Post #563: We need a TP FDIC, or, hoarding is a self-fulfilling prophecy

Posted on March 20, 2020


Ask not why the shelves are bare

I’ve been reading up on toilet paper.  Many, many pundits seem to be straining to find some logical reason why the TP shelves are bare.

As a person with a lifetime fascination with panics and manias, let me save everybody some time on that one:  It’s a self-fulfilling prophecy.  There doesn’t need to be any reason whatsoever. 

You can go back to the Johnny Carson affair (reference Snopes) to realize that you don’t need even the tiniest bit of fundamental problem or rational thinking whatsoever to have a shortage like this.

All it takes is the perception that other people are hoarding, and that there might be a shortage, and … bam … that causes a shortage at the grocery store.  Take a nervous public, add a rumor, stir gently, and stand back.

And it’s totally self-reinforcing, because, regardless of your beliefs about whether or not a toilet paper shortage is rational, if you don’t go out and get some toilet paper, well, you can’t.  You, as a member of the public, must either participate in the panic buying or do without.

And so, a full and complete explanation consists of this:

Toilet paper is being hoarded because toilet paper is being hoarded. 

Really, seriously, it doesn’t need to go an inch deeper than that.

Federal Deposit Insurance Corporation (FDIC)

And so it is with bank runs.  Or, rather, was.  Just the rumor that a bank (or equivalent) was insolvent would cause clients to withdraw so much money that … the bank became insolvent.  Absolutely didn’t matter if the rumor was well-founded or not.

Bank runs were a fairly routine occurrence prior to the Great Depression.  Banking panics significantly deepened many recessions in that period.  Surely you’ve seen It’s a Wonderful Life.

For the technically-minded, common usage is that a “run” is on an individual institution, whereas a “panic” occurs when that same phenomenon happens to the entire banking system.

That more-or-less completely ended with the creation of the FDIC (and its extinct cousin, the FSLIC).  As with any type of insurance, there was significant risk of “moral hazard”, which is the best way to describe the Savings and Loan crisis (and death of the FSLIC).

But, love it or hate it, the FDIC put an end to bank runs.  An agency of the Federal government guaranteed that you’d get your money back.  And people lost their fear.  US Bank runs stopped (virtually completely).  And, more recently, that became a “full faith and credit” entity of the US government.

Toilet paper shortage. Bank run.  Po-tay-to, po-tah-to.  Why do we have one, right now, and not the other?  FDIC.

Who will be the FDIC of TP?

There is a serious point here, somewhere, that has me thinking about this.  The serious point is that I can’t quite figure out how long the shelves are going to remain bare of TP.

I’m in a hurry this AM so I’m going to say a few things next that are true, but without citation as to source.

First, at present, there is absolutely no interruption of the supply chain for TP.  For a host of good economic reasons (high bulk, low value) almost all American TP is made in the USA.

Second, because toilet paper demand is (normally) so stable, there’s almost no slack in the toilet paper supply chain.  It has what economics call inelastic short-run supply.  By and large, factories routinely run 24 hours a day, seven days a week.  They can tweak that a bit, but that’s all.

Third, I am afraid that whether or not the TP shelves refill will depend on whether or not the TP shelves refill.  That if people continue to see bare shelves, they’ll snatch up TP whenever they see it available.  That “shortage mentality” will become the rule here.

So I come down to my final question:  Who (or what) will be the equivalent of the TP FDIC.  What entity can step up and guarantee you a roll or two, if you run out?  That might break the back of the current panic-buying mentality in this area.

Let me emphasize that I’m totally serious about this.  I don’t want the potentially humorous nature of the product in question to obscure the fundamental economics of the situation.  Fear itself is adequate to prolong this situation for months.  And right now, we really don’t need to be worrying about whether we’ll be able to wipe our butts, three months from now.

For myself, I’m just trying to take life one roll at a time.