What do containers and artillery shells have in common?
It’s not a trick question.
The answer is that both have been in short supply at some point in the last three years.
And this scarcity tells us something disturbing about modern economies:
They are not as flexible as many, myself included, thought.
About those artillery shells:
Like many people, I followed the war in Ukraine closely.
Everyone knows the broad outlines of the story so far:
Russia of Vladimir Putin he invaded the country in February last year, hoping for a quick victory over the much weaker Ukrainian army, but the Ukrainians surprisingly defeated blitzkrieg and the war turned into a brutal fist fight.
No matter how brave they were, the Ukrainians alone would not stand a chance in such a fight.
But they have received vital help from Western nations who see Ukraine – like me – as a crucial front in the defense of democracy.
Can the West afford to provide aid on a scale sufficient to turn the tide of war?
Of course, and easily, because Western economies are much larger than Russia’s.
The US has so far committed about $80 billion, which sounds like a lot – and it is, from a combatant perspective – but it only represents a little more than 1% of the US federal budget.
Americans complaining about spending to help Ukraine are countless o insincere; It’s no secret that many people on the right and few on the left really want Putin to win.
But while money isn’t really an issue here, getting Ukraine the specific things it needs to fight turns out to be more problematic.
No one expected a protracted war of attrition to break out in the 21st century, and while we have a large overall manufacturing capacity, it turns out we have a climited capacity produce basic military goods.
The more pressing problem, reports suggest, is that Ukraine is firing artillery shells faster than the West can produce them – and rapidly ramping up production is apparently very difficult.
(Russia seems to have similar problems and probably worse, but I’m not going to be an armchair general and make predictions about the war).
The thing is, turning general economic capacity into producing specific goods and services that are suddenly in high demand is often quite difficult.
It’s the same lesson we learned in 2021, as the global economy began to recover from the initial pandemic recession.
This story may be a little less familiar to a wider audience than the outline of the Ukrainian war, but it went like this:
While consumer spending has quickly recovered from the slump in the first half of 2020, fear of infection has led people to spend their money differently than before.
In general, they have been slow to resume in-person services and have compensated by buying more physical things: avoiding the gym but buying a Peloton, avoiding restaurants but buying more tableware.
But the production and delivery of goods depends on accomplex supply chainnormally invisible to most of us, but which turns out to be of limited capacity and more fragile than almost anyone suspected.
And this supply chain was quickly overwhelmed.
Most visible, dozens of container ships found themselves coming and going from blocked ports, and even cargoes that had been successfully unloaded spent many days waiting for someone to deliver them to their destination.
The result has been a worldwide shortage of containers that carry much of the stuff of modern commerce, and an incredible one increased transport costs.
I’m happy to say that the increase is behind us.
But there are still shortages of key products. In particular, global auto production continues to be held back by shortages of some semiconductor chips.
Our transportation problems thus foreshadowed the problems the West now has in supplying Ukraine with ammunition:
There was plenty of production capacity overall, but not enough for the specific types of capacity we needed at the time, especially when you take into account the complex logistics that also have to be put in place for Get the goods where they need to go.
What does this say about the economy in general?
One of the most basic ideas in this field is that economies can compromise by producing more of some things if they are willing to produce less than others.
No one doubts that there are trade-offs, that an economy can change the mix of goods and services it produces.
But are these offsets relatively easy and smooth?
In the long run, the answer is almost certainly yes.
But to paraphrase a little John Maynard KeynesIn the long run, unfortunately, many Ukrainians may die.
What both the supply chain crisis and the current munitions problem suggest is that it could be very difficult to produce more weapons in the short term, even if you are willing to give up a lot of butter.
The revelation that economies are not as flexible as we thought has many implications for policy.
Supply chain constraints weren’t the only reason why the company inflation they increased in 2021, but were clearly an important part of the story, with implications for future monetary policy.
And overall, economic inflexibility suggests we should take more be carefuls against the possibility of future shocks, especially for strategic assets, but perhaps more generally.
But all this requires a much longer discussion.
For now, the important thing is that the Rolling Stones are found to be wrong from start to finish:
In general, modern economies allow people to have what they want, but sometimes that’s not possible. get what you need.
c.2023 The New York Times Society
Source: Clarin
Mary Ortiz is a seasoned journalist with a passion for world events. As a writer for News Rebeat, she brings a fresh perspective to the latest global happenings and provides in-depth coverage that offers a deeper understanding of the world around us.