Supply Chain And Fragility

The thread below is a great piece what can be summed up as the fragility of our economic system today.

I think we have all felt this supply chain craziness that began to rear its ugly head this year. Pandemic hits in 2020. Workers not working. Factories cut their throughput. Ships not getting loaded or unloaded. Customers still demanding goods and services. Chaos ensues and will continue until the root cause gets addressed.

Second, third, forth order effects are just now being understood.

I believe we can attribute this to the labor shortage that is upon us. Headline after headline we hear about the shortage of workers, how this putting further pressure on businesses to raise their wages to attract people back.

Businesses are getting squeezed on multiple ends here, and the repercussions are reverberating through the economy, businesses, homes, and the stock market.

The question remains if:

• There is a true change in the market. That workers can, for the moment, afford to not work in order to demand higher pay and better conditions. Which, in turn, may push them to make money in other ways. Will this path lead them to dependence on the government or allow for a breed of latent entrepreneurs to finally emerge to fix these societal problems?
• There is not a true change in the market. However, we all understand that workers are at the root cause of many of the bottleneck issues we see in the news. Will the hourly wages finally have an exponential moment (just as we are seeing in investable markets) that will be so attractive that the labor force will come rushing back?
• Or will the government need to step in to intervene on the free market.

Time will tell. This transition period is painful for some and probably a nightmare for others.

This macro story is a great example of the fragility of our economic system. Increasingly, businesses were built to satisfy Wall Street and shareholders, to be built to deliver things just in time, to be lean, and to compete on speed.

Typically, when you optimize for one thing so deeply, the risks become misunderstood — a black swan is just waiting to show itself in the midst of a shock. This is what unfolded and will continue to unfold until supply finally meets demand in many sectors.

Our system is not robust, and hopefully something more anti-fragile, one that can withstand and maybe improve among these pressure points, will come out of this story.

Thanks for reading.