Keynes and the Case of the Disappearing Bogrolls

What to do while you’re living under two nations, in isolation?

What about….blogging? We’re about at the time in the media life-cycle when you should expect takes arguing that panic-buying is actually good to appear, and indeed I see someone’s trying to rebrand it as “resilience buying”. Never mind.

A lot of people think it’s down to just-in-time logistics. The basic intuition here is that if the supermarkets held more bog roll at the stores, then they wouldn’t run out, and because they try to get deliveries more often and hold less inventory in general, that’s the problem. (This German supermarketing blog says the typical drumbeat for nonperishables is 2 or 3 drops a week, so it’s not *all* that JIT.) This is, I think, trying to solve the wrong problem. The problem isn’t that bog rolls aren’t being manufactured, or that the logistics network isn’t delivering them to the shops. The system has in fact delivered a lot more rolls than it usually does. Supermarkets have been hiring a lot more shelf stackers, and closing early to have more time to fill the shelves, which suggests the rate-limiting link in the supply chain is the one from the back of the shop to the front. Obviously, holding more stock can’t help here.

More broadly, the JIT hatin’ has an implicit model of bog roll panic that doesn’t seem to fit the facts. “More stock” would only help if the bog roll panickers had a target in mind, and would stop buying more bog roll when they felt they had enough bog roll. If the extra buffer was enough to cover this, everything would be fine, as long of course as you could fill the shelves quickly enough. But what if they kept up buying more, for weeks on end? More inventory isn’t going to save you now.

As the vicar used to say where I grew up: and I thought, that’s like Jesus. Being me, though, it’s Keynes. What do the principles of Keynesian economics have to tell us about where the bog rolls are going?

Quite a bit. The principle I’m interested in is the Keynesian view of the demand for money. One of the reasons economists are weird is that they insist on talking about “money” (doesn’t everyone want it?) when what they mean is more like “cash”. In this case, we’re talking about the demand for cash as opposed to investments of whatever kind. The classical take was pretty simple – interest rates are the reward for tying up your cash in financial investments, so if they’re higher, people will draw down less cash. If they’re lower, financial investments are less interesting than cash. It all gets intermediated through the banking sector, so if there’s masses of idle cash in people’s bank accounts, banks eventually lend it out. If anything goes wrong – for example, if everyone wants cash all at once – the central bank can probably fix it by lending the banks more cash, or if you’re desperate, printing more of it.

As it turned out, this breaks down in major recessions and the interest rate can hit zero, so there’s no reason to part with your cash, and we can just sit there being poor indefinitely. In the General Theory, Keynes completely rethought this. He argued there were three reasons to hold cash rather than invest it – the transactions, speculative, and precautionary motives. Transactions is just spending on goods and services. The speculative demand was the cash people needed to draw in order to buy other investments. The precautionary motive turned out to be the interesting one – it’s the desire to hoard cash in case something bad happens. This isn’t driven by the interest rate or really any other economic variable, but rather by fear and uncertainty. As a result, it can go arbitrarily high no matter what the interest rate is. Even at zero, or negative, rates, people might just want liquidity – cash – more than anything else.

And because it’s a precautionary demand, there’s no reason to think it will get intermediated into bank loans on the other side of the book; if you’re desperately hoarding cash, the only reason you’d have to take out a loan of all things would be if you wanted to draw down a line of credit your bank had already signed for, like a credit card, in case they take it away. The other week we saw a whole line-up of huge companies do just that. Instead, however much cash the central bank might put into the system, it might just end up as cash on deposit, or even stuffed in suitcases.

The analogy with the bog rolls ought to be getting clearer now. There’s obviously a baseline demand for rolls driven by wiping your backside. I’ve heard of people selling supermarket rolls to corner shops from a van, but I reckon the speculative demand is probably trivial in size. That leaves the precautionary demand. If you’re worried about them, or feel the need to show how worried you are, or whatever, well…you can buy bog rolls. They’re cheap enough that most shoppers can buy any amount they can physically cart away. They keep. In the plastic wrapping they can probably be left outside in the back garden.

According to Keynes, the thing about the precautionary demand is that it can be infinite for practical purposes. All that will satisfy is action by the state to convince everyone they can plan for a future again. And you know? That’s like…bog rolls.

7 Comments on "Keynes and the Case of the Disappearing Bogrolls"

  1. «In the General Theory, Keynes completely rethought this. He argued there were three reasons to hold cash rather than invest it»

    The discussion here is interesting, but it is confused by lack of attention to detail:

    * It is very important to note that JM Keynes made a distinction between “money” and “liquidity”, and his argument is about *liquidity*. Obviously cash is a form of liquidity and investments in productive capacity are not liquid, but those are special cases; JM Keynes made very forcefully the case that what matters is not the preference for money but for liquidity, and in particular that “the interest rate” is the price of liquidity, not of money. It cannot be simply said “want liquidity – cash”, for example cash in some important circumstances can be rather not liquid.

    * “cash” and “money” are overloaded, ambiguous terms. More generally “money” is anything that is accepted by sellers as payment, and “cash” is a physical representation of “ledger money”. Without that “nitpicking” is it is impossible to understand JM Keynes and the debate about monetarism and “fractional reserve banking” etc.

    As to the latter point there are two broad monetary systems: “specie” (usually precious metals) money, what D Graeber calls “soldier” money, and “ledger” money (similar to sports match points), what D Graeber calls “temple” money.

    All the discussions about “loanable funds” as in “tying up your cash in financial investments” are based on the assumption of “specie” money which being a commodity is available only in finite quantities that can be physically hoarded and can only be transferred between individuals, not “shared”.


  2. «the typical drumbeat for nonperishables is 2 or 3 drops a week, so it’s not *all* that JIT.»

    It is even less JIT than that because the drops are not done when stock has completely sold out, but to refill the shelves; my (somewhat informed) guess
    is that there is a full inventory turn per week. This seems plausible because the objective of JIT is in practice to match the inventory to the typical shopping frequency, and that is often the weekly shop. Overall my estimate is that therefore the buffer in the supply chain is roughly one week.

    Overall the rolls story seems to me mostly the result of a drastic change in the typical shopping frequency, plus complications, plus stupidity:

    * frequency: people told to self-isolate and avoid contacts in public places have been switching from weekly to monthly or quarterly shopping, at least the minority who can afford to buy ahead for 1-3 months (at least half of the population simply cannot afford it). This has strained a lot a supply chain designed to hold 1 week of supply. This could be called “precautionary” but is has nothing to do with confidence in the government as supplier of last resort of rolls and pasta.

    * complications: for some items like food and rolls a lot of the consumption (apparently 50%) is in workplaces (e.g. rolls) and public places (e.g. food), and bulk industrial supplies are not suitable for retail.

    * stupidity: hoarding based on fear and uncertainty may arise from expectations of future falls in production, but in both China and Italy there have been no supply problems. There was some hoarding before brexit because in case of “walk away” exit there could be supply problems with imports, but there was a small impact. Perhaps stupid hoarding (e.g. reports of someone buying 5 packs of 24 rolls) came about because of imitation, or because of seeing long queues outside supermarkets because of the 2m “social distancing” rule.

    I think that “frequency” and “complications” explain far more than panic, and my expectations were that demand for pasta and rolls would quickly peak as affluent people built up stocks to avoid social contacts and suppliers switched from industrial to retail supplies, and indeed this week I have noticed that supermarket shelves currently seem filling up again and even overstocked (“hog cycle”, because of likely feedback loops in supply chain software restocking algorithms).


  3. Back in the mid-70s there was a period when sugar was in short supply and there was panic-buying. One day someone said on the radio by mistake that there was a shortage of salt and, within a few hours, shops had sold out of salt. Was there a similar trigger to the 2020 bog-roll panic?

    I was in a supermarket today that had shelves full of chocolate eggs that nobody seemed to be buying, They must have been in a supply chain that couldn’t be stopped. Meanwhile there were very few real eggs.


    1. «shelves full of chocolate eggs that nobody seemed to be buying, They must have been in a supply chain that couldn’t be stopped.»

      Most likely — most “JIT” resellers use “sophisticated” software to predict future sales “in real time” to minimize the cost of stock, so they order as much as they can with a future delivery schedule. Once ordered it is not that easy to change the quantity radically. Put another way, delivery the the final customer is “JIT”, but ordering and production cannot be “JIT” all the way through. One cannot plant wheat this morning for “JIT” delivery of bread at noon. What “JIT” really means is that the final customer pushes down on suppliers and so on the cost of holding buffer stock, buffer stock cannot simply disappear. So for example the stories that outside the gates of japanese “JIT” car plants there are queues of component supplier trucks waiting for a “JIT” order to arrive. The buffer stock has then largely moved from the car plant premises to the queue of trucks.

      «Meanwhile there were very few real eggs.»

      Some articles say this is because of a shortage of retail egg cartons,:
      “the UK is currently in the grip of an unanticipated egg carton shortage. The entire of Europe is supplied by just three egg carton manufacturers. None is based in Britain; and the nearest one – in Denmark – is closed for the next fortnight. And so we have warehouses full of eggs and queues of shoppers asking for eggs, but no means of connecting the two.”


  4. And didn’t we have a discussion a few years ago about Cameron’s slow reaction to flooding (which might have some relevance now)?


  5. Here in Oz we have shelves bare of bog rolls, pasta, tinned veg, rice, eggs and more. For weeks, with fluctuations in item. Almost all these are locally produced, there are no stoppages in the supply chain and yet the panic continues. Where it is being stored I do not know, but supermarkets estimate they have run through a month’s worth of normal shopping in each of the last several weeks.


    1. «Where it is being stored I do not know»

      There are reports here of “ladies” buy 5 sets of 24 rolls, of other buying £300 of ready meals (about 40-60 meals), but I guess that older houses in Oz are much bigger than in England. Also my guess is that a lot of garages have been filled up.

      «For weeks, with fluctuations in item. Almost all these are locally produced, there are no stoppages in the supply chain and yet the panic continues.»

      It is not panic, it is stupidity as in my previous comments.
      In particular the same form of stupidity as in England: thatcherism, the unstoppable yearning to do one up your neighbour, to screw everybody else, even for no good reason other than making sure that someone else has it worse than you. In particular many working class people and pensioners have no savings, quite a bit of debt, and buy everything day-to-day, as they cannot afford to shops ahead, and only affluent “Middle England” (what’s the Oz equivalent?) people can afford to spend hundreds freely on building hoards, and they will build a bigger one than anyone else in the neighbourhood.

      M Thatcher (and K Joseph etc.) will be looking up from hell and be really please that it is not just England, but also Oz, that has been become a dog-eat-dog thatcherite country (but then Howard’s and Abbott’s popularity already told us much about that, never mind Hanson’s), and “Blow you! I am alright Jack” has become the principle of many affluent voters.


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