The tax-and-vaccinate plan may be the straw that breaks the camel's back: shortages, ports and stagflation in September 2021

On 9 September 2021 the president announced that every employer with more than a hundred workers would have to require vaccination against Covid or weekly testing, on pain of fines, to be enforced through the workplace-safety regulator. Whatever the public-health case, this page was concerned with the labour arithmetic, and the arithmetic was bad. This is the record of why.

The labour position

Enhanced unemployment benefits had ended in early September, and the millions of workers who had left the labour force in the lockdowns had not returned in anything like the numbers predicted. Small businesses were running shorter hours for lack of staff and shorter menus for lack of supply. Into that, the mandate proposed to remove, or at least to threaten with removal, every unvaccinated worker at every large employer in the country. A New York hospital announced the same week that it would stop delivering babies because of resignations over its own vaccination requirement; trucking companies faced losing drivers who would not comply. The argument here was not about the vaccine. It was that a workforce already short would be made shorter by decree, at the moment shortages were the economy’s central problem.

The ports

The mandate arrived as American ports were more congested than at any time on record. A chart published here a month earlier had shown ships waiting off the West Coast; the backlog had grown by a third since. The port of Long Beach’s director said he saw no substantial mitigation and that many expected the congestion to last through the summer of 2022. The largest freight broker in North America said shortages of truck drivers and warehouse workers were the constraint. Container rates had kept rising past the record marked a month before. The timing, weeks before the goods for the holidays should have been reaching warehouses, could hardly have been worse, and the observation was that inflation was sitting in the pipeline, or at the waterline, waiting to arrive.

The shortages

The shortages were global and were being caused by labour as much as by shipping. Bloomberg reported milkshakes missing from British McDonald’s, tomatoes rotting on Italian farms, and soldiers helping with the rice harvest in Vietnam, all for want of workers. The New York Times reported on an American who had received a pot lid eight months after ordering it. Employers were offering signing bonuses and sending their own staff to help their suppliers. The warning made here in August, that empty shelves at well-resourced retailers mark the point at which a supply problem becomes a general one, was being borne out, and the question was why a government facing it would make the labour side worse.

Stagflation

The last section recorded a change in the official vocabulary. Bank of America’s chief strategist, Michael Hartnett, said the United States was already in the first phase of stagflation: higher inflation with weaker growth. Investors were selling Treasuries in what the trade press called stagflation trades. The Federal Reserve’s word for the inflation was still “transitory”. The view here, held since the spring, was that the shortages were not transitory because their causes, lockdowns abroad, a shrunken workforce at home and a central bank that had funded a year of demand without supply, were not, and that a mandate removing workers would add to the second cause directly.

Later note. The Supreme Court blocked the employer mandate in January 2022, before it took effect. The port backlog peaked in January 2022 at over a hundred ships and cleared by the autumn. The Fed retired the word “transitory” in November 2021; inflation peaked at 9.1 per cent the following June. Whether the labour shortage of 2021 was ever primarily about mandates is doubtful, since it persisted after they were struck down; that it was real, and that policy that month treated it as if it were not, is on the record.