From “meme stocks” and a ship wedged in the Suez Canal to spiraling inflation, economic news dominated much of 2021.
The year was also marked by the COVID-19 pandemic, which touched nearly every aspect of society as it spread and mutated. While 2020 will likely go down in the history books as the year the virus shut everything down and scientists scrambled to produce vaccines, 2021 will likely be remembered for all of the pandemic’s downstream effects.
Inflation
One of the most serious downstream effects of the coronavirus has been that of inflation. Consumer prices accelerated to 6.8% for the year ending November, the fastest pace of inflation in 39 years, the Bureau of Labor Statistics revealed this month.
The report for November marked the fourth consecutive month of the inflation rate increasing and was met by concern, even among those who have consistently claimed that inflation was merely a temporary phenomenon. Federal Reserve Chairman Jerome Powell recently conceded that it was time to retire the phrase “transitory,” which for months became ubiquitous with the central bank’s stance on the higher prices.
Economists are divided about what is the main driving force behind the higher costs, which is thought to be a mix of pandemic-related problems, such as pent-up demand clashing with labor shortages and supply chain disruptions, and federal policies, including the Fed keeping interest rates near zero and trillions in federal stimulus spending.
Supply chain problems
Tied closely to inflationary pressure is the situation with the country’s, and the world’s, frayed supply chains. Images from the West Coast in 2021 showed dozens of massive cargo ships laden with goods and waiting idly to be unloaded as backlogs grew worse. Port officials blamed a lack of truckers, truckers blamed slow offloading at the ports, and still others blamed President Joe Biden.
Workers have been tough to come by for many industries across the country. The lack of labor directly affected the supply chain situation in 2021 as the need to offload and transport goods outstripped businesses’ capabilities.
In order to help try to loosen the snarls, Biden announced that the Port of Los Angeles, mired in delays and backlogs, would begin operating on a 24/7 basis. Several companies, such as FedEx and UPS, also announced they would scale up operations in the lead-up to the holiday season. The administration hopes that supply chains will begin to return to normal sometime next year, although that fate is unknown, given uncertainty surrounding new strains of COVID-19, such as the omicron variant that recently emerged.
The Great Resignation
The labor shortages behind the supply chain problems have been blamed by some economists on the “Great Resignation.” Workers, many feeling burned out and tired after months of working during the pandemic, have begun reevaluating what they want out of life and are changing jobs.
The Department of Labor recently found that the number of people quitting their jobs is the third highest on record, with some 4.2 million workers quitting in October, down from a record of 4.4 million the month before.
It’s a workers’ job market as employers struggle to hold on to and hire new employees. Many employers have been forced to boost wages and benefits and offer unique incentives such as signing bonuses in order to stay competitive. In addition to wages, an overwhelming number of workers that adjusted to remote work want to stay that way, something that has transformed the U.S. employment landscape, perhaps permanently.
Bitcoin hits new records
As many people became habituated to working from home in 2021, their investment habits also shifted. Cryptocurrencies exploded in popularity this year, with many new investors using their government-issued stimulus checks to play around in the markets.
Bitcoin, the flagship cryptocurrency, bounded from less than $30,000 at the end of December 2020 to nearly $65,000 months later in April. After retreating from its summit over news of Chinese regulation, Bitcoin once again rallied to a fresh record high of $69,000 in November as some investors considered it as a form of inflation hedge. It also became more mainstream with large firms taking interest and the country of El Salvador even adopting it as legal tender.
Bitcoin wasn’t alone in its meteoric rise. Ethereum and other major digital assets also saw massive growth in 2021 and minor “meme” coins such as Dogecoin, which was hawked by Tesla founder Elon Musk, springing from obscurity at $0.004 last December to $0.74 earlier in the year.
GameStop short squeeze
Those with excess stimulus money and nowhere to go but online also drove another investment trend this year: short squeezing. Reddit users, on the advice of subreddits such as r/WallStreetBets, used online brokerages such as Robinhood to send undesirable stocks through the roof in the early months of 2021.
One such stock, video game retailer GameStop, was worth just $2 billion in 2020 but, by January, had ballooned to $24 billion on paper as internet users pumped the stock until trading platforms began to put restrictions on it and others, including AMC and BlackBerry. Institutional investors and hedge funds who were shorting stocks such as GameStop were shocked to see prices actually going up thanks to droves of internet users, some of whom ended up making a considerable amount of money.
Ever Given
In March, the world was transfixed for a week as the 200,000-ton behemoth of a cargo ship Ever Given became stuck in Egypt’s Suez Canal. The blockage led to a massive snarl of traffic and cost $9.6 billion in trade each day, or about $6.7 million per minute.
The Suez Canal handles 12% of global trade, so the wedged ship became a global news story. Dozens of ships ended up idling while waiting for it to be dislodged while others decided to add two weeks to their voyages and reroute around the Cape of Good Hope in Africa. The situation also generated concerns about global energy markets and oil prices exploding, although, because the situation was relatively short-lived, the effect was marginal.
The effort to free the Ever Given involved more than a dozen tugboats and dredgers that were able to make use of a full-moon high tide. During and after the affair, memes cropped up all over social media making light of the strange occurrence.
Global energy shock
Amid the high inflation of 2021, many parts of the world have also been shackled with burdensome energy prices.
In the United States, gas prices are more than a dollar higher than they were a year ago. Additionally, the price of natural gas used to heat homes across the country and produce electricity has skyrocketed over the past year. Coal prices are also elevated amid supply-chain disruptions, burgeoning post-pandemic demand, and high natural gas prices.
In Europe, the situation is even more dire. It has faced an energy crunch as it struggles to purchase more natural gas after a colder-than-anticipated winter last year and a summer that was less windy than expected, meaning wind turbines didn’t generate as much natural energy as usual.
Democratic spending legislation
Congressional Democrats weighed massive overhauls to the tax code. Among the proposals were hiking the corporate tax rate from 21% to 28%, increasing the top marginal tax rate on individuals making over $400,000 per year to 39.6%, up from the current 37% rate, and nearly doubling the capital gains rate for the highest earners.
All three of those initial proposals, which were designed to finance sweeping climate and social spending legislation referred to as the Build Back Better Act, fell through in the end as Democrats negotiated with centrist members of their party who hold outsize influence given their slim majority.
The legislation itself is still up for debate but has been slimmed down from its previous spending levels. Sen. Joe Manchin of West Virginia, in particular, has cast doubt on the bill’s fate heading into 2022, especially given new scoring by the Congressional Budget Office that found that if certain provisions in the legislation are made permanent (as Democrats intend), it would add $3 trillion to the deficit.
Manchin has expressed apprehension about infusing the economy with more federal spending, especially given the inflationary concerns, although Democrats are pushing hard for a win, as they need a major legislative victory to tout going into 2022.
