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Today I’m going to follow up on last week’s issue on shortages. I got a TON of feedback, and the topic even came up at last week’s Federal Trade Commission meeting. The good news is that shortages are now on the political radar, with one FTC Commissioner talking about the rise of “Too Big to Fail” industrial firms causing shortages across the economy.
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"Sorry. No French Fries with any order. We have no potatoes."
In the last BIG issue, I asked you for help identifying shortages in your neck of the woods. Hundreds of you responded, so I’ll talk about some of the shortage stories you are sharing, as well as how this problem is resonating among policymakers.
My favorite story is quintessentially American, and un-American, at the same time. It’s from a Florida realtor who was in a hurry and stopped at a Burger King for lunch. He saw a sign, "Sorry. No French Fries with any order. We have no potatoes." At first he thought he was imagining things. What kind of fast food place runs out of fries? Is this, he wondered, a sign of things to come?
It’s a good question. Fast food exists in a land of plenty, of surplus, of mass produced food with a reliable infrastructure of trucks, trains, farms, and distributors. Shortages of everyday goods conflicts not only with most of our lived experiences, but also with our very conception of who we are. There’s a name for this framework, and it’s called affluence.
In 1958, John Kenneth Galbraith coined the term “The Affluent Society” to describe a nation beyond material concerns, a nation with immense unthinkable wealth. In such a world, with consumer sovereignty paramount, the only way to go without is if you cannot afford something, not if society can’t produce it. Think about all the politicians who say ‘in the wealthiest country in the world surely we can afford XYZ.’ For the last sixty years, with the exception of the oil crisis in the 1970s, we haven’t had to think about production. If you have the money, you can get the stuff. But now our production systems, once so resilient and strong they appeared invisible, are breaking down.
So what is happening in the case of this particular Burger King? It’s hard to say, but the problem is clearly widespread. Taco Bell, Chick-fil-A, and Starbucks are having trouble sourcing ingredients, as are school and college cafeterias. Here’s one notice posted on Reddit on school districts having similar issues.
One culprit is the food distribution industry, which is highly consolidated (due to the standard litany of anti-competitive tactics like mergers and exclusive contracts with customers and suppliers). Problems at some of the biggest firms, like Sysco, have even forced summer camps and restaurants in some areas to shut down.
Burger King uses McLane distribution, a leading firm for grocery distribution. McLane is having trouble recruiting drivers, which is a clear problem everywhere. You’ll hear a number of causes for this shortage, from poaching by Amazon to a large number of truckers retiring rather than be on the road during the pandemic. Here’s a BIG reader on the problem.
Truck drivers that would transport cargo on flatbed trucks are being recruited away by Walmart and Amazon to exclusively pull box trailers or shipping containers. Large items like steel piles and premade concrete pieces either can't fit or can't be loaded into containers or box trailers. Vendors tell me demand is as high as 40:1, meaning for every available flatbed truck there are up to 40 waiting customers. The roads around the NYC metro area are as clogged with truck traffic as ever, but we're facing longer waits and higher prices to haul non-containerized cargo.
If you listen to transportation executives, they’ll tell you the real cause. “It comes down to money for drivers in many respects,” said Mark McKendry, regional vice president of intermodal at NFI Industries. “If we get the pay right, you know, we’ll have a little more flexibility.”
Driving a truck, which used to be a middle class job in the 1970s, has become a cyclical low-paid profession with high burnout and little stability, a so-called “sweatshop on wheels.” While it’s tempting to blame this situation on trucking firms, the reality is that the problem is due to the market structure of transportation created by the deregulation of the 1970s. Prior to deregulation, state and national regulators set routes and prices for trucking firms, which allowed for sufficient margin to make trucking a unionized well-paid profession. Such rules raised shipping prices and were often needlessly bureaucratic, but also ensured the system would be stable, free from ‘ruinous competition,’ as well as absurd drops and spikes in pricing and wages.
Jimmy Carter, however, and a litany of Democrats, simply hated the union representing truck drivers, which was the Teamsters. Carter advisor Alfred Kahn, the economist who later deregulated airlines with Stephen Breyer’s help, was explicit about lowering trucker wages and breaking their political power. (Kahn, not coincidentally, is beloved by center-left antitrust scholars.)
The deregulation of the 1970s forced trucking firms to compete against each other to offer lower shipping prices, and the way they did this was by lowering pay to their drivers. Trucking on a firm-level became unpredictable and financially fragile, so for drivers the scheduling became nightmarish and unsustainable, even if the pay during boom times could be high. Today, few think trucking has a future, and even though pay is high, the scheduling is crushing drivers. And so, because we’ve allowed an unregulated trucking system for decades and treated truck drivers like crap for forty years, increasingly we can’t count on getting french fries from Burger King.