Inflation Nation - part two
Solutions and more
Breaking News – New York Times Tuesday, April 12, 2022 8:42 AM EST
“Consumer prices increased 8.5% in the year through March, pushed to the fastest inflation rate since 1981 by gas costs and higher rents.
But gas is not the entire story. Stripping out volatile fuel and food, so-called core prices climbed 6.5 percent in the year through March, up from 6.4 percent in the year through February, also a brisk pace.”
In part one of Inflation Nation, we discussed the huge increase in the price of lumber. This added tens of thousands to the cost of new homes and made home renovation challenging. What to do?
Build homes with other materials! Build more multi-family buildings! Allow more density of housing using shared walls. Many towns have antiquated zoning restrictions that ask that new homes be built on one or two acres.
While this reflects the “white picket fence” American Dream, it is unsustainable in country where housing is in such short supply. And the lack of housing affordability has excluded too many from ownership.
Certainly, zoning could be adjusted in portions of towns to allow for denser living. Isn’t it embarrassing that the people that serve us in many of our towns can’t live in them? Teachers, police, firefighters, workers at city hall and highway and parks, nurses – even some young doctors who are saddled with school debt, liability insurance and... the cost of child care... can’t afford to live where they work. This is an arrangement that adds more carbon to the world as they must drive longer distances for their commute. It’s just nuts. It is feudal. It is our classist society getting more bifurcated. Think “upstairs, downstairs”.
There are homes now being built by 3d printers – cheaper, faster and more efficiently (less errors!). Read how Habitat for Humanity is doing it now! Using specially formulated cement and just a little wood, a 3d printed house can be completed in the fraction of the time of a stick-built home. It is an industry in its infancy. To grow it up, we need to address zoning and building codes.
This new approach to housing would provide homes for the many who need it at a lower cost and let millions of trees stand that would continue to capture carbon. Fight inflation and the climate crisis simultaneously. Win, win!
I am not sure we can ever produce Teddy Bears at an affordable price in America. But we can certainly produce more computer chips here. We must. There is no other choice. Most of our devices – computers, phones and vehicles are powered by a tiny item that is being produced primarily in Taiwan. This article explains why we can’t buy the vehicle of our choice without a very long wait time. Used car prices are 35% higher than a year ago because folks can’t buy a new car - no trade ins.
But Taiwan has an uncertain future. Possible war with mainland China. Regardless of how it will happen, Beijing has established that Taiwan will be absorbed. And our economy will be held hostage by our economic adversary/trading partner. If you think you see inflation now, consider what it will mean when China controls the cost of almost every tech-oriented product we use.
There is some good news about chips. TSMC of Taiwan controls 54% of the global chip market. And they are building a new plant in Phoenix, Arizona. It should be delivering advanced chips by a year from now. While this is encouraging, it is not enough.
Dwight Eisenhower launched the national highway program. John Kennedy announced a space program. Joseph Biden should announce a government sponsored “chip independence plan”. Computer chips which are at the center of our consumer technology were developed in the US.
The “chip” was born in the USA. Here’s a great recap of the beginning. It happened in “Silicon Valley”. Yet we let other nations like Taiwan, South Korea and China dominate the production of the most essential item in our entire “supply chain”. And now we wake up to enormous inflation. Why?
Because we let companies drive our lives. Because we let oligarchs who control industries determine where items like chips are manufactured – despite the vulnerability it creates for us on a consumer and national security level. We let unregulated capitalism – the drive for lower costs and hence profits – outweigh the public good. Profits over people.
Want to control the availability and cost of phones and vehicles? Bring the manufacturing of chips home now. Set a goal of chip independence of five years. TSMC can bring a plant from first shovel to production in less than two years. Make it so. Create high paying jobs. Control pricing. Win, win!
But lumber and computer chips are just two examples of inflation that make the news. Another is fossil fuels. Americans are whining about the price of gasoline. Major airlines are cancelling flights due to the enormous price of jet fuel. For those who commute longer distances and those that use a vehicle for work, it’s painful at the pump. The answer that is coming down the pike is, of course, electric vehicles.
There are some terrific electric cars and now America’s favorite pick-up truck, the Ford F-150 is available in an electric version. Read the review. But sadly, these vehicles are still priced well out of the category of “affordable” for most of us. And charging stations are still not a common roadside attraction.
So, isn’t this the most opportune time to launch a “space program scale” effort to embrace renewable energy? Wind and solar are now THE cheaper ways to generate electricity. Cheaper than fossil fuels! Geo-thermal energy is still under development – but it holds tremendous promise. And it employs some of the same techniques and workers that currently search for and pump oil.
President Biden’s BBB plan embraced these issues. There was a provision to help build vehicle charging stations all across the country. And a boat load of tax incentives to lead us to a greener energy future. The House passed it. The Senate failed to pass it. You know why.
But here is the thing. All of the above are just the tip of the inflation iceberg. The part you see on every commute. The big sign showing the price of gas. The empty car lots. The less visible and larger aspects of inflation have been with us a lot longer than these fleeting, recent headline worthy items.
We’ll look at what is really wreaking havoc on Americans when it comes to prices in Inflation Nation part three.
This man can’t fix the root causes of inflation. But he can certainly create a recession with his much too late sledge hammer approach to “taming the economy”.
Notes:
https://singularityhub.com/2022/01/24/habitat-for-humanity-is-using-3d-printing-to-build-affordable-houses/
https://www.visualcapitalist.com/top-10-semiconductor-companies-by-market-share/
https://www.consumerreports.org/hybrids-evs/2022-ford-f-150-lightning-review-a4084273266/
https://www.techtimes.com/articles/266748/20211016/tsmc-building-new-chipmaking-plant-phoenix-arizona-help-ongoing-chip.htm
https://www.novoco.com/notes-from-novogradac/house-passed-17-trillion-build-back-better-reconciliation-legislation-includes-325-billion-green
"Chips update". Promising news about the future of chip manufacturing in the US. Congress might act! Might. This from "Punchbowl News" - a worthy yet wonky recap of what is happening in DC - reports from those that are talking to the movers and shakers.
WHAT YOU SHOULD BE FOCUSED ON
Deep Dive: USICA
As Congress returns from its two-week recess, the House and Senate will begin negotiations to finalize a deal on far-reaching China competitiveness legislation known by a variety of names, including USICA, the “Endless Frontier Act,” the “America COMPETES Act” and the Bipartisan Innovation Act.
We expect action in the Senate as soon as this week to formalize the chamber’s conferees to officially negotiate on the final package. While there have been some discussions between aides for Senate Majority Leader Chuck Schumer and Minority Leader Mitch McConnell during the two-week break, those talks will really pick up when the Senate returns.
The two leaders need to reach an agreement on votes on motions to instruct the conferees before moving forward. These motions, which are non-binding, ostensibly provide instructions for the conference negotiations. But in reality, they’re used to make senators, particularly those in tough reelection campaigns, take hard votes. The votes to instruct conferees must take place before the Senate actually appoints these senators, although both leaders have already declared who they plan to appoint.
Our main takeaway from conversations with lawmakers and staff from both sides is that everyone wants a deal. There’s not an adversarial tone between Senate Democrats and Republicans closely involved with this bill, at least not right now. Even as leaders negotiate around the motions to instruct, both sides seem more focused on presenting a united front as they enter into talks with the House.
This is a rare moment. The package falls under the jurisdiction of multiple committees. There are more than 100 conferees combined from both chambers, with tens of billions of dollars at stake amid a frenzy of lobbying activity. The conference negotiations will be a complex process, to say the least.
Everyone is tracking this closely, from K Street to the White House to big corporations whose business models would be significantly impacted by the legislation. Also notable: it’s likely the best chance for a big bipartisan bill passing before the midterms that doesn’t involve Ukraine. There’s a possibility that insulin pricing, Electoral College reform and Big Tech antitrust bills get through, but the clock is ticking on all of these and it’s almost May. This proposal is much further down the line and has momentum.
Overall, a final bill will likely be far closer to the Senate product than the House product. Remember — the Senate passed USICA on a big bipartisan vote last year. The House passed their version, the America COMPETES Act, in February with Rep. Adam Kinzinger (Ill.) as the sole Republican supporter.
House aides point out that their bill is made up of key components from more than a dozen pieces of legislation that previously received overwhelming bipartisan support. But the Senate’s negotiating position right now is united — and as a result stronger — than the divided House.
The safe bets:
→ The roughly $52 billion in funding for the CHIPS Act will almost certainly be in the final bill, aides familiar with the negotiations told us. Democrats and Republicans alike hail the push to incentivize domestic semiconductor chip manufacturing. This is, by far, the most popular provision in the package. Big corporations including IBM and Intel, as well as the Semiconductor Industry Association, are all lobbying hard for the CHIPS Act.
Crucially, both the House and Senate bills contain roughly the same dollar figure for semiconductor-manufacturing support.
The hang ups:
→ Trade policy. The biggest differences between the House and Senate bills are on trade issues. Watch this space closely; there’s a lot of work to be done to bridge the divides here.
An expansion of Trade Adjustment Assistance. A program providing benefits to U.S. workers harmed by globalization is included in the House bill. However, the Senate version doesn’t mention TAA reauthorization at all. This will be a struggle to get support among House and Senate Republicans.
Tariffs directly aimed at China. Section 301 exclusions previously granted by the U.S. Trade Representative are reinstated under the Senate’s USICA bill. There’s not a comparable provision in the House bill. The business community is lobbying heavily to get these exclusions extended, allowing more U.S. companies to get around the tariffs.
Outbound Investment Screening. A provision in the House bill would task USTR with reviewing large investments in China and other countries for national security implications. This was excluded from the Senate product due to a lack of support. Some critics believe it’s applying too broad a brush for a targeted problem. Expect the issue to be a big topic of discussion during the bicameral negotiations.
The Office of Manufacturing Security and Resilience. In both the House and Senate bills, there’s support for an office to monitor supply chains and provide financial support to strengthen these commercial networks. The House bill provides $46 billion in funding, while the Senate version doesn’t have any. There’s general agreement that the office is needed, but the hangup will be how much it costs.
→ National Science Foundation funding. The treatment of the NSF was one of the major differences between the House and Senate bills. Differences include how much to funnel to the foundation and what its responsibilities would be. While our sources stressed these differences would be far easier to bridge than the disputes over trade provisions, crucial differences still remain.
The no-gos:
→ Climate change provisions. The House-passed America COMPETES Act featured billions of dollars to assist developing countries in countering the effects of climate change. This has little realistic chance of making it into the final package due to GOP opposition.
→ Immigration provisions. The House bill also included immigration reforms that would provide more visas for entrepreneurs and a path to permanent residence for immigrants who attain a Ph.D. in a STEM field while in the United States. Republican aides involved in negotiations say these are a definite no-go in the current political environment.