We Are Running Out of Some Stuff

“Inflation is when you pay fifteen dollars for the ten-dollar haircut you used to get for five dollars when you had hair.” – Sam Ewing

Sometimes I think I’m taking crazy pills. In my real life, everywhere I look I see less choice and higher prices. Everybody I talk to has a story about something they need to buy but can’t. Many big-ticket items have unprecedented lead times, assuming you can get them at all. My friends in the corporate world are focused on raising prices ahead of their increasing input costs. They are also staying up at night worried about accessing supply altogether – be it parts, materials, or even labor. I see shrinkflation, both in the size of the consumer goods I buy and in the level of service provided, compared to the pre-Covid period.

And yet, in my online life it is a decidedly different story. Many brilliant people I respect and follow on various social media platforms tell me I’m nuts. The economy is a deflationary machine, they say. Capitalism will solve these temporary supply chain issues, they say. The velocity of money is falling, they say. Shut up and take those pills you paranoid chicken, I hear.

In Every Doge Has Its Day, which is the second Doomberg piece I ever published (seems like forever ago now, if I’m being honest), I opined on a topic that has long fascinated me. Specifically, I’ve always been deeply interested in understanding how people behaved as society began to collapse around them. In the context of the Doge piece, I was referring to the early stages of hyperinflationary episodes, like the one I fear we are entering today. Here’s the relevant quote:

“When I read the retelling of history, I try to imagine what the people were thinking in the moment. Not what they would later claim they were thinking with the benefit of hindsight, but how they digested the daily news headlines in real time, internalized the risks and rewards of the present day, and behaved in ways that I can only assume were in their best interest as they understood it. Did they sense what was coming or did they think things would quickly regress back to normal? How did certain people separate signal from noise and protect themselves, while others drowned in the oncoming tsunami of destruction?”

In essence, there’s a fine line between being Chicken Little and being a boiled frog. My position on that spectrum is, ahem, made clear on the masthead.

Last week, we reached a new milestone in our inflationary journey. The Biden administration put out a remarkable statement blaming meat processors for food inflation. Here’s the opening salvo:

“The President understands that families have been facing higher prices at the grocery store recently. Half of those recent increases are from meat prices—specifically, beef, pork, and poultry. While factors like increased consumer demand have played a role, the price increases are also driven by a lack of competition at a key bottleneck point in the meat supply chain: meat-processing. Just four large conglomerates control the majority of the market for each of these three products, and the data show that these companies have been raising prices while generating record profits during the pandemic. That’s why the Biden-Harris Administration is taking bold action to enforce the antitrust laws, boost competition in meat-processing, and push back on pandemic profiteering that is hurting consumers, farmers, and ranchers across the country.”

Pandemic profiteering. Nice. This is a nakedly political and unserious statement by an administration in crisis. Its purpose isn’t solving problems but deflecting blame. As an avid reader of the history of hyperinflationary episodes, I’m not surprised to hear such puffery from our political elite – although it does raise an eyebrow how quickly we arrived at this phase of the journey.

In an earlier piece titled We Are About to Run Out of Some Stuff, I wrote worryingly about how China’s handling of a renewed outbreak of Covid-19 was about to throw a serious wrench into the global just-in-time supply chain. The wave of chaos instigated in Yantian has crashed against our shores, just in time for peak shipping season. Here’s how Bloomberg described the situation in our largest port:

“The number of container ships waiting to enter the largest U.S. gateway for transpacific trade swelled to another pandemic record and the average wait jumped to more than eight days, adding delays and costs during peak season for companies to rebuild inventories.

Fifty-five vessels were anchored or idling further offshore waiting to offload at the twin ports of Los Angeles and Long Beach, California, as of late Friday, up from 40 two weeks ago, according to officials who monitor marine traffic in San Pedro Bay. The average wait rose to 8.5 days compared with 7.6 in late August, according to L.A. port data.”

In the three months since I first published that piece, the price of shipping has continued to soar to unprecedented levels. In fact, they’ve doubled from those already-historic rates in June. Here’s an updated version of the chart I included back then (hat tip to Zerohedge for bringing these rates to my attention).

It’s going to be an interesting Thanksgiving and Christmas shopping season. Get ready to keep paying more for less. These shipping costs will be passed on to the consumer. How long before Biden shakes his angry fist at pandemic profiteering by the dirty shipping cartel?

I think people take comfort in compartmentalizing specific signs that inflation is getting out of control by attaching a unique explanation to each event. It’s as though the specificity of each explanation eliminates the risk of things evolving into a trend. The spike in used car prices is because of the chip shortage. Grocery prices are higher because of meat processors. Housing prices are exploding because of migration from the cities. Labor costs are soaring because people are being paid to stay home. Uber prices are double or triple what they were because they need to stop hemorrhaging cash. Plastics costs have spiked because of the Texas freeze. Consumer goods prices are up because of logistics.

In the end, the water is getting much, much warmer. The frog might take comfort in such specificity, but this chicken is getting out of the pot. 

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