The economy will impact local communities

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I received a few responses last year when I wrote about inflation and the negative impact on our local communities. Many indicated that inflation was not going to be a problem and that we had nothing to worry about. Let me repeat a quote I used then that is appropriate now. Kevin Brady said, “Inflation destroys savings, hampers planning and discourages investment. It means less productivity and a lower standard of living.” While it’s for every American, it’s also for all businesses and communities. Let’s review inflation, product shortages and labor costs and how this affects every community, regardless of size, in very important ways.

We have all heard of the law of “supply and demand”. The concept of “supply and demand” generally determines the price we pay for our goods and services. As we have seen since the dawn of civilization, when demand exceeds available supply, prices rise. Conversely, when demand falls, prices will tend to fall and equalize over time as well. It makes sense and most people understand this basic economic concept.

Another fundamental law states that high prices are often cured by the impact of high prices. There may be a few exceptions to this rule, but when the economy is allowed to operate without government intervention, competition from high prices, which are caused by supply shortages, generally drives prices down over time. .

While the above two laws are fundamental, the next consideration is the time it takes for the laws to be enforced. A recent example might be the shortage of household toilet paper caused by the rapid increase in demand during the early days of COVID. While the shortage happened almost overnight, with everyone staying home, it only took a few months to overcome it, as producers increased production by re-equipping their factories, increasing the supply, which reduced demand. Both acts played out exactly as economics would indicate. However, what happens when that shortage is a lack of lumber, or products that require raw materials to be extracted from the ground, or petroleum-derived plastics that are politically under attack? When this happens, you can be sure that these supply problems will last longer than a few weeks or months.

The work tends to follow the first two laws, albeit in a dragging fashion. When you have shortages and continued high demand, over time that also tends to drive up wages. Without discussing what is good, bad, right, wrong, left or right, I tend to view these economic laws as “just what is”.

While discussing the economy, we should mention inflation. When you double the amount of dollars in circulation over a year, you can count on very high inflation. The only question will be the impact of inflationary pressure on prices throughout the supply chain and for the consumer.

The question for your community is, how will all of this affect our community in the months and years to come? First, expect continued inflationary pressure on nearly every product you need to transform your community. Expect shortages of various supplies to last much longer than usual. In some cases, we could see some easing on things like softwood lumber, but nothing is certain in a market that is trying to find a balance. Labor costs are a double-edged sword, but the edge of the sword tends to dominate the equation. On the one hand, higher wages provide workers with more disposable income. On the other hand, they also tend to drive up costs, which adds to the increase in goods and services. So as workers earn more, they spend more on what they buy, negating that increase, creating a vicious circle. Inflation is the deadliest and most invisible tax that most consumers and communities forget to consider.

As community leaders, it is essential to understand the economy in these times. Knowing what to expect economically can help municipal leaders better plan for the future. Knowing how the supply chain works can help business owners anticipate and be better prepared. By better understanding how this affects their city, their business and their consumers, chambers will help them better chart their most productive journey. Far too many communities sit idly by and let what happens as it should. That’s the last thing you want to do. Be proactive, plan and prepare. You’ll be miles ahead of most communities that have no idea what’s coming.

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Editor’s Note: John Newby, of Pineville, Missouri, is a nationally recognized publisher, community, business and media consultant and speaker. He is the author of “Building Main Street, not Wall Street”, a column appearing in over 50 communities. The founder of Truly-Local, dedicated to helping communities build excitement, energy and combine synergies with local media to become more vibrant and competitive. His email is: [email protected] The opinions expressed are those of the author.

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