Thought of the Day - November 5 2021 - The Economic Impact of COVID

We have talked quite a bit over the last year about the economic impact of COVID reflected in the breakdown of supply chains and the rising cost of living ( Thought of the Day - September 17 2021 - Economic Musings ). There has been a conversation that these two are linked - as we "reopened" that the lack of key goods has caused prices to inflate and thus the rise in costs.

I was reading an insightful article from Forbes that asserts this is all backward. In fact, the cost of living increases and the scarcity of key commodities is simply due to the measures we imposed to address the pandemic.

You see the production and flow of the world's goods is a highly distributed and finely tuned system. Developed and optimized year upon year by billions of resourceful people. What has happened is that our politicians panicked, and "threw a wrench in the works". The measures imposed on our labour force and businesses both in terms of production, and on the public in terms of consumption are the reason that this system is completely out of kilter. These changing policies have and are still having major supply chain consequences.

Moreover, the massive cost of living increases we are now experiencing are actually only minimally driven by these self-imposed supply chain disruptions. Instead, inflation is a measure of the devaluation of our currency due to the oversupply of cash. Remember all the subsidies, record low-interest rates, and other fiscal changes meant to buffer the impact of economic disruptions caused by COVID measures. Well now, and for many years to come, we will be "paying the piper" - via an inflation tax that is currently running at 4.4%.

Also, as mentioned before, there is also the third impact of policy - a real shortage of energy. This one was underway before COVID hit but has been exacerbated by COVID measures ( Thought of the Day - October 6 2021 - Lack of Energy ).

So please keep this in mind, next time you are seeing media coverage of the so-called “supply-chain disruptions” resulting in “shortages” that are said to be causing “inflation.” Remember this is probably all backward. This is not some faraway thing in which we are the victims. While we certainly are the victims, the primary cause is right here in our own backyard.

Cheers

Cliff