21A041 Falling Chips by Jim Davies, 10/26/2021  


The devastation of small businesses by governments' grotesque over-reaction to the alleged pandemic has been well known for over a year; the only uncertainty about that is whether or not it resulted from a deliberate plan to centralize commercial power in large enterprises such as Amazon. Jeff Bezos and his pals have done awfully well from it, but that may have been just dumb luck.

What surprised me recently was that the shambles caused by the intervention has apparently disrupted some big industries too; notably, that of the automobile.

According to this informative Forbes article, car and truck makers saw early in 2020 that demand was falling off due to the house-arrest laws then being implemented, and not unreasonably scaled back their production plans. That meant cancelling or postponing orders for supplies, among which computer chips are ever more prominent.

Chip makers, however, are not "small businesses." The process of customizing tiny integrated circuits requires huge capital investment, so the market leaders are big firms like Intel and IBM. Chinese makers too have become prominent. Yet when faced with canceled orders last year, even these giants were hobbled by the Covid interventions, and cut back production. For good measure governments have paid laid-off employees (with stolen money) to stay home, so depriving manufacturers of staff needed to restore it.

Now, demand for chip-gobbling vehicles has bounced back, so there's a big mis-match; chip makers cannot catch up with demand. So guess what: cars are sitting on manufacturers' lots awaiting components, showrooms are short of vehicles and so, naturally, prices shoot through the roof. According to that Forbes piece, quoting the Kelley Blue Book, "The average price of a new car is now $40,768." Long gone are the days when ten grand would buy a basic but adequate box on wheels.

That, in turn, has provoked demand for used vehicles, so their price too has leapt to unprecedented levels. I have long made use of a rule of thumb: any car will lose around 20% of its price per year of age; so if a car originally cost $25K, after 4 years its price will be roughly (25,000 x 0.84 =) $10,400. Not any longer. About the only beneficiaries are money lenders; banks may be doing quite nicely from the demand for financing to buy such cars. Surprise, surprise.

Result: the low end of the car market is now looking at mopeds.

It's not just about cars. The "supply chain" crisis is affecting a wide range of goods, for most industries sensibly buy supplies wherever price and quality brings them advantage, internationally; but now different governments are imposing different constraints and so interfering with that smooth operation. In response 8% Joe recently said he would "combat a longstanding weakness" in the supply chain; a fatuous promise that reveals he doesn't understand even what caused it, or that it's of recent origin caused by government interference in the first place.

External factors like the weather, harvests, even genuine diseases, have always impacted commerce and will continue to do so; and an unfettered market is by far the system best suited to react and adapt to them. Similarly human ingenuity has and will continue to disturb established industries like horse-drawn carriage manufacturing. But while artificial government disruptions continue to hammer down the market system, it may be overwhelmed.

If and when it does, the First World will come rapidly to resemble the Third.



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