Supply Chain Crisis

The GRID

In this Episode of The GRID, host Chris Kuhlmann examines the Supreme Court decision to prevent implementation and enforcement of the OSHA Emergency Vaccine Mandate for private employers with 100 or more employees. The decision issued by the court this week does not to rule on the case itself, but determined that the plaintiffs have a high likelihood of success and therefore granted relief via an injunction while the case continues through the courts.

Included in the notes here is a link to the 30 page decision.

CREDITS

Host: Chris Kuhlmann

Written by: Chris Kuhlmann

Produced by: Shaun Griffin

Music composed by JD Kuhlmann

Art: Shaun Griffin

Sound: Chris Kuhlmann and Shaun Griffin

Sponsor: Mercantile Mountain

Visit MercantileMountain.com today

Visit us at www.kingdompatriot.us and check out our Vision Video

Supply Chain Crisis explained

When I can’t get what I want, when I want, where I want, for the price I want…that’s a serious crisis! And a crisis we have indeed! However, first a word from our sponsor

Ok, I jest a bit, supply chain as I defined it a minute ago is selfish and all about me. When I can’t get the part for my dishwasher, that’s a first world problem. A pastor I was speaking with shared with me the difficulties in explaining a washing machine to folks in Africa because they don’t even have the concept of not washing their clothes by hand. So tongue and cheek, that is truly a first world problem and most of our supply chain issues fall into that category. It gravitates more into the “need” category when we start talking about food and medicine because most Americans don’t grow their food, nor know how to do so effectively and efficiently, so they truly do rely on “supply chain” to eat and live.

However, what I want to talk about today, is to dive a bit deeper into the policies that have led to this supply chain crisis so that we can have a bit of “Econ 101” so to speak. I want to talk about a couple categories. 1) the law of supply and demand in regards to how the market will behave. 2) how government policy affects supply and demand, 3) why we are so dependent on foreign goods, and 4) what we can do about it.

And by the way, if you want to listen to a fantastic interview with a business owner of a trucking company who can give you real, front-line experiences in regards to this crisis, click on the link in the transcript of this podcast. Perry Stone interviews the CEO of Covenant Transport and he explains in detail many of the issues in regards to the LA Port and the supply chain impacts of years of bad policy and regulations. https://youtu.be/S3U1nlJ6jvU

The Law of Supply and Demand

So first the law of supply and demand. Folks, supply and demand is basic economics 101…it’s predictable, repeatable, and has proven to be true especially in free market, or somewhat free market conditions. What does this law state? According to Investopedia, the law of supply and demand

“is a theory that explains the interaction between the sellers of a resource and the buyers for that resource. The theory defines the relationship between the price of a given good or product and the willingness of people to either buy or sell it.”

• Generally, as price increases, people are willing to supply more and demand less and vice versa when the price falls.
• The theory is based on two separate "laws," the law of demand and the law of supply. The two laws interact to determine the actual market price and volume of goods on the market.

KEY TAKEAWAYS from this Theory

• The law of demand says that as prices rise, buyers’ demand of product will decrease.
• The law of supply says that as prices rise, sellers will supply more of a product.
• These two laws interact to determine the actual market prices and volume of goods that are traded on a market.
• Several independent factors can affect the shape of market supply and demand, influencing both the prices and quantities that we observe in markets.

So let’s put this in real terms. I’m a manufacturer and I make hunting equipment and I have 100 units. But because the market is good and demand goes up, I have 300 buyers who want to buy 1 unit each, the demand is 300 units even though I only have 100 units at the current price. So what do I do? I raise the price because even if I alienate 150-200 buyers at my higher price, I’m still going to sell all 100 units and make a ton of money. However, let’s say the opposite happens. I have 100 units of hunting equipment and at my current price, I only have 50 buyers who want to buy 1 unit a piece. What am I going to do? Well I’ve spent the money to make 100 units and I can’t have 50 excessive units sitting on the shelf. That costs me money and I need to sell those units, so I lower the price, run ads, creating discounts, etc… whatever it takes to move those last 50 units.

That in a nutshell is how the law of supply and demand works in a free market, or a somewhat free market economy. There’s no way around it; I have seen it over and over again. As demand increases, prices rise, as demand falls, prices decrease and there is a highly correlated relationship between the two. Now, I’m not really getting into government price controls or other outside interventions at this point, but I think you get the point.

Impact of Government Policy

So the second point, how does government policy impact the law of supply and demand? I’m so glad you asked. It’s simple, yet complicated; there are short-term impacts and long-term impacts. Remember what I said about the law of supply and demand, it rings true in a free-market system, wages go up, people buy more, wages go down people buy less. This impacts price. Conversely, the availability of product in relation to demand also impacts price, supply, and demand. But what happens when the government floods the market with money? Oh, you don’t think that happens? In 2020, the government started sending $1,400 stimulus checks to families? Why because of lockdowns and people couldn’t go to work. And I don’t have the patient to go back research all the stimulus checks, but the US Government was borrowing money at a prodigious rate to transfer via stimulus checks to millions of Americans.

So all of a sudden, billions of dollars are now available to spend on product. But is that real demand? It certainly was not demand created by job wages, it was demand created by available cash. So let’s look at government policy decisions in relation to current state and you tell me what impact it will have on a free-market economy.

Here’s the real scenario: COVID19 is portrayed as a once-in-a-lifetime disaster in early 2020. States begin to lockdown their population in varying degrees. Red-states tended to be more relaxed, blue states tended to be more like a vice. Businesses, especially entertainment, restaurants, etc., were locked down. The federal government began printing stimulus checks under the auspices of helping those families who were stuck at home so they could buy food and pay rent. In reality, the stimulus checks would not be adequate to support a family with children. Furthermore, I know the lockdowns hit many families hard, but other families the adults did not lose their jobs and now had extra stimulus checks to spend. This is a fundamental problem with government, the problem was primarily with families who lost their livelihoods, but the stimulus checks went to anyone who qualified by income. In addition, student loan repayments were suspended, unemployment was extended to over a year, additional unemployment income was created on top of normal unemployment, and renters didn’t have to pay rent.

The ripple effects go on and on and on. Now with just those few policy changes that I mentioned, what would the normal person think would happen? Of course, people used those stimulus checks to buy. Millions of Americans with billions of extra dollars they didn’t previously have. In addition, many Americans did not lose their jobs, but rather learned to work remotely or in other means, so in reality, the stimulus checks overall did NOT replace lost wages, but rather created additional buying power.

So how did this impact supply chain? In short, it created demand that could not be filled. Worse, because as we just covered in the law of supply and demand, when demand outpaces supply, prices rise. What did you pay lately at the gas pump? Have you compared that to the summer of 2020? I paid $1.95/gallon in the summer of 2020. Yesterday, I paid $3.15/gallon of gas. That’s a 62% increase. Give me any item, and I will tell you a similar story. Eggs, paper, utilities…we see this everywhere. My gosh, I compared my electricity bill per kilowatt hour to 2018? It’s up 28%. I bought a used car at the end of 2020. I put 30,000 miles on it and it’s worth 10% more today being a year older and 30k additional miles. Have you looked at the price of housing? To describe it as insane would be a gross understatement. It goes on and on. In short, when you create artificial demand and there’s neither the labor or supply resources to meet that demand, prices will skyrocket. That’s why the report just came out that said year of year, our inflation is at 7%, the highest in 40 years. When inflation is being used in the same breath as Jimmy Carter, you should have significant reason to be concerned.

What was your last wage increase? Was it 7%? Yeah, I think not. For most, the average wage increase each year is 1.5%-3%. Oh, and by the way, the inflation number of 7% is grossly understated because many things such as energy, utilities, and food are not included…. Is this sustainable? No way, impossible.

Our Dependence on Foreign Goods

So the third point to discuss is our dependence on foreign goods. Look at anything that is not food and tell me what the sticker says? Yep, exactly “made in China” or “made in Taiwan” or if clothing, “made in Bangladesh.” As Americans, we buy a ton of product from cheap labor countries that in the past could make product so much less expensive that we can here in the US where we have laws and ethics to actually protect workers. In 2020 alone, the US market sold $165 billion of product to China, but we bought $451billion of product from China, creating a trade deficit of $286 billion. You hear terms like “trade deficit” all the time, but please understand, that’s just economic terms for “I bought more from you than I sold you”.

I will say, that isn’t all bad. When you buy product from a country like China and there is a significant trade deficit, historically, that’s been very good for the American Consumer? Why? Because it means we have very inexpensive product and a plethora of choices. In many ways, it does reflect the free-market because we allow China to sell their product in the US without imposing massive tariffs to level the playing field. Again, this is great for the American consumer who wants choice and cheap. For American business, it’s a different story. Many of you may remember the mantra from President Trump “Make America Great Again.” This is what he was referring to. He recognized that buying cheap from China was great for the American consumer, but it was horrible for American business because American businesses like steel could not sell their product competitively in China, and also had to compete against China domestically. He sought to level the playing field by threatening tariffs and other penalties that in essence would help American businesses, but hurt the consumer. There’s a balance there and I’m not here to debate the pros and cons of each, but rather to make sure you understand the relationship.

But back to my point; American consumers have become accustomed to cheap and choice from China, thus the massive trade deficits every year. Remember our earlier point; artificial demand has been created by government policy, and now China can’t keep up. There’s just not enough labor to meet the US and global demand for cheap product. So that has led to massive delays for parts, product, and goods. In addition, there are policies that are making it difficult to get the product to market, even when the product does arrive. Again, listen to that interview by Perry Stone, and you will learn a lot about the port of LA and the trucking industry. So what you have is prices are rising exponentially, for a source, aka China, that historically has been very cheap.

What Can We Do?

So that brings me to my 4th point, what can we do? Well I was speaking to someone last night and they very much understand supply, demand, product movement, and logistics. I loved what they said “There is a unique opportunity for American businesses that source locally, because the prices are rising so fast and there are so many delays to get product from overseas, that local American businesses have a chance to compete in a way they haven’t been able to for years.” What can you do? So, the answer is very simple. Buy American. Especially buy American in which a business does not source it’s product or service from overseas.

Now part of why I share this is because that is something we are aiming to do here at the Kingdom Patriot Group. We are building a network of American businesses who have a love for God and country. As we build this small business list of American businesses, we challenge you to relearn your buying habits to support these businesses. First, you will be helping all Americans, but secondly, as persecution increases, by doing commerce together, we are creating an alternative economy for Christians to buy and sell with one another during the dark times ahead. We must support each other, and I’m as guilty as the next person of always looking for a “great deal”, but maybe the best deal is buy American, support businesses that have a similar love for God and country, and to truly, through your money and purchases, support one another.

Hopefully today, this gives you a better understanding of the supply chain crisis, what contributes to it, and what we are called to do about it. When artificial demand is created, prices go up, and when stimulus money floods the market, it creates havoc in a free-market economy. We didn’t really spend a ton of time on inflation, and ultimately where this is going to lead, which is a world-wide market crash. I don’t believe this artificial demand is sustainable, so at some point, it will come crashing down. Businesses will have massive inventories they will have to discount heavily or go bankrupt. The housing market bubble will be something akin to 2008 or worse. There’s no way people will survive in a $200k home they paid ½ million for when they or their spouse loses their job. I’m not being doom and gloom, it’s just reality. Again economics 101.

Let’s make a habit of supporting American businesses, our faith family, and create good habits of doing commerce together.