Monday, September 13, 2021

The U.S. Economy In a Nutshell: When Critical Parts Are On "Indefinite Back Order," the Machine Grinds to a Halt

A great many essential components in America are on 'indefinite back order', including the lifestyle of endless globally sourced goodies at low, low prices.

Setting aside the "transitory inflation" parlor game for a moment, let's look at what happens when critical parts are unavailable for whatever reason, for example, they're on back order or indefinite back order, i.e. the supplier has no visibility on when the parts will be available.

If the part that blew out is 0.1% of the entire machine, and the other 99.9% still works perfectly, the entire machine is still dead in the water without that critical component. That is a pretty good definition of systemic vulnerability and fragility, a fragility that becomes much, much worse if there are two or three components which are on indefinite back order.

This is the problem with shipping much of your supply chain overseas: you create extreme systemic vulnerability and fragility even as you rake in big profits from reducing costs. Speaking of costs, let's look at the costs of having a large, costly, complex mechanism sitting idle in a non-functioning state due to some broken element for which there is no substitute available. Whatever productive capacity the mechanism, process, etc. had is now stuck at zero.

Buying a new replacement is extremely costly, and that's not always available for all the same reasons that parts and components aren't available. Finding someone to fabricate a new component is not easy due to the wholesale transfer of manufacturing moxie and capability overseas.

You might be able to find someone to weld a replacement strut, but try finding someone to fab a new bicycle derailleur or better yet, a multilayer semiconductor chip. What about 3-D fabrication? Doesn't that solve this problem? If the part can be "printed," yes, but there are limits on what can be 3-D fabbed. You can't 3-D fab a complex thermostat or controller, for example. You can't 3-D fab a rubber gasket, either, or a great many other bits of petrochemical-based manufacturing.

Scarcities are not limited to parts and components; skilled people can be scarce, too. For example, there is a limited supply of ICU doctors and nurses. The training required to work in an ICU is specialized and experiential; throwing someone with minimal training in is not a substitution that's going to work. You can't order an ICU staff from China or print one digitally the way the Federal Reserve creates currency out of thin air. It takes many years to train the staff to function at a high level in ICU.

A great many such labor scarcities exist for skilled workers who cannot be replaced except by someone with the same training and years of experience. This is one reason ICUs can break down: there is no replacement staff available, and no way to "print more."

It turns out there's also a scarcity of people willing to do the dirty-work jobs America needs done for wages that haven't kept up with inflation. As I have explained here, the $1.65 minimum wage I earned in 1970, if factored for real-world inflation, is around $18 per hour, and arguably closer to $20 per hour.

The solution is to raise the pay to levels that attract workers, but then this requires raising prices on the good and services to the point that customers can no longer afford them.

But wait, can't we automate all work and deliver full-gee-whiz free-money, no-work communism to everyone? I invite everyone who reckons this is in the realm of the do-able to design, program and manufacture an automated robot that can trundle out to the laundry room, pop open a broken clothes dryer, diagnose the problem, manage to find a new controller board, fit it correctly and properly reconnect all the little wiring bits, close it up, test it, lift the dryer back on the washing machine and do all that for the relatively modest cost of a human repairperson. When you accomplish fabricating and programming that robot to do all the work without instruction or oversight, by all means let us all know how much it cost to design, program and manufacture, what the payback of the development and manufacturing process will cost amortized over the (short) life of the robot and how reliable it is in the real world.

The point is, fantasies are nice but reality is far more demanding.

There can also be scarcities of competence. There may be replacements who claim competence, but when reality intrudes on the shuck-and-jive, their competence was illusory, and the net result is the entire institution can be described by President G.W. Bush's memorable phrase, this sucker's going down.

There can also be scarcities of institutional infrastructure and capacity. Once the institution, enterprise, state agency, etc. has been stripmined of redundancy, institutional memory and competence, then the first scarcity that cannot be replaced is the first domino that topples all the other dominoes of systemic vulnerability and fragility.

The Federal Reserve can print trillions of dollars and the federal government can borrow and blow trillions of dollars, but neither can print or borrow supply chains, scarce skills, institutional depth or competence. That nice shiny new semiconductor fab you reckon will resolve the chip shortage? You can print the billions of dollars needed in an instant, but the machinery, expertise and time can't be conjured quite so easily. That fab is years away from completion no matter how many freshly conjured dollars you throw into the air.

When Critical Parts Are On "Indefinite Back Order," the Machine Grinds to a Halt: that's the U.S. economy in a nutshell.

A great many essential components in America are on indefinite back order, including the lifestyle of endless globally sourced goodies at low, low prices. That lifestyle is out of stock and cannot be replaced with financialization fakery.

Hey, Federal Reserve, can you conjure up a non-corrupt financial system, a domestic supply chain, and an economy of open competition, transparency, accountability and competence? If not, you are even more worthless than we feared.




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