Most everyone expects the Federal Reserve to cut interest rates this week. Some think this will prevent recession; others think not. Time will tell.

In the bigger picture, I’m not sure Fed policy really matters. We have more serious problems. And, like when a dam ruptures, they’re starting as small but relentless little cracks.

Source: Wikimedia Commons

Two months ago (see Things Fall Apart), I described how parts of the economy have stopped working efficiently. Much of it traces back to the labor shortage—not just a general shortage, but a specific inability to staff important sectors like healthcare and food production.

That story got more reader feedback than anything I’ve written in some time. Many folks seem to be having these same experiences.

Today I have more examples.

Messy Roads

Last month my wife Grace and I had a family event in Dallas. I drive that route from Austin fairly often but rarely stay overnight. This time we did—and noticed some oddities.

The first one was on the highway. Interstate 35 wasn’t especially busy, but it was amazingly littered with road debris—mainly truck tire fragments. Most of it was on the shoulder but several times we had to steer around pieces in the road.

There’s always some junk laying around, of course. But this was more than I remembered. Here’s a photo Grace took. The roadside was like this, more or less, for about 200 miles.

Source: Grace Watson

How to explain it? Maybe…

• More trucks on the road

• Trucks driving faster, stressing their tires

• Hotter roads causing more tire damage (this was in August)

• Lower-quality tires falling apart more easily

Another possibility: Maybe the roads aren’t being cleaned as often. People willing to do this dirty, dangerous work are scarce.

But regardless, interstate highways are the economy’s arteries. This one seems to be developing plaque deposits. Your doctor can tell you how that usually ends, if ignored.

Dodging Nails

Then we got to Dallas and checked into our hotel. I won’t name it, except to note it includes the word “holiday.” We didn’t expect luxury. A safe, well-maintained room would have sufficed. But no.

We had a clue even before walking in. The hotel parking lot was strewn with trash, much like the highway. The same trash was still there when we left two days later… including multiple nails in the parking lot. Luckily, we didn’t run over any.

As for our room, three of the lights didn’t work, the toilet water smelled terrible, and the very slippery shower had no handrails or rubber mat.

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Minor problems? Sure. All easily fixed. But they weren’t fixed, I suspect because people with the skills to fix them are in short supply. Thus, they cost a lot more than they used to.

They could just avoid renting rooms that aren’t up to standard. But the hotel needs to make money. If a guest slips in the shower and cracks their skull, oh well. That’s what liability insurance is for.

Of course, all this is anecdotal. But it’s consistent with what we know about the economy.

Inflation makes everything cost more, including labor. Sometimes you can’t get what you need at any price. In particular, service jobs are incredibly hard to fill.

This isn’t because “nobody wants to work anymore,” as I sometimes hear. Plenty of people want to work; there simply aren’t enough of them relative to demand for these jobs.

A fast-growing number of retirees continues to consume but is out of the labor force. Worse, decades of falling birth rates mean we don’t have enough young workers in the pipeline to restore balance.

More immigration might help. You’d think we could find a way to secure the borders and have an orderly process to bring in the workers the economy needs. It shouldn’t be so hard. But apparently, it is.

Disappearing Knowledge

Retirees aren’t just creating excess demand. They’re taking valuable, much-needed skills with them.

The clip below comes from a recent Reddit thread. Someone asked, “What is likely to die along with the Boomers?” It drew a bunch of humorous responses and a few serious ones. This is one of the latter.

Source: Reddit

After I shared that in Over My Shoulder, a subscriber noted this will be a real problem as the US seeks to bring back manufacturing from China and elsewhere.

“Just another comment on your September 11 Over My Shoulder clip.

“The related issue is all the knowledge that was once the province of US-based manufacturing facilities. There was lots of experimenting, tinkering, lessons learned in design and maintenance of these facilities. When these factories closed, and the manufacturing went to Asia, the training ground for new manufacturing engineers was also lost.

“You can probably bet that reshoring the factory is going to be more difficult and expensive than most are expecting.” 

In addition to a general worker shortage, we have a real disconnect between the kind of jobs young workers are preparing for and the skills the economy needs. And little hope of solving it in the near future.

The likely result: continued quality deterioration, persistent price inflation, and stubbornly high interest rates—no matter what the Fed does tomorrow.

That’s not the economy any of us want. But it’s the one we have.

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See you at the top,

Patrick Watson
@PatrickW

P.S. If you like my letters, you’ll love reading Over My Shoulder with serious economic analysis from my global network, at a surprisingly affordable price. Click here to learn more.

• economy
• inflation
• labor shortage