Saturday, November 22, 2008

Supply/Demand Imbalance and the Human Response


When the normal balance of supply and demand shifty, to either oversupply or under supply, there is a predictable human reaction. In the case of oversupply, the "it" is suddenly cheap, and wasteful tendencies kick in. In the case of under supply, the "it" becomes dear, and hoarding tendencies kick in. For those of us who are bearish on future supply of crude oil, (thus bullish on price) such human habits and behaviors in response to economic trends have the potential to cause all kinds of problems, civil unrest being one, and must be monitored closely.
Outside of such a precious and vital commodity to 21st century America like crude oil, the human reactions to under supply in other situations, albeit much less important, are the same. Case in point: laundry carts. (see pic) I live in a building of about 50 apartments, likely 100 people or so, possibly more. And up until a couple weeks ago, the tenants of the building amicably shared about 8 laundry carts, for use in moving laundry and groceries from the basement to the apts via the elevator. Unused carts lived in the laundry room, and on any given day, there were usually 2 or 3 sitting unused. I personally had no knowledge as to the issue of ownership: I assumed they were owned by the management company for general use.
At some point, the management company decided to change the company that provides the building with washing machines and dryers. When I left to go on vacation, it was business as usual in the laundry room with no mention of any changes. When I returned, there were no machines down there, and a letter posted in the elevator that the old company had come ahead of schedule to take their machines, and that the new ones should arrive over the next few days. I was pissed! I had dirty clothes from a vacation and no way to immediately wash them. I grabbed one of 2 laundry carts sitting in the empty laundry room, and headed upstairs to begin sorting.
Two days later, there were new machines, and I got the vacation laundry washed. I returned the cart, however, had to take it back the next night to do an emergency load as my dog made an unexpected mess. I am ashamed and embarrassed to admit that: I kept the cart in my apartment for over a week as I kept anticipating doing laundry, but never quite got around to it.
Tonight,I finally got around to it, at least a week later. As I was exiting the elevator in the basement with my laundry in the cart, another tenant from the building pointed at the cart and said to his 3 kids standing next to him, "She has one." As I finished loading my clothes into a machine, another tenant who was also doing laundry asked if she could use my cart just to move her clothes from the washer to the dryer. (Prior to the cart shortage, such a request was unheard of.) "Of course," I told her. She explained to me that the carts are mostly gone, taken by the company that had previously provided the building with laundry machines, as that company owned them. Under supply!
Could the cart that I was using be one or two that had escaped repossession, as they were in some one's apt at the time? I know it wasn't my apartment, since I had been on vacation. I had been lucky enough to grab one of the few remaining carts the moment they were of least use: when there were no laundry machines present on the premises.
Now, I am in a conundrum. Whoever has the other cart(s) in this building aren't sharing, at least not to my knowledge. I haven't seen anyone with another one in a while, and to my knowledge the laundry room has been void of them altogether over the past week. Tonight, I have been spotted twice with the one that I have. What should I do? I can't hoard it forever, (it isn't even mine to begin with!) but I know if I return it to the basement for others to use it, I will likely not see it again for a long time. Its such a pain to move wet clothes from the washer to the dryer without a cart! What am I to do? Anything other than just putting it back in the basement for others to use it is wrong: unfair, wrong, and wrong. Yet, I find myself totally unwilling to voluntarily give it up. Eventually, if enough people spot me with it, someone will ask me directly if they can use it, and I must say yes. But in the meantime, I have dirty clothes that require transportation to and from the basement, just like the rest of my building. Currently, as horrible as this is, I am trying not to get spotted with it, to at least postpone the inevitable. Will update when something happens.
In the meantime I have been thinking about what this would mean if the "it" in this case were not a laundry cart, but some amount of crude oil. People would be hoarding it, not caring as to who else needed it. What cut in supply would be needed to ignite said hoarding instinct? And what would that mean for the rest of us? Over the summer when oil was at $147 a barrel, the Saudi Oil Minister told CNBC, "There is plenty of oil for everyone" but it surely didn't feel that way. It felt like hoarding time. Imagine if there really wasn't "Enough oil for everyone" and hoarding behaviors did kick in? The world is so much more interconnected that anyone realizes, which raises the potential for disaster infinitesimally. I can only image the hoarding that will take place if and when there ever is a true shortage of crude oil, and the civil unrest and disasters that will go along with it. JHK has a name for said disasters: "The Long Emergency". And, he is likely correct. It will be a "long emergency" with many trends interwoven, dominated by the lack of reliable supplies of oil. To make matters worse, the general public has no idea any such challenge awaits us, and so lacks everything from coping mechanisms to backup plans. It has the potential to be an economic Armageddon: oil effects food production, shortage of food sparks hoarding, hoarding leads to violence, fiat currencies cease to represent "value", consumers lose their "wealth" and resort to vigilantism, the govt collapses, "business as usual" becomes a thing of the past, and society at large creases to exist as we currently know it. While all of this scares me, I insist on being realistic about the potential challenges we may or may not face. (Maybe an alt energy industry will explode over the next 5-10 years and less access to fossil fuels may turn out to be a good thing, increasing the competitiveness of our new economy, who knows what the future holds?) What surprises and scares me most is when I try to start a conversation about such challenges with someone who doesn't work in finance or energy; it frequently flops completely because the other person seems to be totally and completely unable to process what I am saying and converse about this in any meaningful way. Unfortunately, this includes many people that I care deeply about. Any suggestions on this one?
In writing this post, I have hopefully reduced the likelihood of being spotted with my laundry cart. Wish me luck safely going to and from the basement as a laundry emissary. I must return the cart eventually, and soon guilt will kick and I will give it up. For the meantime though, I am trying to move as stealthily as possible, avoid being spotted, and return with clean clothes. Are clean clothes moved easily worth such a selfish hoarding act? Not forever, they are not.

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