The FTC on a Supply-Chain Witch-Hunt
The Federal Trade Commission is in the news these days. Its glorified bureaucrats issued “orders” (not loving appeals for cooperation!) regarding an instance of their “wide-ranging studies that do not have a specific law enforcement purpose,” what the FTC chairman also calls “market studies.” It is a “market study” in which the “consumers” are forced to participate. This looks more like a supply-chain witch-hunt. At the very least, scapegoats are needed.
A November 29 press release of the bureaucratic agency states that it is
ordering nine large retailers, wholesalers, and consumer good suppliers to provide detailed information that will help the FTC shed light on the causes behind ongoing supply chain disruptions and how these disruptions are causing serious and ongoing hardships for consumers and harming competition in the U.S. economy.
The general causes of the current economic problems that are referred to as “supply chain disruptions” or “shortages” should be quite obvious to anybody who once read a textbook of microeconomics. In short: The pandemic brought a general drop in production, caused partly by government lockdowns and partly (if not mostly: see Goolsbee and Syverson, and Chakraborti and Roberts) by people deciding to stay at home. In a large number of industries, supply (the supply curve) decreased (shifted up)—whether demand (the demand curve) decreased (shifted down) or, like for emergency supplies, increased (shifted up). Price controls against “price gougers” triggered by the federal and state declarations of emergency prevented the price increases necessary to reestablish the supply-demand equilibrium and thus generated real shortages. Some sellers who violated the price caps (and thus had something to sell) were prosecuted; many others were scared to move supplies where most needed as indicated by price signals. These shortages in the proper sense of the word started the supply-chain incantations—from people who did not know microeconomic theory and economic history or who had a political or ideological interest in attacking economic freedom.
The reason why the pandemic contributed to inflation, defined as a not-one-shot rise in the general level of prices, is that central banks have been creating money to finance a jump in government expenditures. Between the third quarter of 2019 and that of 2021, the U.S. expenditures of the U.S. federal government increased by 40%, with a growth rate peak of 144% as of the second quarter of 2020 (compared again to 2019-3). Part of these new expenditures have been financed by the Fed, that is, by money creation. An indication is that since February 2020, the money stock (M2) in America has increased by 37%, which corresponds to an annual rate of growth of 21%. Without money creation, that is, without central banks “accommodating” a temporary decrease in global output and continuing to pump money in the economy, there would be no inflation as it seems to be developing.
The federal and state emergencies came to an end in the Fall, but part of the California state of emergency has been reconducted until March 2022 and a new one decreed in New York State. Even with these Damocles swords, it is not clear why some shortages persist. Recall that a shortage is not simply that something is expensive like, say, Ferraris or Bourgogne wine, but that something in demand is not available at the going legal market price or has a long waiting list.
Gasoline is an example of a good where, at least in America, there is no shortage and waiting lines precisely because, as demand jumped after the pandemic, prices have adjusted upward to the relatively scarce supplies, thus preventing a shortage. Something different happened in the UK for a few weeks last autumn when the fear of a shortage generated panic buying and waiting lines at service stations. A sufficient price increase would have rapidly cut quantity demanded, brought in supplies from elsewhere, and eliminated the queues. But the Petrol Retailers Association warned its members against “profiteering,” arguing that their customers would not forgive them, as if everybody preferred to queue for gasoline or go without it.
Is this old premodern or socialist ethics sufficient to create a shortage? This is a real question, but there may be something else than pure mobbish opinion: entrepreneurial merchants and shopkeepers may be scared of violating one or the other of the numerous and obscure laws and regulations that might be invoked against “profiteering.”
It is unlikely that the FTC will analyze any of these causes. Some good economists must be working there, but it is neither in their interest to remember what they learned in elementary textbooks, nor in the interest of their bureaucratic-political bosses for whom witch-hunting is easier.
The four commissioners of the FTC unanimously voted in favor of “issuing the Special Orders.” Three out of the four were nominated by President Donald Trump and one, the chairwoman, by President Joe Biden. It would have made no difference if they had been nominated all by Trump or all by Biden.
The same convergence between the two brands of authoritarianism was illustrated just yesterday when the FTC announced a lawsuit “in its own administrative court” against microprocessor maker Nvidia. The latter has been trying for more than one year to obtain, from many “regulators” in the world, permission to purchase a Japanese-owned British company. The Wall Street Journal notes:
The commission, currently composed of two Democrats and two Republicans, voted 4-0 to file the lawsuit.