Place potatoes in a large pot and cover with salted water; bring to a boil. Reduce heat to medium-low and simmer until tender, about 20 minutes. Drain, cool, and slice thin.

Place bacon in a large, deep skillet. Cook over medium-high heat until evenly brown. Drain, crumble, and set aside, reserving drippings.

Sauté onions in bacon drippings over medium heat until they are golden brown.

Whisk flour, sugar, salt, celery seed, and pepper together in a small bowl; stir into onions and cook until bubbling, then remove from heat.

Stir in water and vinegar; bring to a boil over medium heat, stirring constantly, and simmer for one minute.