It was recently announced where I live that the city government was suspending the pickup of recycling.  This is supposedly due to a shortage of workers.  Curbside garbage (bulk items) and tree branches have been piling up on streets everywhere, so the workers picking up recycling will shift to picking up other things.

While I am concerned about the environment, I think recycling is mostly a joke.  It is a show so that people can feel good about “doing something” to save the planet.  If recycling made sense, then you wouldn’t need government programs spending money on it.  It would be incentivized through the profit motive.

With that said, we still use our recycling bin for empty bottles and boxes.  The reason is because our garbage gets pretty full every week.  If we didn’t use our recycle bin, then our garbage would be overflowing.

I say there is “supposedly” a shortage of workers.  The economist in me says that there are almost never shortages.  There are just shortages at some price.  If the city wanted to pay workers 50 dollars per hour, I am sure they could find the help quickly.  Even if you have to get a special license to drive a truck, there would be takers at some price if they thought the salary were sustainable.

My wife was wondering why there is such a shortage of workers, and I’m sure a lot of others must be wondering the same thing.  It is easy to blame COVID, but it goes a lot deeper than that.  Sure, government at all levels has been incentivizing some people not to work, but that can’t account for what we’re seeing.

Most of the added unemployment benefits are gone or coming to an end, and the unemployment rate is relatively low.  The unemployment rate was a lot higher in 2009 after the financial crisis, but I don’t remember hearing about a mass shortage of workers.  That wouldn’t make sense, because then the unemployment wouldn’t be high.

There are some supply chain issues coming out of China, but it still goes back to the fact that there seem to be a lack of workers.

It’s interesting that Biden is trying to give an ultimatum to tens of millions of workers that they have to be vaccinated or risk losing their job.  There are already staff shortages in hospitals, so it’s not clear how things will work out if 10% of the nurses out there decide they would rather be fired or quit rather than take the jab.  This potential mandate by Biden’s executive order isn’t going to help the worker shortage situation any.

So what gives?  Why do we seem to have a shortage of workers everywhere?  It ranges from healthcare, to office workers, to restaurants, to garbage collectors.

A Misallocation of Resources

One thing that is being missed by most people is the Federal Reserve.  The Fed has doubled its balance sheet since February 2020.  It has forced short-term interest rates to near zero, while buying up government debt and helping add trillions of dollars to the national debt over the last 18 months.

Money is flooding the system, and many people are feeling better than they should.  With rising stock prices, rising housing prices, stimulus checks, and relatively low unemployment, people feel like they have gotten wealthier.  I know this doesn’t go for all people, but the top 40% or so are generally feeling pretty good.

Therefore, you have more demand for stuff.  Stuff can be anything.  It can be demand for a swimming pool in the backyard for the kids.  It can be demand for Lamborghinis.  It can be demand for an upgraded kitchen.

But just because there is an increase in demand, it doesn’t mean there is more stuff being produced.  You still need the labor to produce stuff, and you also need the materials.

A lot of companies are hesitant to raise their prices too dramatically all at once.  That plays a big part of the shortages.  A fast food place may have a shortage of workers.  They could start paying 30 dollars per hour, and they wouldn’t have much trouble finding some reliable workers.  But if they pay that much, then they will have to raise the price of their food if they want to be profitable.  And there is no guarantee that raising prices will keep generating as much in sales.

From my original story, there is a shortage of workers to pick up garbage, recycling, and yard waste.  So where have the workers gone?  Maybe a few have retired, but then there don’t seem to be new people to fill the spots.  Maybe some left for other work.

If a pool contractor has more people demanding pools for their backyards, then the pool contractor needs to hire people.  If the garbage collector was getting 20 dollars per hour, maybe the pool contractor can pay 35 dollars per hour.  He can pay more because the demand is so high.

There may be more people being trained to install new kitchen cabinets and flooring.  There may be more people driving trucks to deliver appliances because of the increased demand.

The general principle is that people are demanding more things.  So there may be more people working on backyard pools, while there aren’t enough people to take orders at Burger King and McDonald’s.

We are currently in an unsustainable boom caused by loose money and artificially low interest rates.  The so-called shortages we are currently seeing can be laid at the feet of the Fed.  This not only includes the shortages in labor, but also the shortages in materials.  But most people simply can’t go this deep.  Aside from a few Austrian school economists, I don’t see this explanation given at all.

People feel wealthier than they should right now.  They think the rising stocks and rising real estate have made them richer.  But they will only be richer if they sell.  And if they don’t sell and think the euphoria will continue, then it is a green light to demand more consumer goods and services.

All of the government debt and newly created money don’t actually produce more things.  It can rearrange (misallocate) production.

The thing that will cure these shortages will be a good hard recession.  That is why it is appropriately called a correction. It will flip things around, and people will be looking for work instead of work looking for them.

If we don’t get a good hard recession soon, then prices are likely to surge higher.  That will be the only way to cure the shortage then.  If people want to put a pool in their backyard and get a Lamborghini for the garage, it will start to cost them even more.  At some price, the demand can be fulfilled.  But at some price, the demand will also go down.

In the case of my city, they obviously can’t pay significantly more for workers.  That’s because they are tied to a budget, which is funded by the taxpayers.

It’s interesting that the federal government has seemingly unlimited money, while local governments struggle with the price inflation created by the federal government and the Fed.

I am in favor of privatizing garbage collection.  But I am much more in favor of ending the Federal Reserve and allowing for competing forms of money.