What's with the "Shortages?"

These days, all we hear about — aside from constant Covid hysteria — are the “shortages.” There’s an energy shortage, a housing shortage, a bicycle shortage, a lumber shortage, a labor shortage, etc. But, what is the root cause of this? Are these actual “shortages?”

When Covid-19 hit, governments around the world panicked, as did many people, naturally. In the name of minimizing the impact of the virus, governments immediately reacted in a knee-jerk manner, mimicking each other by shutting down industries, locking down communities, and inventing arbitrary rules in the name of “science.” A cost-benefit analysis was a rare sight to be seen (and still is). Policy makers look at infection case numbers and, in typical fashion, apply a proverbial hammer to the problem. Regardless of the results of the policies, they double-down. Few ask the necessary question: “what is the impact of this policy?”

Lock downs, mandates, vaccine passports, endless stimulus, financial moratoria, etc. all have an impact. We won’t get into the negative social effects here (of which there are countless), but we will look at the harm done to the market.

Scarcity and Prices

All goods and services are scarce. A true shortage in a good or service sends a signal to the market that additional production capacity is needed. There is money to be made, after all! Of course, prices associated with these goods and services will naturally rise to accommodate the creation of additional production capacity. For example, just prior to a hurricane, plywood panels are in high demand as people scramble to protect their windows. The price of plywood rises (when allowed) as demand surges. This rise in prices performs a natural regulation of supply. People will only tend to buy what they need and the additional revenue per panel incentivizes additional, quick production.

If the price is forced to remain low (i.e., price controls), then people tend to buy more than they need and a shortage quickly arises. The restricted price sends the wrong signal to the market: there is no money to be made. Therefore additional production capacity will not be generated in sufficient supply or time. Thus, an artificial shortage results.

Labor Scarcity

Now let’s look at the impact of Covid-19 policies on labor. Labor is subject to the same supply and demand pressures as other goods and services. When governments provide a seemingly never ending stream of unemployment that competes with what the market is offering, the incentive to work diminishes. Why work when you can comfortably live off unemployment? Only a doofus would do such a thing.

Since the onset of the pandemic, the US federal and state governments have provided nearly a trillion dollars in combined unemployment benefits, initiated by the CARES Act under President Trump and furthered through the American Rescue Plan under Biden. This is on top of the various associated Covid-19 stimulus schemes, of which money was doled out regardless of employment status. An effective “price control” has been established on labor.

The increased absurdity in Covid policies (i.e., mask and vaccine mandates, frustrating protocols, etc.) has also caused a portion of the labor market to exit, particularly those who don’t necessarily need the income (e.g., retirees and teenagers/young adults living with their parents) where the extra hassle and pressure of working this “new normal” nonsense is just not worth it. There are also people not comfortable returning to work because they are fearful of Covid-19. The risk is very real for some, but rational perspective is lost on many, exacerbated by the constant fearmongering from the establishment and the corporate press. Quantifying these two groups of people (the fearful and the not-worth-it crowd) is, of course, difficult, and can really only be measured anecdotally. But they are real factors that also have an impact on labor supply.

The Driving Factor of the Shortages

The labor “shortage” is artificial, mainly driven by the disruption of the market by paying those who are not working through government debt and money creation. As stated earlier, an effective “price control” has been established on labor. This shortage is a phenomenon happening throughout the world due to similar reasons and, in my view, is the root of the majority of all shortage-types being realized (e.g., food distribution, hospital staffing, semiconductor manufacturing, etc.).

Employers are struggling to find employment across all industries even with increased pay and benefit incentives. Some employers have even resorted to seemingly absurd measures to secure employees (e.g., a McDonald’s in Tampa offered $50 just to sit in on an interview). This labor shortage is likely to ease as state and federal governments begin ending or reducing their unemployment and stimulus payouts, but the major disruption has already occurred.

Now there is all of this newly created money in the system chasing the same amount of available goods and services as before Covid-19, if not less now considering the extent of the market disruption caused by the Covid interventions. Understanding this is really the key to understanding the labor shortage. Even if labor wasn’t disrupted, there would still be a challenge keeping up with the increased demand because of all the new money thrown into the system. This all adds increased pressure across the board driving up the price inflation we are seeing throughout the market.

If we weren’t living in Bizarro World and there wasn’t this sudden, significant injection of newly created money into the economy, fewer workers would result in fewer earners. This would mean less money in the system — less money chasing the same amount of available goods and services. This would keep prices steady or may even add pressure to decrease prices throughout the market. But, we have the opposite occurring.

Murray Rothbard‘s classic 1977 piece on the water shortages of California gives a great breakdown of how these water shortages were artificial. The same misunderstanding of the cause of the shortages in the ‘70s and the continued behavior of the bureaucratic California water industry result in these water “shortages” remaining today. Similarly, and unfortunately, the same misunderstanding and behavior will continue to impact the labor market throughout the world.