Justin James Michael Wolfers is a professor of economics and public policy at the Gerald R. Ford School of Public Policy at the University of Michigan, and a Senior Fellow at the Peterson Institute for International Economics.
He had me going today.
I read a tweet he sent March 4, and I thought the man had gone off the deep end.
However, it was part of a series of tweets.The result is that shelves are empty. Capitalism fails, and we all start to worry about 💩 🖐.— Justin Wolfers (@JustinWolfers) March 4, 2020
The whole mess is created by fear, but the reality of toilet paper shortages means that fear is rational. pic.twitter.com/I6izGTU3NC
The economics of toilet paper shortages is the same as bank runs. [thread]— Justin Wolfers (@JustinWolfers) March 4, 2020
Even if you’re not freaked out about a pandemic, you worry that everyone else is & they’ll stockpile to 🧻, & you don’t want to be the left paperless. So you stockpile to avoid being shut out by others.
So you run and get toilet paper not because you need dozens of rolls, but because you fear that others are going to stockpile leaving none for you.— Justin Wolfers (@JustinWolfers) March 4, 2020
And they’re buying because they fear (correctly) that you’re running to the store to stock up, leaving none for them.
So you run and get toilet paper not because you think society is about to crumble, but because you fear that others fear this. Fear of a run on toilet paper — like a run on banks — is enough to create an actual run.— Justin Wolfers (@JustinWolfers) March 4, 2020
And when the runs start we need help. (pun intended)
The result is that shelves are empty. Capitalism fails, and we all start to worry about 💩 🖐.— Justin Wolfers (@JustinWolfers) March 4, 2020
The whole mess is created by fear, but the reality of toilet paper shortages means that fear is rational. pic.twitter.com/I6izGTU3NC
The problem is we have two equilibria:— Justin Wolfers (@JustinWolfers) March 4, 2020
1. Normal times: Everyone believes there will be 🧻 so no-one stockpiles.
2. Panic times: Everyone fears shortages, which leads them to stockpile, which creates shortages.
That’s happening now.https://t.co/PTdtERyXoQ
Here’s how we solve the self-fulfilling panics that cause bank runs:— Justin Wolfers (@JustinWolfers) March 4, 2020
1. The FDIC insures your money, so even if everyone else is running to the bank, you don’t have to try to beat them.
2. Lender of last resort: The Fed lends to banks facing these runs, so they can keep operating
All of this says that what we need right now is a government-backed Strategic Toilet Paper Reserve.— Justin Wolfers (@JustinWolfers) March 4, 2020
That Reserve makes a promise that even if your local Costco an out, you still have the right to buy 2 rolls per week from the government’s stockpile.
The Strategic Toilet Paper Reserve removes the incentive to stockpile. It ensures that even if you see others running to the store to stockpile toilet paper, you no longer need to try to run to beat them. You can relax, knowing that you’ll still be able to wipe your bum. pic.twitter.com/iDYynXd25X— Justin Wolfers (@JustinWolfers) March 4, 2020
The shelves on Sunday were empty. It's Monday and they are being restocked.So the economics of bank runs really is the same as the economics of toilet paper shortages. Both point to problems with unfettered markets. And both have problems that can be solved with clever government regulation. The only difference is what’s on the paper. pic.twitter.com/7FttR6ynwx— Justin Wolfers (@JustinWolfers) March 4, 2020
(Set music to "Wind Beneath My Wings.")Late at night 2:00 and is amazing how on every supermarket, farmers markets Etc women and men like them will work non stop to replenish every shelve. Next to the Medical staff across the world, people like them are and will be heroes to keep humanity fed! Thank them! #CoronaVirus pic.twitter.com/6J006BbPpU— José Andrés (@chefjoseandres) March 16, 2020
This is not Venezuela -- despite the best efforts of our government.
Remember, the bureaucracy never lets a crisis go to waste to expand its power.
The mind is a terrible thing to waste.
ReplyDeleteAs Dan Quayle said, "It's a terrible thing to lose your mind".
DeleteIOW Stay cool. You don't need to smell good.
Thank you, Don. This provided some necessary (for me) perspective.
ReplyDeleteThat's what I like about you, Don.
ReplyDeleteYou always give us the straight poop!
Or they could raise prices. Prices prevent gluts and shortages when allowed to change to demand. Unfortunately, there are laws against "price gouging", but it would cure the toilet paper panic.
ReplyDelete^^^ Amen! Price in a free market system is the most efficient allocator of scarce resources. Period. Allow prices to increase and watch supply increase as demand subsides.
DeleteIt's government intervention that hurts the consumer every time.
Unfettered markets, my ass.
DeleteIf I thought the tweeter didn't have his tongue planted firmly in his cheek I would have also snapped at "unfettered markets". Yeah that may have been true in the 1880's.
DeleteI hope the TP manufacturers can weather the slowdown when everyone is stocked for months and years ahead and nobody is buying it.
ReplyDeleteThis is outrageous!
ReplyDeleteDon't you people realize that if I were President, we could being having an acute shortage of toilet paper without having to have a disease epidemic to get it?
I don't always comment, but when I do I mock Economics Professors
ReplyDeleteEcon Professors failing Reality Tests 101 Update
The above series of Tweet farts from the esteemed academic shows why the wisdom of crowds used the Guillotine during the French Revolution on these smarty pants.
A Federal Toilet Paper Reserve is a fine idea in THEORY. But in practice it sucks. and Sucks big time
Why?
Oh for starters
Where would this PHYSICAL TP Reserve be housed? NYC? West Virginia? Puerto Rico? (Hurricanes hello?)
Any Physical structure would have the inherent vulnerability of being a single point of failure. Right?
Oh I know we will set up regional distribution centers for TP. Kinda like... yeah like WAL MART ALREADY DOES you Econ nit wit!!!!
How would TP get transported to magically appear in people's hands 2 rolls a week? Hmmm Mr Econ? you gonna drive all those miles yourself? I guess we would need TP Express to be created to deliver all that TP... right?
Yeah just like FED EX ALREADY DOES!!!
I believe even the densest Blog Commenters gets my point.
We don't have shortages of commodities due to lack of a Reserve of that Commodity. We have shortages because of the RATIONAL expectation in a CRISIS (like we are HAVING NOW) that goods that were plentiful NOW will NOT BE PLENTIFUL IN THE FUTURE you Econ Nit Wit.
This is why when a Hurricane hits the Gulf Oil producing region we have a "run" on Gas and Diesel fuel. Why? Because everyone knows that Gasoline does not "magically" appear. It comes from Refineries. Refineries that need this thing called OIL to make more gasoline.
Stocking up (or hoarding if you are the judgemental snowflake type) is your average person saying "ya know, this crisis may impact my ability to wipe my backside in the near future... better get more of this NOW".
Toilet Paper runs while funny NOW will not be funny in the future when all kinds of goods that we Westerners take for GRANTED are not there on that Grocery Shelf anymore.
China is Still SHUT DOWN folks
Europe is SHUTTING DOWN
That in round figures is 70% of manufactured goods NOT BEING MADE.
IF the US Shuts down... that would be nearly 100% of manufactured goods NOT BEING manufactured!!!
So we will just prioritize TP production right? Right Mr Econ Nit Wit?
What happens when the TP machine breaks down? Where they gonna get parts for TP machines? China? (NOT!) What about feedstock for the TP machine? Wood pulp? Comes from Sawmills right? Sawmills have SAWS! Big Huge Saws and shredders and all kinds of mechanical things! What happens if they break down? (order replacements from Europe? NOT!)
Think about ANY product that you consume or even REQUIRE for daily life and tell me you KNOW that the supply chain for that Product or the Machines that MAKE that product do NOT require anything from China or Europe. (I'll wait for that thought to sink in a bit before my next missive)
OK, Gamer, that did it. WE put fooking men on the moon. WE beat the Hermies twice, and beat the Rooskies without firing a fooking shot. If you think WE AMERICANS are gonna get shut down by some cheap-assed 10 cent part from China that WE CAN’T MAKE OURSELVES, I will call up the Trans Allegeny Lunatic Asylum and book you a reservation. Grow a pair, you coward.
DeleteZ - Gamer has a point - one made by Leonard Read in "I, Pencil". The simplest of items has a complex and amazing set of interdepencies that work to bring something from raw material to the market. The invisible hand at work in a free market system.
Deletehttps://fee.org/resources/i-pencil/
I don't always reply BUT this changes now.
Delete"by some cheap-assed 10 cent part from China that WE CAN’T MAKE OURSELVES"
name me ANY investor that would setup a production line for ANY product that would be price competed out of business once China comes back.
If China dropped into a Black hole that would be one thing. But China did NOT fall off the Earth. They are STILL there.
And look! they just said Wuhan is all A-OK now! Heck I would not be surprised if China starts showing happy talk time videos of China workers smiling and going back to factories in Wuhan next week!
Of course these were the same China Media people who said 2 months ago "nothing to see here" "carry on" "all under control" "2% deal rate really!"
China lied repeatedly the last 3 months. Wanna bet they also lie about when their Industry will recover.
You want to set up a factory on the train tracks waiting to get squashed?
The China Train WILL come. Choo Choo!
So...how much more per roll are you willing to pay when it’s Quilted American vs. leaves?
DeleteIt's not about leaves or TP
DeleteIt's about reality. China will be desperate to regain manufacturing and it's economy. Desperate people will sell at desperate prices. Sure "cheap goods" will be sold and at volumes and prices that will make everyone buy on the other side of this crisis.
ANY investor knows this, so they WILL NOT US source product likely to be made by China. It's just going to happen that way. OR we have another World War and everyone loses
Well, Prof, lemme put it to ya this way: When the DOERS decide they’ve had enough of the BULLSHITE being proffered by you and your TAKER friends, then we grab our guns. Yes, we WILL form groups of more than 50. Yes, we WILL be coming after NON-PRODUCTIVE LibCommie asswipes like you. And, yes, your fear then will be rational. Very fooking rational.
ReplyDeleteThe beaurocracy has been salivating for years, waiting for just such a scenario. And that is why I am ignoring them.
ReplyDeleteI don't always comment, but when I do I trigger Economic Snowflakes
ReplyDeleteWhy I think EVERY Economics "expert" should work in the Energy Industry for awhile.
The Oil Industry is like no other. Exxon the biggest integrated oil major would be a top 10 country in GDP all by itself if it were not US based. Many Energy companies have their own armies and navies. They house feed and clothe their workers in parts of the globe where the locals are literally hunter gatherers living in mud huts. Oil companies have created civilization from nothing in several parts of the world.
Oil companies also experience chaos and the fall of civilization more than any other industry. From Iran to Libya to Venezuela, Oil companies have had to deal with rapid changes in governments and religions leading to chaos. Oil companies also deal with the fury of mother nature, hurricanes, locust, plagues you name it Oil Workers have seen it.
With that as a background, it would be very beneficial for Economic Theory types to work in an industry where EVERY DAMN thing needs to be supplied BEFORE you see a drop of product. Oil companies have to literally INVENT their Supply chain in many cases (like happened in the Alaskan Pipeline).
This mostly relates why I sounded the alarm when Brent Crude went in the 30s. It's a canary in the coal mine. Folks the mine is in danger of collapse. It's time to stop the happy talk and wake up start emergency procedures.
Brent Crude comes from the North Sea. And while it's dangerous most of the oil is produced from very mature fields with mature infrastructure. Predictable quality of crude, predictable flow rates, and as a bonus THIS production area is not in some war torn area. Nope it's between two very stable 1st world countries. Transport costs are mostly nil due to pipelines that have been in operation for decades.
Which is why Brent is a BENCHMARK in the oil markets. A PREDICTABLE Benchmark of European Industrial stability.
So it is no exaggeration that when Brent price went negative 20 dollars in a single day. It was a black swan of epic proportions. And "I remind you" this is a black swan that caught an industry used to black swans COMPLETELY BY SURPRISE.
The real economy is like a Dog. Many think that the stock market is the tail that wags the dog. But in reality it's the Dog Food (Fuel Products) that really drive the Dog behavior and keep him happy and wagging his furry tail.
That big move in Brent Crude price essentially said that the European Dog had stopped eating. Apparently the European Dog caught a case of Kennel Cough from the Shar Pei and now has stopped eating. The Dog Bowl is full (retail Gasoline Distribution), The Dog Food Plant is full (Oil Refineries), The Dog Food Plant parking lot is full of Horse Trailers full of Horses to become Dog Food (Oil Tankers). It's SO BAD that many Horse Trailers are orbiting the parking lot in the hopes of off loading horses but nobody is taking the old horses... There are even RUMORS that the Arabian breeder down the road is selling HIS HORSES for Dog Food!!!
So what happens? The Horse Breeders all cut prices AT THE SAME TIME! thus the drop in crude prices.
But again we are feeding the Dog Economy. and a 50% price drop in Horses means 50% drop in Dog Food (yay?) but that also indicates that Dog will be 50% active in the near future at least.
50% active means 50% less people working in the real economy, it means that all assets are worth (in round figures) 50% what they were when Brent was 50+ dollars.
We should pray that the US Labrador does not get Kennel Cough like the European.
Mr. Surber,
ReplyDeleteWent to my local Costco for TP.
None!!
Bought Downy dryer sheets instead.
Now my rear smells like lilac and all the wrinkles are gone.
LOL
DeleteWin, win.
just back from Poca Food Fair. Some TP left, but that Yakov Smirnoff line "in america, bread waits for you," did not apply. Little Debbie was almost wiped out. And not a moon pie to be seen.
"LOL
DeleteWin, win."
Agreed!
BTW, did anyone else notice anything out of kilter about the photo in Wolfers' tweet? Nary a roll of toilet paper to be seen, but several toilet BRUSHES available?! C'mon, people, ya gotta think a little bit further ahead....
Festive comments! Summertime boom is going to be awesome, when everything goes Trump crazy again and we're all rich again.
ReplyDeleteSo, will they store the Strategic Toilet Paper Reserve in Fort Knox? Or will they pump it into the ground like the Strategic Petroleum Reserve? (I tend to think that Mr. Wolfers had a few too many of those brown bottles like he's holding before he posted these tweets.)
ReplyDeleteAt any rate, when I buy toilet paper I buy in bulk because it's cheaper and has a long shelf life. That being said, I recently lost most of my toilet paper reserve in a boating accident. - Elric
I can honestly say I have yet to buy TP. I did pick up some wine.
ReplyDeleteWe don't have a shortage of TP, we have a distribution bottleneck. Our stores are based on a just in time system which works fine when people behave normally. When there's panic buying, there's not enough trucks to restock the stores in a timely manner. Stores can anticipate normal excessive buying such as Thanksgiving and Christmas, and preplan and prestock items. This panic buying is unforeseen and store are playing catchup with a distribution system not designed for this.
ReplyDeleteToilet paper of all things. You'd think it was more extinct than the dinosaurs.
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ReplyDelete0.000014% of Americans have the Corona virus
ReplyDelete0.0000025% of Americans have died from it
Hoard toilet paper
Blame the Spotted Owl protection. PORTLAND OR 1990 -- One Oregon timber worker had a suggestion for environmentalists who want to curb logging to protect the northern spotted owl: Try life without toilet paper. https://www.upi.com/Archives/1990/04/14/Thousands-protest-owl-protection/3993640065600/
ReplyDelete