A Fun Brexit Problem – Our Cupboard Is Bigger Than All The Supermarkets Added Together

Brexit gives us another example of a standard economic problem. Of two economic problems in fact. The first is that immediate predictions of what might happen cause that thing to happen – this is much of the explanation of the business cycle itself. The second is that our cupboard – by which we mean the societal cupboard, the addition of all of them in every kitchen and larder – is bigger than the entire supply chain of all the supermarkets.

So, if we predict that Brexit will cause supply problems, we thus all go out and stock up because of those coming supply problems, then we’re going to have supply problems. It’s the reaction to the prediction which causes the shortages:

[perfectpullquote align=”full” bordertop=”false” cite=”” link=”” color=”” class=”” size=””] Stockpiling ahead of Brexit could cause shortages, the nation’s top economists have warned, as panic buying by families risks exhausting shops’ entire supplies of goods. Worries over access to foreign products after a ‘no deal’ Brexit has prompted some people to stock up on products such as toilet rolls and tinned food. If everyone starts to stockpile, a wave of bumper weekly shops across the country could end up causing stores to run out. “If there is a lot of this behaviour, it potentially worsens the shortages – it is like a bank run, it makes things worse because everyone is trying to stockpile commodities because they think they might run out, and that creates the shortages,” [/perfectpullquote]

Entirely true and quite so.

At the larger, macroeconomic, scale, this is the explanation for the business cycle. As Keynes said it depends upon the animal spirits of businessmen. The big variable in GDP isn’t consumer demand at all, it’s investment. And if all those businessmen are feeling a bit down in the dumps, those spirits are low, then they’ll not invest. It’s a catchable disease too. “Nope, doesn’t feel right, not investing” said enough times over golf club G&Ts becomes the general wisdom and so all don’t invest, or do so less. Given investments importance as the GDP variable this becomes self-fulfilling. Less investment means that GDP growth stops or goes into reverse.

Then, over the next round or that 6 months later the conversation turns. “Looking cheap these days, time to stick some cash in” becomes the mantra spreading like measles at a Cub’s do – these days maybe the clap at a Scout’s one – and the economy booms as investment returns.

On the microeconomic scale the tale is often told – OK, often in those very small circles where economics is talked of sensibly – of how the American car fleet has hugely greater capacity in its gas tanks than does the entire refining and gas station system. If everyone goes and fills up then all and more of the nation’s gas is in car tanks, not forecourt ones. There was, in this telling, no difference in gasoline supply in 1973 but there wasn’t any in the gas stations.

Think about it. The UK has some 30 million cars, about one per household. Fuel tanks are, what, 10 – 20 gallons? If all were dry, then all were filled brimful, that’s 300 million to 600 million gallons. Which is rather more than there is lying around refined and ready to use in the supply chain. Annual usage is around 10 billion gallons and the system isn’t holding 5% of annual usage in stock.

Same with baked beans. 30 million households, we all wake up to the terrors of Brexit one morning and decided to get a case in. We’ve all got storage space for a case of baked beans. Heinz, by far the market leader, sells 1.5 million cans of baked beans a day in the UK. We’re now suggesting that 30 million x case of 24 cans be sold in one day. Something that sells roughly – say Heinz has 50% of the total market – 3 million a day is going to have 720 million pieces in stock? 70% or so of annual consumption is in the supply chain? I think not, eh?

That is, it’s true that our household storage space is larger than the entire supply chain. Meaning that fears of shortages leading to panic buying cause those shortages. It’s self-fulfilling. Brexit’s still a great idea of course.