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Wednesday, May 14, 2008

The ethics of hoarding

In the Philippines, they're threatening life sentences for traders hoarding rice. In the United States, grocers need to put limits on rice purchases just to keep their shelves stocked. Philippine traders are now afraid to fill their warehouses, for fear of being called a hoarder. Even ordinary US shoppers are worrying that buying a big bag of rice might make them a hoarder. In this climate, it's worth thinking about what hoarding actually is.

Let me start by saying what it isn't. Stocking your pantry with goods that you're going to use isn't hoarding.

Hoarding is buying goods and storing them in the hope of selling them at a higher price.

Of course, there's an aspect to that in practically every business. Ordinary business behavior is different from hoarding mainly in that most businesses add value--the baker transforms the flour into bread, the butcher cuts up a carcass into steaks and chops. Just repackaging can add value--the wholesaler buys rice by the railcar and sells it in 50 pound sacks to the grocer who then sells it to shoppers by the pound.

Ordinary businesses also have a steady flow to their buying and selling. The gas station may have thousands of gallons of gasoline in its underground tanks, but that gasoline is for sale every day, not held off the market waiting for the price to go up.

A hoarder, though, doesn't add value by transforming the product in some useful way, nor does he make his money on the markup from wholesale to retail. He just buys stuff and holds on to it, hoping to sell after the price goes up.

Merely doing that is ethically neutral--often, in fact, beneficial. A clever hoarder will buy when prices are low (which is a source of price support for suppliers who would otherwise be suffering) and then sell when prices are high (providing supplies when there would otherwise be a shortage). If he makes a profit, it's a legitimate return on the capital that was tied up during a period of low prices. Buying low and selling high is not just a way to make money, it also helps stabilize the market, protecting both suppliers and consumers.

Hoarding becomes ethically objectionable when the hoarder waits until prices are already high, and then buys goods in the hope that prices will go even higher. That's not stabilizing. That can turn tight supplies into shortages and send prices up to where basic staples are beyond the means of all but the wealthy.

Note that this sort of hoarding is also not a very good way to make money. If supply and demand are already clearing, at whatever price, there's no particular reason to suppose that prices will go even higher. In fact, over the medium term--once suppliers have a chance to grow more or make more, and once consumers have a chance to adjust their habits to use less, you can expect prices to go back down. Hoarders buying at that point may drive the price up in a speculative frenzy, but once they start selling, the price will go right back down again, meaning that most of them won't make any money. They will, though, make the price gyrate. It's those price gyrations, together with the shortages caused by taking the product off the market, that make hoarding objectionable.

From an ethical point of view, there's no reason for ordinary consumers to worry that they might be doing something bad by stocking up. In fact, the stockpiles of ordinary consumers are a positive, stabilizing force when there are supply and price shocks, because the consumer with a stockpile will naturally limit purchases when there's a shortage. It's only the consumers with bare shelves who are buying when the price has just shot up.

Hoarding is a bad word, though--something that you wouldn't want to be accused of, even if you could make a reasoned argument about the stabilizing effects of stockpiles. In the US, we're not at the point of ugly mobs forming when someone carries a couple extra bags of rice out of the grocery store, but Americans are as good at forming ugly mobs as people anywhere.

Ethics aside, as a simple, practical matter, you don't want to be trying to build your stockpile after shortages are already in the news. Once that happens, cut back on use to make your current supplies last. Switch to stockpiling stuff that's still cheap--there's always something, unless times are very bad indeed. Especially during a time of shortages and soaring prices, there's no better investment.

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