Missing lorry drivers, backed-up ports and soaring energy prices: welcome to the shortage economy. This new era of scarcity threatens global prosperity
after the financial crisis the world economy’s problem was a lack of spending. Worried households paid down their debts, governments imposed austerity and wary firms held back investment, especially in physical capacity, while hiring from a seemingly infinite pool of workers. Now spending has come roaring back, as governments have stimulated the economy and consumers let rip. The surge in demand is so powerful that supply is struggling to keep up.
The immediate cause is covid-19. Some $10.4trn of global stimulus has unleashed a furious but lopsided rebound in which consumers are spending more on goods than normal, stretching global supply chains that have been starved of investment. Demand for electronic goods has boomed during the pandemic but a shortage of the microchips inside them has struck industrial production in some exporting economies, such as Taiwan.
Yet the shortage economy is also the product of two deeper forces. First, decarbonisation. The switch from coal to renewable energy has left Europe, and especially Britain, vulnerable to a natural-gas supply panic that at one point this week had sent spot prices up by over 60%. A rising carbon price in the European Union’s emissions-trading scheme has made it hard to switch to other dirty forms of energy.
The second force is protectionism. As our special report explains, trade policy is no longer written with economic efficiency in mind, but in the pursuit of an array of goals, from imposing labour and environmental standards abroad to punishing geopolitical opponents. This week Joe Biden’s administration confirmed that it would keep Donald Trump’s tariffs on China, which average 19%, promising only that firms could apply for exemptions . Around the world, economic nationalism is contributing to the shortage economy. Britain’s lack of lorry drivers has been exacerbated by Brexit. India has a coal shortage in part because of a misguided attempt to cut imports of fuel.
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