Time and time again, calamities such as the Covid-19 situation bring out both the best and worst in people, from heroes who self-sacrifice for the benefit of others to those who embrace full-on “survival mode” and couldn’t care less what happens to those outside their social circle. And when it comes to the latter, hoarding represents a textbook strategy that ends up being embraced, from hoarding food and essentials when the medical crisis itself is peaking to hoarding cash (or cash equivalents, even precious metals and cryptocurrencies) in the aftermath of the crisis in a desperate self-preservation effort.
Human nature 101, at the end of the day.
From an evolutionary perspective, being quick to panic seems perfectly logical in light of the fact that for the most part, specimens that are quick to panic are more likely to survive and spread their genes. For more of a financial industry comparison, think of it as an “ergodicity vs. non-ergodicity” issue or a “risk of ruin” one. As a quick example, let us assume that in 99 out of 100 cases which involved an individual panicking, his reaction was greatly exaggerated. However, in one case, panicking led to survival, survival that wouldn’t have been possible in the absence of said panic. As such, our individual ends up surviving, ready to fight another battle in terms of spreading genes, whereas more “laid back” individuals… well, don’t.
Therefore, let us not be too quick to judge panic-driven behavior because it is remarkably well-engraved in our genes and again, for all the right reasons from an evolutionary perspective. The same way, other behavior types are just as deeply ingrained, for example the fact that stereotypes and quick pattern recognition (tiger -> bad, apple -> good) were also essential to our survival. Unfortunately, fast-forward to the present and when it comes to our remarkably interconnected and complex world, many of these behaviors which make sense from the perspective of individual survival lead to… well, collective disaster.
From stereotyping that leads to racism to the topic that is being put under the microscope today: hoarding. As far as the average individual is concerned, the equation makes perfect sense on a granular level: he wants to ensure his own survival and that of his family more so than anything else, it is his most basic need in times of panic and only once that need is met will he move on to worrying about collective well-being. A variation of Maslow’s Hierarchy of Needs, if you will.
But when everyone does it, disaster is all but guaranteed because a wide range of bottlenecks will appear that put immense pressure on anything from supply chains (when people hoard food and essentials) to the financial system (when people hoard cash or generally speaking, abstain from risk-taking and facilitate a collapse in the velocity of money).
On the one hand, we need to understand that those who hoard are only humans who entered survival mode… for more or less rational reasons. On the other hand, measures need to be taken because widespread hoarding risks crippling even the most robust of system if the matter isn’t somehow kept under control.
From the perspective of food and bare essentials, it does not take a lot for the many vulnerabilities of supply chains to become obvious. This would even be a problem in an autarky/self-sufficiency scenario, whereas in today’s international trade-driven landscape where raw materials are imported from one jurisdiction, the manufacturing process takes place in another and the end product is sold all over the world… let’s just say it isn’t the least bit difficult to envision scenarios where cracks become obvious.
The same way, hoarding in terms of investment behavior leads to nothing short of disaster. From money to our financial system and ultimately business sector, we need reasonable money velocity for things to run smoothly because as mentioned when it comes to the worldwide economy… “interconnectedness” is the operative world. When getting let’s say a haircut, my spending is the barber’s income, who then spends his income on a wide range of products, perhaps even one I myself sell. If the chain is broken via hoarding, then as ironic as it may seem, we are all ultimately worse off.
What can be done?
One word: discipline.
Imposing discipline, however, is easier said than done, especially in Western nations where the population has been conditioned in an “easy gratification” manner and is therefore… to be blunt, spoiled. A generation of individuals who lives paycheck to paycheck when times are good and depends on the well-functioning of the proverbial system for basic survival is remarkably hard to discipline because once you take away the training wheels, the individuals in question essentially freeze.
In countries such as China that are let’s say anything but human rights-friendly, discipline can be imposed by force, as the Wuhan response made clear. In countries such as Japan where civic discipline is the norm, as made clear by the manner in which the population has weathered calamities such as earthquakes/tsunamis time and time again, once again… no problem at all.
In countries such as the US and European Union nations, things are a bit trickier due to cultural aspects revolving around a form of, one might say, entitlement. When citizens believe they are entitled to this or that, civic cooperation for some kind of greater good is a remarkably tough sell and as such, as strange as it may seem, it is actually multiple orders of magnitude more difficult to tackle behavior types such as hoarding in wealthy (on not just a nominal but also per capita basis) jurisdictions such as the US/EU than countries like China, with implications that will be analyzed through future articles. For now, let’s just say that at this point in time as well as in the foreseeable future, hoarding represents a risk factor that warrants our attention.