Those Who Would Fly Too Close to the Sun

 

We had it all figured out. We were going to wring out every last penny of profit. Then it bit us in the butt.

Globalization, the neoliberal trade regime our political caste so adores, is failing. We chose to imagine there was no longer a need for redundancy, resilience. We could put that money to better use making more money.

A supply crunch that initially put a question mark over the availability of luxury cars or whether there would be enough PlayStations under our Christmas trees is instead morphing into a full-blown crisis featuring a shortage of energy, labour and transport from Liverpool to Los Angeles, and from Qingdao to Queensland.

All the problems are in one way or another tangled up in the surge of post-pandemic consumer demand, but taken together they threaten what one leading economist calls a “stagflationary wind” that could blow the global economy off course.

British car production dropped by 27% year on year in August as a lack of semiconductors and led to a big drop in the number of vehicles exported to Australia, the US and China. On Thursday, Volkswagen, Ford and Opel maker Stellantis announced fresh temporary closures in Germany because of the chip problem. Opel is closing a plant until 2022 – the longest such stoppage so far.

In Japan, an index of stocks of finished goods has dropped to levels not even seen in the wake of 2011 earthquake and tsunami disaster.

But even if they could get their hands on more sources of energy and materials, and factories could make more goods, it would still cost more to ship things. Drewry’s shipping index, which measures the cost of containers, is up 291% compared with a year ago. On some busy routes, such as from China to Europe’s biggest port Rotterdam, the cost of shipping a container has risen sixfold in the past year.

Guess what's back? Inflation, and many of us aren't ready for the cure - higher interest rates.

A paradigm shift in monetary policy after years of cheap credit could be accompanied by a rebalancing of the global economy as countries seek to shorten supply chains and become more self-sufficient through more autarkist policies, which promote non-reliance on imports.

 
Richard Flax, the chief investment officer at digital wealth manager Moneyfarm, said the crisis was already prompting a rethink by policymakers and business leaders.

“Large corporates and governments are reviewing their supply chains for crucial goods, with a mind towards security of supply as well as cost. We would expect to see supply chains in some sectors shorten as a response to Covid, either via reshoring, or as companies try to diversify their sources of supply.”

At the moment this is an economic and trade issue, something to be dealt with by central banks and in well-appointed boardrooms. But could it be part of a greater unraveling, a series of economic, environmental and social shocks, the "cascade" that climate scientists have been warning us to prepare to meet?  Look at how our feckless political leadership, federal and provincial, has handled the Covid 19 pandemic over the past 18 months.

In Britain they call out the army to drive fuel trucks. In Canada we call out the army to bolster public health systems at risk of being overwhelmed. 

Following the Great Recession of 2008 western governments subjected their financial institutions to stress tests.  It might be time to stress test our governments.