Economic impact analysis, which I do a lot of these days, is often likened to the ripples of water that are observed after tossing a rock into a still pond. The initial splash of, say, a new plant is followed by many succeeding rounds of benefits to suppliers and workers, thus creating a “multiplier” effect. While this analogy is frequently useful, there are occasions when a different image is required.
The recent work stoppage along the West Coast dock is a classic example of non-traditional impacts. The seemingly innocuous failure to unload cargo at Pacific ports is causing dramatic economic disruptions across our country and even around the world. Rather than soft ripples in a serene body of water, the reaction is more akin to the dynamics of chaos theory, where the simple flapping of a butterfly’s wings in China can lead to a massive tidal wave in North America.
The situation is somewhat reminiscent to the 1996 merger of the Southern Pacific and Union Pacific railroads. Because of the difficulties in combining these operations, the merger resulted in a nationwide shipping crisis as goods were left stranded in warehouses, on docks, and on farms all over the southern United States. There was also a notable backlog of cargo from all manner of places stranded at the Port of Houston. The resulting gridlock underscored the role that transportation plays in the nation’s economy, with a measurable negative impact on growth in gross product.
The closing of 26 ports across the West Coast as a result of the lockout of the longshoremen even more graphically illustrates both the global nature of our economy and its dependency on efficient delivery mechanisms. The transportation bottleneck backed up billions of dollars of cargo on the Pacific Ocean and caused extensive disruptions to the complex supply chain that stretches around the globe. Many of the stranded ships carried critical imports from Asian countries. Insiders say that for each day the ports are closed, it takes seven days to get the supply chain moving again (which is probably a bit of an exaggeration). Nonetheless, it will likely take a couple of months to get the flow pattern back to its normal functioning.
In the meantime, merchants are scrambling to move goods via alternate transportation systems or find stopgap suppliers. Others are having to finance inventory brought in early to avoid the situation. These added expenses are causing giant headaches, especially since the nation’s retailers have already been experiencing less than robust sales. With the Christmas season approaching and the economy remaining sluggish, this situation quickly garners everyone’s attention.
President Bush has intervened and obtained an injunction that reopens the docks and establishes a cooling-off period of up to 80 days under the auspices of the Taft-Hartley Act of 1947. Normally, such direct intervention in markets is not a good thing. The free negotiation between labor and management is a time-honored element of our economy. It is not surprising that the Taft-Hartley Act is rarely involved (the last time was in the 1970s). When the President is basically an advocate of laissez faire, the decision is even more difficult.
It is my opinion that the President acted properly in this instance. A proper role of government is to properly balance the public interest against private concerns, and, in this situation, it is not even a close call. Clearly, the stakes in this impasse go well beyond the relatively limited perspectives of the parties directly involved. A prolonged work stoppage would paralyze our economy and those of other countries as well. As an added concern, a bunch of big ships sitting in our harbors in the current environment is an invitation for mischief and a security nightmare.
Hopefully, the cooling-off period will accomplish its goal, although tensions obviously remain high. In any case, we have just seen in microcosm just how interdependent our world economy really is. The lesson for future global policy is quite simple—pay attention to the butterflies.