The Washington Post recently reported on a “trucker shortage” so severe that 87-year-old Bob Blocksom, a former insurance salesman in need of cash, was offered a job. If he could get a commercial driver’s license, he would start at $50,000. Such is the market in an industry that the Post reports as having 63,000 open positions. Blocksom’s desire to stay closer to his wife of sixty years ultimately led to him turning down the offer, but his story nevertheless reminds us of the bankrupt nature of the Phillips Curve.
For background, proponents of the faux Curve (basically 99% of the economics profession, and nearly every economist in the Federal Reserve’s employ) argue that economic growth has a downside. They claim that if growth pushes the rate of unemployment too low, and the rate of factory utilization too high, “inflation” will reveal itself through rising labor and product costs rooted in a lack of labor and capacity supply.
That inflation has always and everywhere been a monetary event whereby the value of the unit of account (in our case, the dollar) declines, doesn’t seem to concern economists. Nor does it concern journalists like Neil Irwin, Nick Timiraos, Greg Ip, and others eager to placate the economics profession by redefining what’s monetary into something that springs from too much prosperity. The journalists can be excused their confusion, while that of the economics profession is just a reminder of William F. Buckley’s quip about preferring to be governed by the first 300 names in Boston’s phone book over the faculty at Harvard and MIT. In each instance we’re talking about high IQ people who believe what’s absurd.
Seemingly forgotten by Phillips Curve proponents is that demand is an effect of supply. Always. If anyone doubts this truth, try “demanding” goods and services without working. You’ll starve unless you can be handed consumptive power by mom and dad, a friend, a neighbor, or via government taxing away buying power from every worker in order to hand it to you. All demand begins with something being supplied first. That it does is a reminder that demand and supply balance, by definition.
Are there shortages of certain goods? Of course there are. But these shortages don’t change the overall price level. The latter is once again a monetary factor. With actual goods and services, strong demand that leads to rising prices naturally leads to reduced demand for other goods such that their prices fall. Translated: if surging demand for hotel rooms in Nashville causes the prices of those rooms to rise, demand among hotel guests for other products and services while in Nashville will decline. Just the same, falling prices don't alter the price level either as much as they free us to express new wants in the marketplace.
Phillips Curve illogic further presumes a closed American economy solely reliant on American workers and American capacity. Except that such a scenario never existed, and certainly doesn’t exist today. Per Robert Mundell, the only closed economy is the world economy. Applied to this most absurd of economic theories, everything produced by U.S. corporations results from global cooperation. Even cars as “American” as the Ford-150 contain inputs manufactured the world over. At least 30 percent of the car.
Labor is no different. Apple is the most valuable U.S. company, and also the world’s most valuable company. Apple engineers design some of the most innovative technology on earth, but that’s it. All the manufacture of Apple products takes place well away from Cupertino, CA, and well outside the U.S. Apple may be American, but it’s reliant on the world’s labor force. So is it reliant on the world’s manufacturing capacity. It is not alone. Phillips Curve proponents have constructed models that presume “speed limits to growth” based on the comical belief that “American” growth is limited to the supply of labor and capacity right here in the U.S. If readers are still incredulous about economists almost uniformly believing there are speed limits to growth, just read Timiraos, Irwin, Ip and any other journalist who reports on the Fed and the economists that staff the central bank. They really believe this stuff, as do the awestruck reporters who pass Phillips Curve reasoning on to readers in unquestioning fashion.
Which brings us back to Blocksom. Though he turned down the trucking job, that he was offered one is a reminder that even if the U.S. were an impregnable economic island per the discredited Phillips Curve, the actual people who make up the economy tend to respond to price signals. The shortage of truckers will self-fix through the arrival into the space of those who’ve been lured off the sidelines, want a raise, or both. Looked at broadly, the populations of Detroit and Flint have declined in modern times, only for Austin, Dallas and Houston to see an influx of eager workers. Translated, shortages beget the entry of the willing. They also beget innovation that mitigates the shortages.
Indeed, while prosperity can most certainly foster shortages of goods, services and aspects of labor, the near-term lack invariably begets enterprising activity. Sure enough, in the same Washington Post reporting a “trucker shortage” on A1 was a smaller blurb deeper into the newspaper with the headline “Kroger to test grocery deliveries with driverless cars.” And so it will. The grocery chain will do as many businesses are doing: invest in the next transportation evolution that will result in goods and services being transported by car and truck sans driver.
All of the above is a reminder that economic growth itself is the greatest enemy of rising prices and shortages. The latter is a statement of the obvious. It’s not reported on simply because economists and the journalists who cover them almost to a man and woman believe that growth is an effect of consumption. Sorry, but it isn’t. Figure that we all have consumptive desires, but desire doesn’t mean much without production. Investment is the driver of production, which means it’s the driver of economic growth. When an economy is growing, that’s a sign that investment is fostering the production of exponentially more with fewer labor inputs. Basically the growth itself mitigates any presumed labor shortages through automation wrought by investment, after which the labor freed from investment-driven productivity is directed toward better, more specialized uses. Translated, growth begets growth, not rising prices, or a perverted version of "inflation."
Just don’t expect to read any of this in the traditional newspapers. Staffed by journalists who’ve been ministered to about the alleged downside of prosperity, they’ll continue to report on shortages as evidence of an inflation-igniting “crisis,” as opposed to a certain sign of oncoming economy-enhancing innovation.