The US federal government has doled out $5 trillion in demand during the past year. Where’s the supply?

Except for information technology, there’s no pulse in capital equipment. Pundits who point to a rise in overall orders for non-defense capital goods (excluding aircraft) don’t look at the detail, in which the devil lurks. Outside of information technology, capital investment in the US languishes at levels we saw ten years ago – except for mining, which has dropped by half.

Information technology will stream more videos, play more games, post more kitten pictures, and turn more help lines into mad robots, but it won’t stop the relentless upward grind of prices of basic goods.

All demand and no supply means inflation. In fact, that’s all that inflation means. West Texas crude is back up to $71, just below the 2018 peak, but US production has fallen to just 11 million barrels a day from 13 million barrels a day at the start of 2020, and the rig count is down to 365 from 700 over the same period. US oil production companies plan just $30 billion in capex this year, according to analyst estimates, about half the level in 2018 and 2019. It’s no surprise that the oil price is rising.

Why won’t the oil industry invest? Part of the problem is political. If the Biden Administration can kill the Keystone Pipeline to satisfy the radical environmentalists in the Democratic Party, no investment is safe. Bloomberg now publishes an Environmental, Social and Governance score for every major US company, and no executive suite wants to get on the wrong side of the Inquisition.

After correcting for inflation, capital goods orders are at the same level as 2010, in the last phase of the Great Recession, and about 20 percent below the post-recession peak.

Supply chains are strained, creaking or busted across the United States. Delivery ties are the longest and backlogs the highest in history by some survey measures. This inflation isn’t transitory. It’s chronic, the outcome of decades of underinvestment in physical plant and infrastructure.