Economics by anecdote
August 17, 2021
The famous investor Peter Lynch worked on the principle that he invested in ‘things he knew about’ and similarly it often pays to listen to the things around us rather than waiting for them to become ‘official’. WIth that in mind, here are a few, purely anecdotal, observations on the economy at the moment. These may all be temporary, but on the other hand could become embedded.
- Shipping costs have been dramatically impacted by a combination of Covid, disrupted supply chains and the Ever Given cargo ship getting stuck in the Suez Canal earlier this year. This was highlighted in the Times this week which seems a little after the fact, but anecdotally my own attempts to ship some furniture back from Hong Kong attest to the sharp rise in prices and the extended time table. I even encountered further delays at the port which I then had to pay for!
- Working from home and furlough payments have significantly reduced the amount of available workers, especially in the public and semi-public sector. In effect government payments have ‘crowded out’ workers, notably in the UK, but also in continental Europe. This may not last beyond the end of furlough (assuming it isn’t extended again), but it will cause a lot of labour market tensions. In the UK, the Trade Unions are demanding a permanent extension of furlough to cope with things like, you guessed it, ‘climate change’
- In the private sector there are also labour shortages due to furlough and other restrictions, especially in the service sector and not only in food and beverage. Plumbers are even more difficult to get hold of than usual in France, despite huge demand after a very cold winter. My plumber, who has recently had to replace every pipe and radiator in a very large Chalet nearby, told me he has enough work to employ a hundred people to work for him, but that it is such a bureaucratic nightmare (including the huge ‘social costs’ he has to pay of almost 50% of their wage) that he wouldn’t even consider it.
- Brexit is having an impact on Continental Europe in terms of prices. As previously discussed (but rarely acknowledged in official ‘models’), the UK acted as a very effective ‘low cost supplier’ to Continental Europe when it was part of the Customs Union, meaning competition lead to lower prices and better quality for goods. In previous years it was quite literally cheaper to buy a Lacanche range cooker from a showroom in the UK and have it shipped out to Chamonix, even though it was manufactured at the bottom of the valley less than 30km away! Post Brexit, customs barriers have gone back up to protect producers at the expense of consumers, and household goods in general have shrunk in availability leaving the higher cost (and often poorer quality) ‘local’ goods the only option. My plumber (again) suggested that I might want to bring anything more than a basic tap out with me from the UK as the choice here is now limited. I didn’t, but I should have brought out basics such as electric cable for garden tools and hosepipes which are literally twice the UK price. It is sadly reminiscent of the super-market monopolies in Hong Kong where the (engineered) lack of competition keeps prices high and options limited.
- Covid restrictions have led to higher prices in the Food and Beverage industry as in effect ‘taxes’ have risen. Currently, it seems difficult to eat in a mid range restaurant in London for example for less than GBP 100 a head, even a pub meal is up to GBP 30-35. In France and Italy too, prices seem 20% or more up on a year ago.
- Anything that can be regulated is being regulated. Warden Hodges is out and in his element. Italy has its Green Pass for most tourist attractions and France has just introduced a pass sanitaire making it mandatory to produce a vaccination certificate or proof of negative Covid test to go into any bar or restaurant on pain of huge fines for proprietors. Apart from the hassle factor, queues of people who might otherwise be working productively or enjoying doing, frankly, anything else are outside pharmacies waiting for tests.
- People who had previously been running small office supply companies or even headhunters (two recent encounters) have now become rich through PPE and testing respectively. Their only ‘angle’ was that they knew someone in government. This is creating a new merchant class of middlemen (who are presumably pushing up the price of meals out in London), but is positively third world in terms of government ministers suddenly having access to large amounts of taxpayers’ money and the opportunities for cronyism it presents. This is another unthought through aspect of Brexit. Previously, UK ministers had no real power thanks to the EU and no real Budget, so nobody bothered to lobby them. The very opposite is now true and the risk of crony capitalism is very real.
- On a different tack, if it’s not careful, Tesla may find itself becoming an energy distributor rather than a car maker. Last year, driving my Tesla Model S (ex Hong Kong) through continental Europe and navigating via the (many) superchargers felt somewhat pioneering, if actually remarkably easy. This year though, it is noticeable that while the Tesla superchargers are still abundant they are remarkably free of Teslas, almost as if they haven’t sold any new ones in the last 12 months. By contrast, as I sat as the only car on the 12 bank of Tesla superchargers, the drivers using the ‘ordinary’ fast chargers opposite were queueing up to charge. Variously, the electric vehicles included a Porsche, an Audi, a Jaguar, a Volvo, a Skoda and a Ford. Clearly the VAG super-group are well represented here in their various guises and it seems no coincidence that discussions in the press of ‘range anxiety’ have disappeared in line with the Europe’s largest car maker (and biggest advertiser) developing its own range of electric cars, but the Ford is also interesting, the new Mustang being the car that Tesla should have made instead of the overly complex and overpriced Model X. Interesting that the new superchargers have charging ‘heads’ that look like the ‘ordinary’ fast chargers, such that I needed to get an adaptor and a software upgrade should that be the only option. It suggests that while the charging network is great for me, it isn’t enough of a pull to justify buying a Tesla over the competition, especially as new Tesla owners no longer get super-charging for free. In the US this has already started, with this article suggesting that Tesla is looking to access the upcoming infrastructure funds and open up supercharging to other makers. Personally, if I were Elon, I would give up on trying to compete in the car space and focus on selling my electric to the other car groups and on selling electric tractor/truck rigs to the Chinese.
All of this adds up to a cyclical uptick in prices due to demand supply imbalances that threatens to become a permanently higher price level due to policy interference preventing markets clearing. Higher social costs and unionisation in the public sector threaten to collapse productivity, while tariff and non tariff barriers in Continental Europe threaten further encroachment on cost of living and quality of options. Government is crowding out everywhere and the Magic Money Tree is attracting corporate lobbyists in swarms to governments such as the UK, where ministers are suddenly in charge of huge, largely unaccountable, Budgets. As previously discussed, Europe has the opportunity of picking the best of China and the US, but risks picking the worst. Certainly this list of anecdotes suggests so at the moment. Hopefully it’s wrong.