At first blush, the Biden administration’s dedicating $450 million of newly approved infrastructure spending to improving and unclogging U.S. ports sounds like a good idea.
After all, we’ve seen the pictures of hundreds of ships waiting at the Los Angeles port for weeks to be unloaded. Port improvement may turn out to be a good idea. But we should be wary of politicians responding to an artificial surge in port activity — a surge that they inspired by spreading trillions of newly printed dollars throughout the economy.
At the onset of the pandemic, the economy was stopped in its tracks by the 2020 shutdowns. Then, while still partly shuttered, it was hit by a flood of fresh dollars that were shipped out to consumers and firms nationwide. In 2020 and 2021, with places to shop and spend limited by restrictions, consumers did what consumers do best: They tried to spend their newfound dollars where they could. They rushed to auto dealers, furniture stores, and appliance shops and purchased new cars, trucks, and appliances. The nation experienced a never-before-seen surge in spending for durable goods.
The result is seen in the below chart. It reports year-over-year growth in consumer durable goods spending. An expansion mountain, which peaked when spending rose by 80% year over year, is resting in the middle, around April 2021. This period coincided with the accumulation of stimulus dollars in consumer bank accounts.
As might be expected, American producers of durable goods tried to respond by readying more products and then shipping them to market. Looking at a similar time period, the growth in production of motor vehicles and parts peaked at around 300%, also around April 2021. Little wonder that there was a sudden shortage of microchips and other automotive inputs.
Just as domestic producers struggled to meet unprecedented increases in demand for their products, international producers, notably in China, joined the effort. And yes, Chinese shipments make their way through U.S. ports. A 100% surge in those shipments peaked around — you guessed it — April 2021. Surges in demand heavily stressed the world’s ability to satisfy America’s newfound hunger for goods. Strangely, old supply lines somehow no longer worked well enough — or so it seemed to those looking for easy answers and narratives. And yes, just as suddenly, America’s ports and infrastructure suddenly seemed out of date and disabled.
All of this led to situations that form the lifeblood of professional politicians. There were new weekly crises that called for action from the nation’s elite. Something had to be done, and only the federal government could do it. Hardly anyone pointed to the fact that many of those crises were the result of past actions taken to deal with the tragic effects of the pandemic. Maybe, just maybe, the passage of time and the adjustments being made by individuals in the marketplace could bring more meaningful healing.
Yes, our ports will be improved, and some of them need it. But while the physical improvements are being made, the economy will still be recovering from the pandemic, an artificially stressed economy, and a roaring inflation hangover.
Let’s just hope that the proposed remedies for congested ports don’t turn out to be worse than problems that were on the way to being healed by market forces.
Bruce Yandle is a distinguished adjunct fellow with the Mercatus Center at George Mason University, dean emeritus of the Clemson College of Business and Behavioral Sciences, and a former executive director of the Federal Trade Commission.
