Hoarding and Shortages

by jefftkjefftk1 min read25th Feb 20205 comments

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CoronavirusEconomics
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One of the main responses to yesterday's post on preparing for a potential quarantine was something like:

Hoarding causes shortages. Leave masks for people that need them.
Another commenter made a similar argument with food.

I think the biggest question here is whether you think there's time and capacity for producers to react to increased demand. For example, some mask factories are not running right now because they're in affected areas, but many others are still running. More people trying to buy masks raises the market price, which makes it worth it for these factories to run at higher output. For example, maybe a factory normally runs a 16hr day with two shifts but doesn't run at night because it's too expensive to hire people for night work. If masks are selling for 5x the normal price, the situation is different and they'll probably start running 24hr. [1]

This is a really big reason to prepare ahead of time, instead of when a disaster seems likely. I bought masks months ago after deciding they were something I would like to have on hand for dealing with a range of issues, which meant producers had plenty of time to react and make more. I know this doesn't help with the current situation, but if there are non-perishable things where a supply disruption would be really bad (ex: masks for taking care of an immunocompromised family member) set a reminder for six months from now to stock up on them.

I also don't think spreading the idea that one shouldn't buy masks is worth it: enough people are still going to be buying them that we're still going to have a mixture of outages at regular retailers and high prices at demand-responsive online ones. Even if you think that there's no ability for producers to react to high prices by creating more masks and so there's effectively a fixed pool of masks to divide up, refraining from buying ones for yourself helps others only minimally.

(Separately, there's a question of what situations masks are useful for. I know much less about this, though if someone in your household gets sick it seems like it would be very useful to have them on hand.)


[1] Raising prices in response to emergency-induced demand is often called "price gouging" and it is sometimes illegal, though in long-running emergencies like this I wouldn't expect to see the laws apply because documenting increased costs should be practical.

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Nobody's talking about DESTROYING the things you buy, are they? Zero-sum isn't negative-sum. There's a very real question of "can I decide how to use these better than a random less-foresightful person (who wanted to buy it later, but was unable because I bought the last)"? For me, the answer is clearly "yes". If that's by re-selling (or giving away) my surplus, great! If that's by keeping my family safe instead of someone else's, I can live with that.

As long as there is limited supply and unlimited (or just very large) demand, you're doing no harm and some potential good by buying early. This is true on any timescale.

Just to add some context: india produces 240 million masks a year, but may need 1 billion a day if everybody must wear them, which requires over 1000 times increase of production. Price jump may result in the production of fake masks (already happened in China) made from the wrong materials or in the reselling of used masks (also happened in China). It seems that filtering material shortage would be the main obstacle in increasing production. As economy stops, it will not be possible, or will take may be a year, to increase the production of the filtering material after which most people will be ill.

I'm having trouble seeing a scenario where we need 1B people wearing masks daily: if things are that bad I'd expect the vast majority of people to be staying put and avoiding interacting with people, in which case they don't need masks?

If people are home-isolating which seems effective is stoping virus (if we believe China data) - it results in economical shutdown, which could turn into famine.

Wearing masks is less effective - but is is almost mandatory in China where more than a billion people lives. My friend from China wrote that people are washing masks and drying them on their balconies - but mask will be less affective after it.

Or they can probably make their own masks. https://www.wikihow.com/Make-Activated-Charcoal

I would think that the activated charcoal could also be sanitized and then reused later. Could also rig up something to purify the air in your house of apartment as well.

But I agree that some of what is mentioned in these threads might be good to separate the scale of the problem -- are we talking about epidemic/pandemic scenarios or near civilization ending events?

I agree with both you and Dagon that early preparation before any rush is not harming anyone as the marginal increase in early demand will largely be noise, or might even have the positive effect of increasing the supply output resulting in increased initial stocks.

The other aspect is most of the problem is localized and then transportation to the impact area as much of a constraint as actual production in the global output reality.