A perfect storm of commodity shortages, production bottlenecks, rising consumer prices, falling vaccination rates and Biden’s liberal big spending policy initiatives has unexpectedly slowed the pace of America’s recovery from the pandemic.
The first major warning sign of trouble ahead was last week’s disappointing Labor Department jobs report for April. Economists and the Biden administration were expecting monthly job growth to rise to 978,000. Estimates by experts at Goldman Sachs and Morgan Stanley were predicting job creation figures as high as 1.3 or 1.25 million, respectively. Instead, the actual number was just 266,000, prompting the nationwide unemployment rate to rise slightly to 6.1% from 6.0% in March, instead of an expected fall to 5.8%. The report also revised downward its job creation estimate for March to 770,000 from the original 916,000, a difference of 146,000 jobs.
The main piece of good news from the April jobs report was that the hiring shortfall was due to a shortage of available workers to fill the new jobs generated by rising demand across the economy for goods and services. But businesses trying to fully reopen report that the added federal $300-a-week unemployment payments are making it more difficult to hire new employees at the usual wage levels for these kinds of jobs, since people would rather stay home and live off their added benefits than go to work.
Employers are responding by offering current and prospective employees higher wages. Average hourly earnings for the month rose by a brisk 0.7 percent (the equivalent of an 8.4% yearly rate). In the leisure and hospitality sector, where employment is growing at the fastest rate in the economy—adding 331,000 jobs in April—workers were able to demand pay raises averaging 4.8 percent in that month alone.
The weakest parts of the job market in April were temporary employment, which shed 111,000 jobs; courier services, which lost 77,000 jobs; and manufacturing, which lost 18,000 workers, largely due to stoppages created by supply chain issues. Other groups which lost ground in April were the 165,000 women who dropped out of the labor force and black workers whose unemployment rate rose slightly to 9.7% vs. 5.3% for white workers.
WORKERS MAKE MORE MONEY BY STAYING HOME
The reason why it has been so difficult for businesses to fill newly available low-wage jobs or temporary positions is not hard to figure out. According to analysts at Bank of America, it simply does not pay for Americans whose jobs had paid them less than $32,000 a year before the pandemic to give up their increased unemployment benefits and go back to work.
According to the Center on Budget and Policy Priorities, a nonpartisan think tank focusing on policies affecting low-income Americans, the average recipient of state and federal unemployment benefits is now receiving $687 a week, which is the equivalent of $17.17-an-hour for a 40-hour work week—more than double the current federal minimum wage.
In response to the April jobs report, the US Chamber of Commerce urged the Biden administration to suspend the $300-a-week federal supplement to state unemployment benefits in order to end the incentive for workers now collecting those benefits to stay home. It estimates that because of the extra federal benefits, “approximately one in four recipients [are getting] more in unemployment than they earned working.”
SHORTAGES AND RISING PRICES
Overall, the US economy continues to recover at a rapid pace, judging by rising retail sales and consumer confidence, and GDP growth at a rapid 6.4 percent annual pace for the first quarter of 2021. However, due to the combination of higher demand, labor shortages and widespread supply chain bottlenecks, all kinds of key commodities are in short supply worldwide. Topping the list are semiconductor computer chips, which are vital to a broad range of products ranging from automobiles to home appliances to cell phones, in addition to computers and laptops.
Shortages and soaring lumber prices, which have nearly tripled over the past year, have raised prices for the construction industry and crimped their ability to meet the rising demand for new housing. A nationwide shortage of truck drivers has led to sharp increases in transportation costs, prompting more shortages and further price rises for all categories of consumer goods. Gasoline at the pump has risen by a dollar a gallon since reduced demand exacerbated by an international price war virtually wiped out the value of crude oil last year. Many consumers, still flush with cash from government stimulus payments and eager to satisfy their pent-up demands due to the lockdowns, are offering little resistance and seem to be accepting the higher prices.
A CLASSIC FORMULA FOR RUNAWAY INFLATION
The combination of widespread shortages, rising demand and pressure for higher wages is the classic formula for unleashing a rapid increase in the rate of inflation, with potentially crippling effects spreading across the economy. If these trends continue, they would undermine the Biden administration’s promises that their proposed huge increases in federal spending will create more jobs and hasten the pace of recovery.
President Biden’s reaction to the disappointing jobs report was to claim that America is “still digging out” from a “once-in-a-century pandemic and a once-in-a-generation economic crisis.” He expressed confidence that his policies are on the “right track,” while acknowledging that “it is clear we have a long way to go.”
“You might think we should be disappointed,” Biden said, but then explained that his liberal $1.9 trillion Covid relief bill, which passed in March, “was designed to help us over the course of a year—not 60 days.”
Trying to downplay the significance of the disappointing report, Biden claimed that his policies have been responsible for the creation of 1.5 million jobs since he took office in January. However, total employment nationwide is still down by 8.2 million jobs from its high point in February 2020, just before the pandemic shut down much of the economy.
“This is progress. This is a testament to our new strategy,” Biden said, adding, “Let’s keep our eye on the ball.”
THIS IS NOT THE BOOM BIDEN HOPED FOR
However, New York Times economics commentator Neil Irwin noted that the pace of job creation over the past three months of only 524,000, “if continued, would imply a long slog back to full health. It certainly does not signal the kind of rapid boom that many forecasters have started to expect, and that the Biden administration and the Federal Reserve are hoping for.”
He warns that, “if robust job growth doesn’t return quickly, it will be very concerning. The economy is still short 8.2 million jobs from its February 2020 level. The great hope has been that employers would fill that gap rapidly, bringing the United States back to its full potential in short order.” But the new job numbers indicate that the recovery appears to be stalling.
Irwin entitled his column, “The Boom That Wasn’t,” and compared the current economic situation to 2010, when the Obama administration’s stimulus measures failed to bring America out of the Great Recession fast enough to make up for the lost ground. “While the economy was expanding, Americans were still far worse off than they’d been before the 2008 recession, and improvement was coming very slowly. That’s one outcome the Biden administration desperately wants to avoid,” Irwin added.
House Speaker Nancy Pelosi, while admitting that the April numbers were “disappointing,” argued that they highlighted the “urgent need to pass President Biden’s American Jobs and Families Plans,” calling for $4.3 trillion in additional federal spending, to be financed by rolling back the highly successful 2017 Trump tax cuts, combined with additional tax increases on American businesses and wealthy investors. Conservative economists warn that Biden’s proposals would once again make American businesses and manufactured goods uncompetitive in the international marketplace, and further impede job creation and the recovery from the pandemic-induced recession.
BIDEN AND FED CHAIRMAN POWELL IN DENIAL
The Biden administration and Federal Reserve Chairman Jay Powell claim they are watching the price increases closely, but at this point they are still in denial, predicting that the current shortages will quickly dissipate once the pandemic subsides, allowing lifestyles and the economy to return to normal, and supplies to catch up with rising demand. Powell said as recently as April 28 that inflationary pressures resulting from supply-chain problems would likely be temporary and were not serious enough to prompt the Fed to change its announced policy of expanding the money supply to force interest rates to stay at historically low levels.
What that means is that so far, both Biden and Powell are refusing to take the classic measures necessary to keep inflation from heating up further, such as increasing interest rates and cutting back on the Fed’s massive injections of new money into the banking system in response to the pandemic slowdown.
Powell says he remains committed to the Fed’s goal of supporting policies that will lead to full employment, even if that requires allowing the rate of inflation to run above the Fed’s target rate of 2% until the economy restabilizes. But some economists warn that the delay in taking action to stem today’s fast-rising wages and prices runs the risk of allowing a self-reinforcing inflationary mindset to take hold among businesses and consumers, which history suggests would then be very difficult to reverse.
THE RETURN OF THE MISERY INDEX
During the 1970s, a combination of rising prices and joblessness due to poor government policies resulted in a chronic economic slump known as “stagflation.” It was measured by the so-called “misery index,” which was the sum of the rates of inflation and unemployment. The misery index peaked in June 1980 at 22%, contributing to Jimmy Carter’s defeat in that November’s presidential election at the hands of Ronald Reagan, whose supply-side economic policies broke the back of inflation, and triggered rapid job creation and economic growth. During Donald Trump’s presidency, which reinstated many of Reagan’s economic policies, the misery index, on average, fell to a modern low of 6.6%, but now that Biden is in the White House, it is on the rise once again, and is currently estimated to be 8.7%.
According to the Biden administration’s narrative, the current supply chain problems and worker shortages are side effects of the disruption in the economy caused by the pandemic and the lockdowns, which were required to slow the spread of the virus. But now that millions of Americans are being vaccinated daily, it will soon be possible for the lockdowns to be safely lifted and schools to reopen for in-person learning, putting an end to those disruptions.
VACCINATION RATES DECLINING
The problem with those claims is that the daily rate of vaccinations has slowed down dramatically over the past months, and many public-school systems across the country remain closed or only partially reopened.
From a nationwide peak of 3.38 million doses a day in mid-April, the daily vaccination rate has fallen by 41% in a matter of weeks to less than two million a day. The lack of demand has caused local and state health authorities in several states, including Wisconsin, Illinois, North Carolina, South Carolina, Washington, and Oregon, to sharply downsize their scheduled new shipments of vaccine. The slowdown has also prompted public health officials to launch new public education campaigns aimed at the surprisingly large number of Americans, especially in highly vulnerable minority communities, who are still unwilling to get vaccinated. The slowdown in the rate vaccination also casts doubt on President Biden’s announced goal of vaccinating at least 70% of the nation’s population by July 4.
Biden and his fellow Democrats have only themselves to blame for the apparent lack of public trust in the safety and effectiveness of the vaccines. During the presidential campaign, Biden’s main argument was about how Trump and his administration botched the handling of the pandemic, unwilling even to give them credit for having succeeded in developing two effective vaccines in such a short period of time.
During the vice-presidential debate, then-Senator Kamala Harris said she wouldn’t trust the Trump administration’s assurance that a vaccine was safe, even after receiving approval from the CDC. Then-presidential candidate Joe Biden and New York Governor Andrew Cuomo said essentially the same thing in public remarks a few weeks earlier. Seven months later, the seeds of doubt those partisan statements planted in the minds of Americans have flowered and are coming back to haunt them.
POLITICS PREVENTING SCHOOLS FROM REOPENING FAST ENOUGH
The pace of public-school reopenings and the return to in-person learning across the country has also been deliberately and dramatically slowed by teachers’ unions, with the help of Democrat officials who rely upon the unions for political support and campaign contributions. Union heads are demanding major new economic concessions and benefits for their members as a pre-condition to letting them return to their normal classroom duties. By contrast, most private and parochial schools across the country were able to reopen safely and return to in-person learning months ago for the vast majority of their students.
According to a new district-by-district analysis by the Los Angeles Times, only 52 percent of California’s elementary school students and just 37 percent of its high school students are back in their classrooms. According to the New York City Department of Education, in mid-April, when the window was closed for city public school students to return to their classroom, an estimated 61%—or about 582,000 student parents—decided to keep them home for the rest of the school year.
The reluctance by the CDC and other state and local public health officials to “follow the science” by eliminating the now unnecessary mask-wearing and social-distancing requirements on the majority of the population, which has already been at least partially vaccinated or is otherwise immune to the disease, continues to exert a major drag on the country’s economy, including small businesses in particular, as well as exacting serious but harder to measure social and mental health costs.
DELAYING THE RECOVERY FROM THE PANDEMIC
As long as tens of millions of parents must continue to stay home from work to supervise their school-age children’s remote learning sessions, and tens of millions of other Americans refuse to get vaccinated or give up their unemployment benefits, the pandemic disruptions we are now seeing will linger on until September 6, at the earliest. At that point, the $300-a-week federal unemployment benefits run out and, hopefully, more public-school systems across the country will finally reopen for in-person learning for the new school year. But both the educational damage to this country’s children, and the direct economic costs from another five months in semi-lockdown, will be huge.
Senate Minority Leader Mitch McConnell last week said regarding Biden’s Covid relief policies, “We have flooded the zone with checks that I’m sure everybody loves to get, and also enhanced unemployment. [But] what I hear from business people, hospitals, educators, everybody across [my state of Kentucky] is, regretfully, it’s actually more lucrative for many Kentuckians and Americans to not work than work.”
Back in January, the suggested Republican alternative to Biden’s Covid relief bill also contained a proposed extension of supplementary federal unemployment benefits, but that extension would have expired by now. Democrats argued at the time that many workers displaced by the pandemic would still need the extra help into September, but Republicans were skeptical. It now appears that their skepticism was justified.
Some “red” states are not willing to wait until September to stop the federal unemployment payments now reducing their workforce. Last week, the Republican governors of Montana and South Carolina announced that their states will stop participating in the federal government’s supplemental unemployment benefits program at the end of June, to encourage idle workers in their states now being paid to sit at home to go out and take the jobs that are waiting for them.
The governor of Montana, Greg Gianforte, also said that his state will pay idled workers a one-time bonus of $1,200 for returning to work.
WERE THE LOCKDOWNS NECESSARY?
We have learned from more than a year of experience with the coronavirus that some of the precautions that had been mandated early in the pandemic were either ineffective, unnecessary, or, in some cases, counterproductive.
Spending months in lockdown resulted in a sharp spike in the number of reported cases of mental disturbance and domestic violence. The cancelation over the past year of routine health checkups for the general population resulted in hundreds of thousands of deaths which could have been prevented from cancer, heart disease and other treatable conditions—but because of the lockdowns, they went undiagnosed until it was too late.
Many law enforcement experts are convinced that the psychological and social consequences of extended lockdowns were at least partially responsible for the sharp spike in murders and mass shootings seen across the country over the past year.
Educators fear that tens of millions of students who lost months, and, in many cases, an entire year’s worth of classroom time will never fully make up for the learning they lost, damaging their career prospects for the rest of their lives.
We also now know that teachers, rather than their young students, are likely the primary transmitters of Covid-19 in elementary schools. Hybrid learning, which requires students to alternate between home and classroom learning, can be riskier than full-time classroom instruction because it exposes the kids to more people who may be infected.
Studies conducted by the New York State Health Department last year also found that infections due to indoor dining in restaurants accounted for less than 2% of new infections, compared to more than 70% in home environments.
Yet these failed policies persisted long after their effectiveness at preventing Covid infections had been disproven. Why? Either because elected officials on the federal, state or local levels wanted to continue to exert extraordinary power over our daily lives, or they feared political retaliation and public criticism from those with vested interests in maintaining the new Covid status quo, such as the teachers’ unions.
MAKING EXCUSES TO PROLONG COVID RESTRICTIONS
Even today, government health officials are still making excuses to keep unneeded restrictions in place. For example, Dr. Anthony Fauci, President Biden’s chief medical advisor, said on Sunday that he was encouraging people to continue wearing face masks after the pandemic has ended to avoid spreading routine seasonal respiratory illnesses like the flu.
Because of widespread public demands for a rapid end to remaining Covid restrictions, the CDC has reluctantly scaled back its recommendations for restricting the outdoor activities of fully vaccinated people, but it continues to call for social distancing and mask-wearing even for vaccinated people in more crowded settings, both indoors and outdoors.
RISING PRICES ACROSS THE BOARD
Meanwhile, prices of consumer goods ranging from food staples to diapers to dishwashing detergent have been rising at double-digit annual rates, driven by costs which are rising at every step in their production. The Labor Department reports that consumer prices jumped by 2.6% in the year which ended in March, in the fastest rate of increase since August 2018—and the trend appears to be accelerating.
Across the board price rises of up to 10% or more have already been announced by major consumer goods producers ranging from Kellogg’s to Proctor & Gamble to Whirlpool and their main competitors. The costs for fresh fruits and vegetables are rising too.
The impact is being felt by shoppers at the supermarket, who say they are trying to economize by purchasing more discounted house brands or waiting for sale prices to be offered on popular items, which are being offered less frequently due to ongoing shortages.
Businesses have also been forced to respond to the sharp rise in their raw material costs by switching to cheaper alternatives. For example, Ron Whalen, the vice president of Roger B. Kennedy Construction, told the New York Times that because of the high price of lumber, he has switched to other materials, such as metal studs, on some of his construction projects.
The problem is not limited to the construction industry, which cannot keep up with the soaring consumer demand for entry level new homes. According to Timothy Fiore, the chairman of the Institute for Supply Management’s Manufacturing Business Survey Committee, “Extended lead times, wide-scale shortages of critical basic materials, rising commodities prices and difficulties in transporting products are affecting all segments of the manufacturing economy.”
PLAYING FAVORITES WITH MICROCHIPS
A global microchip shortage has already had already forced the U.S. auto industry to scale back its production goals for this year by 1.3 million vehicles. Ford Motor Company said last month that it is reducing its planned production in the second quarter by about 50 percent, and that the chronic shortage of microchips is expected to reduce its profits by about $2.5 billion in 2021.
US carmakers have asked the Biden administration to intervene in the marketplace by giving their orders for semiconductors priority over other industrial customers. But other large users of semiconductors, such as home electronics, appliance and computer manufacturers, object to the government giving the auto industry’s needs special treatment at their expense.
As an alternative way to free up supply chains and lower costs, some industrial groups have lobbied the Biden administration for exemptions on US tariffs on foreign-sourced commodities which are in high demand. These include Canadian lumber, steel and aluminum produced in Europe, and a wide range of goods from China—but so far, according to the New York Times, there has been no response from the White House.
BIDEN NEEDS TO STAY OUT OF THE WAY
A conservative business group called the Job Creators Network, together with former Trump economic advisor Stephen Moore, issued a stinging critique of Biden’s economic policies in reaction to the April jobs report.
Their joint statement said, “Led by small businesses, America is poised to renew its pre-Covid boom, but the Biden Administration needs to stay out of the way. On issues ranging from taxes to the minimum wage to organized boycotts, the Biden Administration is waging a ‘war on small business,’ and that needs to end. Our message to President Biden is simple: ‘Hey Joe! Why don’t you just head back to the basement and stop breaking what ain’t broken?’”
BIDEN’S LATTER DAY FDR STRATEGY
President Biden likes to compare his current proposals to boost the economy in the wake of the pandemic to the bold measures of Franklin D. Roosevelt’s New Deal in response to the 25% jobless rate and widespread poverty created by the Great Depression.
FDR blamed the Depression on speculation by greedy investors during the “Roaring Twenties,” which led to excessive risk taking and the ruinous collapse of the stock market on “Black Monday” in October 1929. The next two years of economic misery set up the American people and Congress to go along with Roosevelt’s schemes to jump-start the economy by creating hundreds of thousands of temporary public service jobs through agencies such as the Civilian Conservation Corps. Roosevelt poured record amounts of federal money into infrastructure projects across the country, building hundreds of bridges, schools, and power plants. Other FDR legislative initiatives included the federal minimum wage and the Social Security Act, as well as the Wagner Act, which empowered labor unions to force large corporations to engage in collective bargaining with their workers.
But other New Deal measures intended to bring businesses under federal control were less successful, because they imposed inefficient government rules and oversight, stifling innovation and free market competition. The foremost example of this failed approach was the National Industrial Recovery Act, passed by Congress at FDR’s request in 1933. It gave federal bureaucrats running the National Recovery Administration (NRA) the power to set prices, control worker wages and hours, and limit business operations. The result was disastrous.
BIDEN BORROWS THE NRA’S FAILED MOTTO
During the first four months of FDR’s presidency, the economy seemed to be responding to his efforts, resulting in a dramatic 57% increase in industrial production. But once the NRA went into operation on August 1, 1933, American industry collapsed. Within three months, by November 1933, manufacturing output fell by 49%.
Roosevelt urged businessmen to cooperate with the NRA, by adopting its motto, “We do our part” and by displaying the NRA’s distinctive blue eagle logo in their shop windows. For those who refused to cooperate in the NRA’s effective takeover of their businesses, FDR threatened to organize worker boycotts, as well as imposing fines and even imprisonment.
Ultimately, the NRA’s inflexible bureaucratic regulations hurt both businesses and workers by reducing productivity and increasing prices. The economy swooned once more, and did not start to recover again until the Supreme Court ruled the NIRA act and the federal agency its spawned be unconstitutional in May 1935.
This sad history is why some liberal historians and economists cringed two weeks ago when President Biden borrowed the NRA’s motto, “We do our part,” as part of his campaign to promote his dual federal proposals to invest a total of $4.3 trillion in “infrastructure” and “family” welfare projects. Biden proposes to finance them the same way that FDR did, by imposing punitively high tax rates on corporations and the profits of wealthy investors, sharply reducing the role of the profit motive in stimulating the growth of the American economy.
BIDEN’S COMPARISON TO THE NRA IS ACCURATE
In an essay published for RealClearPolitics, Jason Taylor, an economics professor at Central Michigan University, expressed doubt that Biden was aware of the history behind the NRA motto that he borrowed, but suggested that it was appropriate to describe Biden’s ambition to impose his dictatorial will on American businesses and punish their owners for their success.
Taylor also believes that it is important for Americans to understand that Biden’s top-down, bureaucratic approach to managing the American economy, so similar to that of the NRA, is likewise doomed to fail. So is Biden’s proposal to give more control over American businesses to union heads. The decline of the American auto industry, capped by its collapse during the Great Recession, requiring a massive federal bailout, proved the folly of that liberal concept.
Thankfully, the warning signs about the disastrous consequences of Biden’s big spending policies are already clear in the April jobs report and its implications. The warning was reinforced by the president’s timely, if unintentional, reminder of FDR’s similar mistakes in creating the NRA.
NOT TOO LATE TO TURN BACK
It is not too late to turn back. Cracks are already beginning to form in Biden’s perilously fragile working majorities in the House and Senate, as well as the level of public support for some of his policies.
The obvious flaws and misplaced priorities in his current twin spending plans are prompting some of his more moderate supporters to hesitate before resorting once again to political brute force to impose the measures on the country without any serious debate or discussion with members of both parties.
However, Democrat congressional leaders, and the progressive activists whose demands the bills are intended to satisfy, are unwilling to wait. They are well aware that the fuzzier details of Biden’s proposals are unlikely to stand up under close scrutiny. They also have good reason to fear that any delay could see their fragile party unity collapse, particularly in the 50-50 Senate, before the measures can be voted on and passed to Biden’s desk for signature into law.
