As of noon on Sunday, the 99-year-old trucking giant Yellow, America’s third largest trucking company, officially suspended operations. Over 30,000 people, including over 20,000 Teamsters, will be looking for new jobs as the company files for bankruptcy.
But why did Yellow fail? In a word, Bidenomics.
A detailed postmortem will show management mistakes and union stubbornness both going back decades, but recent public policy mistakes effectively doomed Yellow. Here are the three ways Bidenomics pushed Yellow off the financial cliff.
First, President Joe Biden promised during his campaign to wage war on fossil fuels, and he kept that promise. Literally on day one of his administration, Mr. Biden began throttling oil and natural gas infrastructure and domestic energy production. It didn’t take a Ph.D. in economics to correctly predict these policies would raise energy prices. (RELATED: STEPHEN MOORE: Biden Declares War On Profits)
A year and a half after he became president, the price of wholesale diesel—the lifeblood of trucking companies—soared 166 percent and, despite falling over the last year, is still up 35 percent since his inauguration. Meanwhile, the cost of delivery services paid by consumers is up 22 percent today compared to when Biden took office – a horrific rate of increase for consumers, but not as bad as what Yellow has faced.
This means trucking companies like Yellow have been eating a lot of cost increases to try and maintain market share, and not just passing the higher costs on to customers. Biden’s war on energy is crushing businesses’ bottom lines.
While energy prices have soared under Biden, prices in general are up 16 percent, and that has led to labor unrest, as I predicted in October 2021. With the dramatic fall in the dollar’s purchasing power, the Teamsters demanded higher wages, a second key factor in Yellow’s demise.
The historical record is very clear: inflationary periods significantly increase the number of strikes, and the demands for wage increases. Annual inflation spiked to 7.9% for 1951, and a record 470 strikes occurred the next year. In the late 1960s, inflation rose to 5.4%, and the number of strikes rose above 400 in a single year.
From 1947 to 1982, a period with lots of strikes, inflation rose and fell wildly, with the annual rate changing as much as 8.7 percentage points in a single year and having a 14.5 percentage point range during that period. Once President Reagan and Federal Reserve Chairman Paul Volcker ended inflation, labor strikes died down, until Mr. Biden brought both back with reckless spending.
But the spending and inflation led to the third cause of Yellow’s demise: higher interest rates.
Mr. Biden’s big-government agenda has been largely financed by borrowing and printing money, which ignited an inflationary fire. Forty-year-high inflation was then unsurprisingly followed by the fastest rise in interest rates in 40 years. The latest increase in the Federal Reserve’s benchmark interest rate marks the highest level for rates in over 20 years.
When rates are low, it encourages borrowing, which fuels merger and acquisition activity. Yellow was heavily laden with over a billion dollars of debt, which became impossible to rollover or restructure in a high interest rate environment.
Yellow’s predicament is like what many consumers are facing today with credit cards. When interest rates were low, large balances had low finance charges and minimum monthly payments. Additionally, there were plenty of opportunities to transfer balances to new cards instead of having to pay off the old card. Today, interest rates on credit cards are at record highs and refinancing offers are gone. (RELATED: MYRA MILLER: The GOP Should Take ‘Bidenomics’ Seriously. Here’s Why)
For Yellow, this left no wiggle room in the bottom line and no way out of its massive debt. It also meant additional borrowing to get the company through hard times would be prohibitively expensive.
It’s often hard to see the impact of economic policy—good or bad—but Yellow’s implosion offers a tangible lesson in how government mismanagement can have disastrous effects. The people promoting Bidenomics should be taking notes.
E.J. Antoni is a public finance economist at The Heritage Foundation and a senior fellow at Committee to Unleash Prosperity.
The views and opinions expressed in this commentary are those of the author and do not reflect the official position of the Daily Caller News Foundation.
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