An economics professor uses the run on toilet paper to explain bank runs
One of the strangest manifestations of the threatened coronavirus epidemic in America is toilet paper hoarding. Justin Wolfers, an economics professor at the University of Michigan, has put together a tweet thread explaining why people are hoarding toilet paper. According to him, the motivation behind toilet paper hoarding is the same as the motivation behind runs on banks — people are afraid that, if they don't keep up with others who want the same finite resource, then the resource will be gone.
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
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
(Hat tip: Don Surber.)
That's a cute and clever analogy. Taken at face value, it works perfectly to explain the fear that wealth may have permanently drained from an economy. As for toilet paper, in the face of the current upset, it's not quite accurate. That's because, in America, we know that, in the future, there will be more toilet paper.
Thus, the fear that's driving people other than profiteers crazy isn't that toilet paper will vanish entirely, a reasonable fear in a communist country or in time of war. Instead, the fear is that people will find themselves quarantined at home for a period exceeding their existing toilet paper stock.
Even as we're stuck at home eying our diminishing supply of toilet paper, we know that our factories will continue to manufacture toilet paper. Once it's made, our truckers will deliver it to warehouses across America, and from those warehouses, more truckers will take it to our local stores. The stores will restock their shelves, and we will once again have our all-American soft tushie tissues.
At Conservative Treehouse, Sundance explains the mechanics of supply chains — that is, how goods make it from the warehouse to the store shelf. His point is that, short of a magic wand, there's no way retailers can restock shelves instantly, but they will be restocked. Because this is America and not the Soviet Union, when people finally finish using the 200 rolls of toilet paper they bought in a panic-induced frenzy, their local store will once again have a shelf full of toilet paper.
However, here's some advice for those who lack strategic toilet paper reserves within their own homes. Turn your toilet into a bidet. It's dead easy. Then you never need to worry about toilet paper again — and your derriere will thank you.
If you're still able to leave your home, your local hardware store will have the tools you need. Otherwise, you can order things online.
And please, don't panic. If worse comes to worst, get yourself off the potty and sidle over to your shower. Your derriere will probably like that, too.