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In my column for the November 9th, 2012, edition of the Pittsburgh Tribune-Review I reviewed some basic economics of speculation – speculation as done by every sensible human being who expects to be alive tomorrow. [2] You can read my column in full beneath the fold.
Just Speculating
The moment it became clear that Hurricane Sandy would likely batter the Northeast, swarms of speculators descended into markets there. They stormed into supermarkets, hardware stores and gasoline stations.
These speculators bought up unusually large quantities of bottled water, canned goods, ice, candles, batteries, generators, gasoline and other staples. Speculators made these purchases because they understood — correctly, we must grant — that the value of these goods would become unusually high in the immediate aftermath of whatever devastation the hurricane had in store.
These speculators did what speculators always do: seek personal gain by buying low today goods whose value will be higher tomorrow.
Naturally, the speculators were motivated only by their own self-interests. They gave no thought to the negative consequences their actions inflicted on innocent people. But negative consequences there were.
Many consumers who sought to buy even normal quantities of bottled water or batteries found, when they got to the stores, that the shelves were bare. The speculators had cleaned the stores out. They cornered the market on the very goods that were most needed in this time of distress. Put differently, the cost — measured in money, time or aggravation — required to grab even just a chance of actually getting some of these highly coveted goods was driven skyward by these speculators.
You’d think that the politicians and pundits who reliably and boisterously criticize speculators would have condemned this pre-Sandy speculation. But oddly, they did not. In fact, they actively encouraged it! I heard them myself on television and radio: “Stock up now on batteries and water,” they repeatedly implored the speculators.
What makes this pre-Sandy speculation even worse than the kinds of speculation often criticized by government officials and talking heads is that these speculators were even more greedy than most. The pre-Sandy speculators who hoarded bottled water and batteries planned to keep these hoards only for themselves.
Other speculators — say, Wall Street tycoons who buy up lots of gasoline when fears of war in the Middle East rise — speculate only with the intention of selling tomorrow the goods they stockpile today. But at least these speculating tycoons are not so selfish as to want to consume all their hoards themselves. These speculating tycoons will profit only by releasing their stockpiled goods into markets — making those goods available to consumers precisely during times when additional supplies of those goods are most needed.
The pre-Sandy speculators, though, don’t plan ever to release on the market the goods they stockpiled. No. These speculators intend to keep the goods only for themselves and their families. Of course, they can be defended by pointing out that it’s perfectly proper for people to anticipate the future and to make arrangements accordingly. Such planning is really all that the moms and dads and wives and husbands did, as Sandy bore down on the East Coast, to take good care of their families. It’s unfortunate that in our world of scarcity, new supplies of products such as batteries and gasoline don’t miraculously materialize simply because people’s demand for these things rise, but that’s reality. So I guess that what these speculating consumers did really isn’t so bad after all.
And, just maybe, the speculation done by Wall Street tycoons is equally unobjectionable.