Baby formula canary in coal mine for problems that threaten U.S. economy, jobs

Op-EdAppeared in TCPalm on August 1, 2022By James P. Crocker

Even the ongoing baby formula shortage hasn’t prompted government officials to meaningfully address the supply chain turmoil plaguing the economy. Despite ongoing baby formula airlifts, the shortage is, by many recent accounts, only getting worse.

It’s not just baby formula. Pervasive and worsening shortages of other essential goods are also wreaking havoc on small businesses and deserve attention. Senate Democrats’ recently proposed small business tax increases threaten to exacerbate this crisis by making it more difficult for small businesses to expand operations to fill supply-chain gaps.

Though it doesn’t make it to the top of the 24-hour news cycle, numerous experts, such as University of Rochester economist George Alessandria, have recently admitted supply chain problems are growing. President Joe Biden and Congress seem oblivious to the problem.

Consider the supply chain problems at my manufacturing company, Hog Technologies, in Stuart. The absence of essential standard components has forced me to more than double my purchasing staff. I’ve also had to turn my mechanical engineers into quasi-purchasing agents to help identify available products that will work in place of missing parts. By using less reliable (though available) components, we lose the peace of mind generated by historical performance reliance.

We are now importing blowers from China in an all-out effort to keep production continuing. The loss of simple electric switches that we bought from a reliable source for 20 years has forced us to buy them in three pieces and assemble them ourselves. These supply-chain issues will force some small businesses to close.

My company’s list of items in critically low supply has ballooned from just a couple before the pandemic to more than 100 today. Truck chassis are critical to our operation, but our suppliers have simply told us that they are not accepting orders because they can’t get the parts necessary to build on their end. We have been unable to submit purchase orders for truck chassis for six months. Politicians tell us to “buy American,” but in many cases these days, we can’t buy at all.

This disrupted supply chain is a significant reason for today’s historic inflation. When you look at the prices of components and commodities, inflation is even higher than the topline rate. The same chassis we purchased for $158,000 one year ago is (supply permitting) $174,650 today.

Everyone is hurting from sky-high fuel prices. Since petroleum products are an input in so many products, their high prices make it practically impossible to lower overall costs. Meanwhile, the Biden administration seems to be doing all it can to limit American oil and gas production.

Some of this supply chain crisis is beyond our control. China’s on-again, off-again lockdowns in response to COVID-19 have diminished supplies of basic manufacturing components like semiconductors. Skyrocketing shipping costs have made it unprofitable to ship inexpensive yet vital components. The Russia-Ukraine war is also disrupting global trade.

Yet the hangover from COVID-19 policies is also partly responsible. Unprecedented easy monetary policy has distorted economic efficiency. Many people who had the means to live without working yet worked because they enjoyed it have left the labor force.

Generous supplemental federal unemployment insurance that paid people more to stay home than return to work has contributed to a muted labor market recovery. There are still fewer people working today than in February 2020, and the labor force participation rate has actually declined over the last couple of months.

Recent polling by the Job Creators Network Foundation finds 71% of small business owners don’t believe the Biden administration is doing enough to help alleviate the supply chain crisis.

Senate Democrats are proposing $400 billion of small business tax increases in their latest reconciliation bill effort that would worsen this crisis by making it more difficult for small businesses to scale and grow. Raising taxes on small businesses would reduce supply at the worst possible time when it’s needed most.

To overcome the supply chain shortage, lawmakers should spike this bill in favor of making the Tax Cuts and Jobs Act of 2017 permanent. This move would allow small business owners to confidently expand their operations with peace of mind that they won’t face another significant cost shock in a couple of years.

Policymakers must begin reflecting the supply chain urgency that small business owners feel. The time for baby steps in response to this turmoil is over. The time for meaningful action is now.

James P. Crocker is the president and founder of Hog Technologies in Stuart, Florida, and a member of Job Creators Network.