David Sparks Ph.D.
David Sparks Ph.D.
Inflation and the Supply Chain

For want of a nail, the shoe was lost.

For want of a shoe, the horse was lost.

For want of a horse, the rider was lost.

For want of a rider, the battle was lost.

For want of a battle, the kingdom was lost,

And all for the want of a horse-shoe nail.

Benjamin Franklin, early American supply chain expert

When Ben Franklin shared this proverb in his 1757 almanac, he gave us a clear example of the sort of disruption faced by producers and consumers across the global economy in 2021.

Inflation is usually caused when too much money is put into circulation by a central bank (like our Federal Reserve Bank) to pay for government debt or just to stimulate economic activity. This can overheat an otherwise well-balanced economy.

Today we face a different sort of inflation (September’s consumer price index was up 5.4% from last year), with specific disruptions cascading throughout the economy, leading to general shortages and price increases. This is similar in many ways to inflation during wartime, when governments take dramatic economy-distorting steps to deal with the crisis, the shape of demand changes suddenly, and certain production and trade flows are interrupted.

In most countries, government responded to the pandemic by mandating or encouraging the closing of offices, stores and other places of business. Even after reopening, public health rules and guidelines have encouraged many to stay home for work and leisure.

Massive government spending in many countries, including the U.S., provided continued spending power for many of those put out of work; this kept overall demand for goods and services up, even as their production was slowed by the lockdown.

Next ReportPesticide Debate