Yesterday we discussed how supply and demand are sometimes mismatched. Today we will go deeper into why this is happening and what can be done to increase supply.
New Investment in Supply
All of the stimulus spending over the past couple of years has supported the demand side of the economy. We have also seen a variety of reasons that supply has been constrained. Companies, and consequently the economy as a whole, have not stepped up to the next rung on that step function supply curve.
One reason for this is that it seems risky. CEOs of businesses that felt uncertain about the outlook for demand were unwilling to invest in new supply. That means they have not been building new factories and growing the business organically. Another reason is that CEOs are often incentivized based on the stock price of their company. One easy way to support that stock price is to plow capital into buying back the company’s shares. For our paid subscribers, below is a discussion of why companies have been constraining supply investment. This is a very important topic for thinking about the broader world of business and understanding the economic picture.
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