Covid Isn’t a Unique Event . Groundhogs Day again.
I just finished reading “Powers and Thrones: A New History of the Middle Ages,” a great book by Dan Jones. It included historical details about the two global plagues that took place in the Middle Ages.
The first plague was the Bubonic plague that took place between 540 AD to 542 AD. It was believed that its origin was in Tian Shen, China and followed the Silk Road west. Jones points out that in the period following the Bubonic plague, the world experienced shortages in wheat and labor and dramatic inflation in food prices. In addition, there was a huge increase in taxes and government spending.
The second plague, The Black Death, took place in the 1340s. Jones reports that it was believed to originate in China and transmitted by the Mongol invasion of Europe. Europe experienced rapid transmission for over two years that resulted in food and labor shortages–shortages that resulted in inflation. The shortage of labor threatened traditional class relationships and required the government to step in to stop wage inflation and, in some cases, quash rebellion.
Does any of this sound familiar? Knowing what we knew about the historical details of these plagues from the Middle Ages, I think we could have been a lot better prepared for the post- COVID economy.
Covid is no longer making many headlines today. But in its wake, we are experiencing supply-side shortages of labor, food and products that are causing inflation and disruption. The shortage of labor today has created wage increase pressure as businesses compete for workers. Much like the previous plagues the government is stretched to respond. And just like in the past, the Fed and the government are behind the curve again.
As a business owner, brace yourself for the price volatility and labor shortages to last longer than what most experts predict. Overall market pressure on the government to react will be more intense and inspire some extreme actions (i.e. Biden’s letter to the US oil refiners). History suggests there will be more political interference into markets – none of which will be effective.
The more expeditious solution is for the government to incentivize supply expansion. At the least get out of the way so expanding supplies can start now.
