actually works. Right, So you have the market, individual sellers. 350 00:22:05,240 --> 00:22:08,000 Speaker 1: They know what they can get at the prices that 351 00:22:08,040 --> 00:22:13,240 Speaker 1: they can get, they make their decisions to maximize their profits, 352 00:22:13,280 --> 00:22:15,960 Speaker 1: and they also know what prices that they can sell 353 00:22:16,320 --> 00:22:20,120 Speaker 1: their product for. So by letting people make their own 354 00:22:20,160 --> 00:22:23,600 Speaker 1: decisions in terms of what's available to them and what 355 00:22:23,680 --> 00:22:28,240 Speaker 1: they want to expend their own resources on, that's how 356 00:22:28,280 --> 00:22:32,080 Speaker 1: the market works. That's how prosperity happens. I mean, it 357 00:22:32,200 --> 00:22:34,959 Speaker 1: was even going back to Adam Smith, he argued that 358 00:22:35,040 --> 00:22:40,480 Speaker 1: prosperity is the result of specialization, where we all specialize 359 00:22:40,880 --> 00:22:45,240 Speaker 1: in something we're comparatively pretty good at. So this whole 360 00:22:45,240 --> 00:22:49,320 Speaker 1: idea of trying to bring back a lot of activities 361 00:22:49,760 --> 00:22:53,320 Speaker 1: back to the United States that we just don't do anymore. 362 00:22:53,880 --> 00:22:59,680 Speaker 1: It just goes against these principles of specialization and letting 363 00:22:59,680 --> 00:23:02,480 Speaker 1: them could work that have led to the great prosperity 364 00:23:02,600 --> 00:23:05,080 Speaker 1: that we've had. Now that you mentioned Smith, one of 365 00:23:05,119 --> 00:23:07,800 Speaker 1: the things I was always fascinated by. Harry writes at 366 00:23:07,800 --> 00:23:11,399 Speaker 1: some point that any time two or more businessmen get together, 367 00:23:11,760 --> 00:23:15,800 Speaker 1: it's a conspiracy against the consumer. And it does see 368 00:23:15,800 --> 00:23:18,240 Speaker 1: to me that if you're a free market person, the 369 00:23:18,280 --> 00:23:20,720 Speaker 1: one caveat is you may need the government to ensure 370 00:23:20,760 --> 00:23:24,840 Speaker 1: that the market stays free, because there's a perennial tendency 371 00:23:24,880 --> 00:23:28,399 Speaker 1: to move towards oligarchy and towards big systems that crowd 372 00:23:28,400 --> 00:23:32,080 Speaker 1: out everybody else and then make self serving decisions. I'd 373 00:23:32,119 --> 00:23:35,280 Speaker 1: be curious what your reaction to that is. Well, I mean, 374 00:23:35,320 --> 00:23:37,919 Speaker 1: as long as firms can enter and exit a market 375 00:23:38,000 --> 00:23:42,240 Speaker 1: whenever there's profits to be had, those profits rarely go uncontested, 376 00:23:42,520 --> 00:23:46,240 Speaker 1: So you might get some collusion, You might see some 377 00:23:46,240 --> 00:23:48,919 Speaker 1: bigger profits in a particular industry because of that. But 378 00:23:49,080 --> 00:23:52,160 Speaker 1: if other firms can enter that industry, which they will 379 00:23:52,160 --> 00:23:56,880 Speaker 1: want to do because they see those profits. Then two 380 00:23:57,119 --> 00:24:00,119 Speaker 1: companies that we're talking and now face new competition and 381 00:24:00,880 --> 00:24:03,760 Speaker 1: we'll have to lower prices. So as long as there's 382 00:24:03,800 --> 00:24:08,760 Speaker 1: no undue barriers or restrictions to entry, then those profits 383 00:24:08,800 --> 00:24:11,760 Speaker 1: will rarely go and contested. So it's a year. Yes, 384 00:24:11,920 --> 00:24:15,760 Speaker 1: in the long run that Google and Facebook and Twitter 385 00:24:16,280 --> 00:24:19,400 Speaker 1: and even Amazon which is gigantic, or Walmart will all 386 00:24:19,520 --> 00:24:23,000 Speaker 1: face upstarts who figure out new, better ways to do 387 00:24:23,080 --> 00:24:27,080 Speaker 1: it and who are attracted by the opportunity to create 388 00:24:27,800 --> 00:24:34,639 Speaker 1: new delivery systems, just as for example, Walmart supplanted series Robock. Possibly. 389 00:24:34,880 --> 00:24:36,640 Speaker 1: You know, as a consumer, I'd love to see more 390 00:24:36,640 --> 00:24:41,479 Speaker 1: competition once Amazon's profits get so high, you know, as 391 00:24:41,560 --> 00:24:45,840 Speaker 1: that markup gets high enough to attract more competition than yes, 392 00:24:45,920 --> 00:24:48,600 Speaker 1: we'll see it. I think we're still trying to figure 393 00:24:48,600 --> 00:24:52,960 Speaker 1: out if the Amazon infrastructure is still so costly that 394 00:24:53,080 --> 00:24:57,120 Speaker 1: it's sort of a natural monopoly. These are huge questions 395 00:24:57,160 --> 00:24:59,360 Speaker 1: that a lot of people much smarter than me are 396 00:24:59,400 --> 00:25:01,639 Speaker 1: working on. Let me ask you one last thing about 397 00:25:01,640 --> 00:25:04,040 Speaker 1: the supply chain and where we're at. Are you at 398 00:25:04,040 --> 00:25:10,440 Speaker 1: all concerned about Christmas gifts being available well as an 399 00:25:10,440 --> 00:25:13,480 Speaker 1: economist or as a mom. Start as a mom, because 400 00:25:13,520 --> 00:25:16,399 Speaker 1: that's where most people live. Yeah, I mean I have 401 00:25:16,600 --> 00:25:20,600 Speaker 1: started thinking about that. The Lego Catalog came last week 402 00:25:20,640 --> 00:25:23,280 Speaker 1: and I told the boys, if you do want Santa 403 00:25:23,359 --> 00:25:26,000 Speaker 1: to come, you better give him your list pretty early 404 00:25:26,040 --> 00:25:31,000 Speaker 1: this year. That's right. The reindeer are taking longer. Tell 405 00:25:31,040 --> 00:25:32,520 Speaker 1: me for a second, how many children do you have 406 00:25:32,560 --> 00:25:35,119 Speaker 1: and how old are they? Two boys sixth grade in 407 00:25:35,160 --> 00:25:38,680 Speaker 1: twelfth grade, so you know, Santa's have been an abstraction now, 408 00:25:38,800 --> 00:25:42,800 Speaker 1: but we still celebrate the traditions. The theory of getting 409 00:25:42,800 --> 00:25:48,040 Speaker 1: the gifts lives on. Oh yeah, that's great. That's really wonderful. Listen, 410 00:25:48,040 --> 00:25:51,240 Speaker 1: I want to thank you for joining me. You're doing 411 00:25:51,280 --> 00:25:54,840 Speaker 1: great work on the economics of inflation and supply chains. 412 00:25:55,359 --> 00:25:59,360 Speaker 1: You're at a terrific institution, and I really appreciate your 413 00:25:59,400 --> 00:26:02,159 Speaker 1: taking the time to both help educate me and hopefully 414 00:26:02,200 --> 00:26:05,439 Speaker 1: help educate our listeners. So thank you very very much 415 00:26:05,760 --> 00:26:08,359 Speaker 1: for joining us at this conversation, and I hope that 416 00:26:08,520 --> 00:26:11,520 Speaker 1: the Lego Catalog and others give you and your family 417 00:26:11,520 --> 00:26:14,399 Speaker 1: a terrific Christmas. Thank you so much. It was so 418 00:26:14,520 --> 00:26:21,800 Speaker 1: nice to be here. With you and your listeners. Thank 419 00:26:21,800 --> 00:26:24,800 Speaker 1: you to my guests Christine McDaniel. You can read more 420 00:26:24,840 --> 00:26:28,960 Speaker 1: about inflation and supply chain issues on our show page 421 00:26:29,240 --> 00:26:32,760 Speaker 1: at newtsworld dot com. News World is produced by Gingwis 422 00:26:32,800 --> 00:26:37,879 Speaker 1: Sweet sixty and iHeartMedia. Our executive producer is Debbie Myers, 423 00:26:38,200 --> 00:26:43,280 Speaker 1: our producer is Garnsey Sloan, and our researcher is Rachel Peterson. 424 00:26:43,840 --> 00:26:47,240 Speaker 1: The artwork for the show was created by Steve Penley. 425 00:26:47,960 --> 00:26:51,320 Speaker 1: Special thanks to the team at Gingwich three sixty. If 426 00:26:51,359 --> 00:26:54,159 Speaker 1: you've been enjoying Newtsworld, I hope you'll go to Apple 427 00:26:54,240 --> 00:26:57,760 Speaker 1: Podcast and both rate us with five stars and give 428 00:26:57,840 --> 00:27:00,800 Speaker 1: us a review so others can learn what it's all about. 429 00:27:01,480 --> 00:27:04,120 Speaker 1: Right now, listeners of news World can sign up from 430 00:27:04,119 --> 00:27:08,240 Speaker 1: my three free weekly columns at Gingwish three sixty dot 431 00:27:08,240 --> 00:27:12,440 Speaker 1: com slash newsletter. I'm new Gangwish. This is news World.