Supply chain resilience: Biden’s latest initiative isn’t the most festive message, but with investors increasingly optimistic that inflation is in the rearview mirror, this effort just might pay off for him. — AP
PRESIDENT Joe Biden wants the American consumer to know he’s taking rising costs seriously.
So on Cyber Monday, a few days into the unofficial holiday shopping season, he announced his latest initiative to address high prices: the White House council on supply chain resilience.
It wasn’t the most festive message, but with investors increasingly optimistic that inflation is in the rearview mirror, this effort just might pay off for him.
At the same time, it is a very limited step – and a badly missed opportunity.
What America needs is not a high-level task force designed to prevent acute problems, but a bold attempt to improve the throughput of its shipping infrastructure.
Much of the US logistics network is antiquated – in no small part due to a policy choice to prioritise creating jobs over lowering costs.
While ports in China and Singapore are moving to full automation, the United States remains a laggard in the use of technology.
The White House worked hard to successfully avoid a strike at West Coast ports over the automation issue, securing a nice raise for dockworkers along the way.
But Biden’s desire to be seen as “the most pro-union president in US history” is at odds with a goal of lowering costs by maximising the use of cost-reducing technology.
The pattern recurs in other aspects of the supply chain.
US maritime shipping is hampered by the infamous Jones Act, which prevents foreign-flagged vessels from moving goods between US ports.
For most kinds of cargo, this is not a huge deal, but it’s a huge obstacle when it comes to the politically sensitive issues of getting oil to refineries and petrol to consumers.
Right now, petrol components are often shipped from the Gulf Coast for blending in the Bahamas, then reshipped to the north-east in order to avoid the high costs of using Jones-compliant vessels.
The Jones Act is also creating problems for the offshore wind industry, which is struggling with high component costs.
In theory, eliminating the Jones Act could have even larger implications for the supply chain, by turning maritime shipping into a meaningful competitor to rail and trucks for moving all kinds of goods.
In practice, that’s unlikely due to limited capacity at the ports.
Speaking of which: Expanding port capacity would be a great way to make supply chains more resilient, but that effort is hampered by another obscure and antiquated law: the Foreign Dredging Act of 1906, which requires that any dredging that happens in the United States be done with US labour on US-owned ships.
The main effect of the law is that dredging just doesn’t happen very much.
Those holiday gifts are on their way
Pressure on the global supply chain is at a six-year low.
Of course every bad rule has its interest-group supporters.
But Biden has been reluctant to examine even the weakest instances of featherbedding in the rules that govern US transportation systems.
In some ways, in fact, his administration is going backwards: It revived Obama-era efforts to require extra staffing on freight trains, for example.
Two presidents ago, the stakes in this kind of battle felt obscure.
To be sure, railroads wanted to get by with fewer workers, while unions preferred more.
When goods were cheap and jobs were hard to come by, it made sense to err on the side of worker-friendly rules.
But a full-employment economy is different, and an administration that wants to be seen as focused on lower prices ought to try to find ways to make them lower.
Instead, the Biden administration has “updated” Davis-Bacon rules to further inflate labour costs on infrastructure projects, and moved to require the use of labor agreements on all federal projects.
None of this, to be clear, does much to move the country closer to a vision of private-sector workers enjoying the benefits of collective bargaining.
The administration is taking small sectors of the economy that are already unionised, and boosting the pay premium enjoyed by those handful of workers.
In a depressed labour market, you could defend this as a win-win fiscal stimulus through regulation: The extra cash going to construction workers, dockworkers, freight rail workers and so on would help the economy.
But that’s not today’s labour market.
Every giveaway serves to increase inflationary pressure on the economy – pressure that is currently being contained by high interest rates that have their own costs.
Of course, not everything is miserable in the Biden economy. Real gross domestic product grew at an annualised rate of more than 5% in the third quarter. That was productivity-led growth, and few see it as sustainable.
But if Biden wants to brag about low unemployment and rising wages, for both union-and non-union workers alike – and he should – then he should also be looking for policies that will keep these productivity increases going.
That means letting in foreign competition, facilitating labour-saving technology and, most simply, not deliberately increasing the cost structure of crucial US industries.
That would show US consumers how serious he is about rising costs. — Bloomberg
Matthew Yglesias is a Bloomberg Opinion columnist. The views expressed here are the writer’s own.
