Is the supply chain crisis the new “transitory”?

It’s been years since the toilet paper shortage first brought supply chain chaos to our attention. Back then, we blamed the shortfall on panic buying – nothing to fear but fear itself. Little did we know…

It’s a bit like when we blamed inflation on used cars. Sure, a few isolated items are becoming more expensive. But that’s not really inflation, is it? And it’ll soon be over anyway. Nothing to fear but an overreaction from central banks. Little did we know…

Next thing we did know, inflation hit double digits and some central bankers even admitted it wasn’t just Brexit causing chaos.

So, is the supply chain crisis the new “transitory”? The problem that our governments told us wouldn’t happen, and then tell us is already solved, only for it to persist month after month and now year after year?

Or is something else going on?

Inflation, after all, wasn’t just caused by a temporary blip that eventually went away. People now understand how central bank policies caused inflation. It’s a monetary phenomenon again.

Right?

Well, if you argued back in 2021 that inflation was caused by the supply chain crisis, and the supply chain crisis continues to unfold in 2023, and inflation is still in double digits in 2023, then perhaps inflation really is being caused by the supply chain crisis after all. It might be the supply chain crisis that’s not transitory, rather than just inflation.

The fact that we don’t know, that we can’t untangle the two issues, is fascinating.

But for today, let’s focus on supply chains themselves. Because that mess is definitely continuing.

If you ask the media, Brexit continues to wreak havoc on the global supply chain system.

No doubt you chuckle, thinking I jest. No doubt you think it’s just a cheap joke, at this point. But I’m not the one with a poor sense of humour.

Trucks crossing the Brenner Pass between Austria and Italy are having to book their spots to avoid Brexit-related queues, according to Bloomberg.

Yes, really.

Here’s the quote, if you don’t believe me: “Recent bottlenecks prompted by Brexit, Covid restrictions and climate change have snarled freight and helped fuel rising inflation.” I’m not sure which of those causes is the least plausible.

My mum used to live near the Brenner Pass and I spent a good chunk of 2015 stuck behind such trucks because one of the roads leading towards it ran through her town.

The good news is that there’s a “Sausageworld” near the Alpine bottleneck to grab a bite to eat. I can’t remember if they have any British sausages, and I don’t know if there’s a Brexit-related sausage shortage at Sausageworld these days, but if there was, we’d probably hear about it.

Anyway, let’s take this Brexit-related logic and apply it to the supply chain crisis globally, which persists.

There are Brexit-related egg shortages at my dad’s local grocery story in Australia, he reliably informs me. He had to buy “carbon neutral” eggs – the only ones they had left in the midst of empty shelves. I wonder why…

The Germans, stuck in the middle of the EU, are facing a labour shortage post-Brexit.

The proposed solution from a governing politician? Adopt English as an official second language of the state. Apparently German paperwork is too difficult to complete in German and so English-speaking nationals who now need a visa would be able to apply without having to resort to Umlauts.

A medicine shortage is also striking Down Under. Apparently, the world relies on China for health-related issues in more ways than one…

In Cuba and Papua New Guinea, they’re rationing petrol, thanks to Brexit.

New Zealand has a plane engine shortage which is supposedly global. Air New Zealand’s group general manager explained:

“Essentially, we don’t have enough engines. The scheduled removal of engines and usual non-scheduled removals are all coming together at the same time for every operator around the world.

“What we thought would be a problem with us until June, July is probably going to be with us to the end of the year.”

150,000 hobbits and their admirers are expected to be affected by the resulting flight cancellations.

To make matters worse for those unable to escape New Zealand, a CO2 shortage is slashing drinks production. Do you remember when we had that problem due to Brexit? “Brexit takes the fizz out of UK soft drinks market,” was the headline, from an Australian newspaper. They also claimed the UK’s fuel shortages were a Brexit-related issue. Until Australia had a diesel shortage of its own…

An Indian and a Baltic airline are also on record as struggling with the airline engine shortfall.

Australia has 60,000 new cars floating off its shores, unable to unload.

To be fair, some of this Brexit-related chaos really is happening in the UK. Morrisons is rationing peppers to two per customer, for example.

But I think you get my point: it’s time to stop blaming local issues for global problems. Well, time to stop blaming Brexit for everything, anyway.

So, what did go wrong instead? What broke supply chains badly enough that they’re still struggling three years on?

The answer can be found in the Humpty Dumpty nature of supply chains rather than something which pushed them off a wall. Once they break, they’re impossible to put back together again.

This is due to their complexity, meaning that everything in the system is related to everything else in such a complicated web that it’s impossible to predict what the actual impacts and consequences of any given change will be.

Even worse, fixing any given problem only creates a string of new ones instead. Try to fix the fuel shortage and you get a truck driver shortage. Try to fix the truck driver shortage and you get a DVLA staff shortage. Try to fix that and you get a strike.

The link between food, fertiliser, natural gas and fuel was another classic example. A lack of gas caused collateral damage right across the economy, with the symptoms popping up in unexpected places, like tomatoes.

Because the whole supply chain system is so dynamic and constantly shifting, by the time you’re trying to fix it, it has already moved on, creating new relationships and connections. A lot of businesses that had their fingers burned by supply chain drama in 2021 and 2022 have reverted to alternatives. Fixing old problems doesn’t solve the new problems which have sprung up as a result.

My real point is that politicians meddled in a system they don’t understand and inherently cannot control because they cannot predict the outcome of their policies. Supply chain chaos is precisely what you’d expect if you give governments complete control of the economy for two years, and then launch an economic war on a trading partner you rely on to top things off.

Their attempts to fix the problems will only make them worse. Which is why they persist.

If continuing supply chain chaos really is what’s behind persisting inflation, that also explains why central banks’ tightening monetary policy doesn’t just fail to bring inflation down, it only makes things worse by encumbering the recovery of the economy.

All this is why John Cowperthwaite refused to collect economic statistics for Hong Kong, when he was administering the British territory. He was convinced that giving government such information would only encourage it to intervene. The result of a lack of intervention was prosperity. So much so that the Chinese eventually wanted it back.

Over in Germany, the architect of the German “economic miracle” actually abolished the Allied occupation force’s economic interventions after World War II. He wasn’t allowed to, he just hopped on the radio one Sunday and announced he’d abolished them.

When he was dragged into the Allied Occupation Governor Lucius Clay’s office, he was taken aside by the governor and told, “Herr Erhard, my advisers tell me what you have done is a terrible mistake. What do you say to that?”

Ludwig replied “Herr General, pay no attention to them! My advisers tell me the same thing.”

By the time the Allies got to countermanding Erhard’s announcement, the economic miracle had already begun.

That is why I believe the best solution for our ills today is abolishing the Office for National Statistics and government controls over our lives. So much of the last three years would not have gone wrong if we didn’t have statistics and controls.

But the government has precisely the opposite idea in mind – complete information and the opportunity to establish complete control in the form of central bank digital currencies (CBDCs).

If I’m right, the supply chain crisis is barely the beginning of government intervention in our economy and the chaos it causes.

There may be only one form of escape.

Nick Hubble
Editor, Fortune & Freedom