Saturday, August 11, 2012

Panic Buying

As we approach the fall elections it becomes time for a subset of Americans to start panic buying firearms and ammunition.  It seems that every so often people get the idea that someone in some government body is going to pass a law or write a regulation that will prevent them from buying their favorite firearm or type of ammo.  Of course, they think this because it's happened before, but I'm going to suggest that people often panic buy when there isn't actually a threat.

As mentioned, from time to time government bodies propose and even pass laws restricting goods that were allowed prior.  In 1934, 1968 and 1986 large bills were passed that banned certain types of firearms from common ownership, manufacture or purchase.  These all had very significant effects on the market.  We've had laws that have banned bullets that get the label of "armor piercing" on the state and federal level.  We've had whole classes of firearms banned from importation.  We had the 1994 Assault Weapons Ban (AWB) that banned a bunch of firearms and any detachable magazine that held more than 10 cartridges to be sold new to non-government civilians.  So it's reasonable that people who remember history are a little jumpy about missing out on something that's about to be banned.  When something gets banned it freezes the supply and prices go up, if you remember your high school economics class.  So, if I want product X, I should buy it before a law or regulation restricts the supply.  It's a reasonable thought for a person who thinks ahead.

When there isn't actually a threat that is going to restrict supply, it's not that reasonable.  See, in the couple of elections after 1994, people who voted for the AWB got un-elected in large numbers.  Politicians don't like to lose elections.  Political parties that control congress don't like to lose that control.  Priorities were adjusted in the years after 1994 and gun control laws were mostly taken off the table.  From time to time politicians with posture that they are going to pass something to shore up supporters, but in general there isn't enough support on the federal level to pass sweeping gun control bills right now.  Laws or regulation changes that have been proposed as of late have been widely advertised.  We're not going to have another restrictive law enacted by surprise like in 1986.  People within the gun culture understand this, I think.

I personally didn't think Obama was going to push for gun control if he was elected.  I follow politics pretty closely and I told my friends this.  But few people thought the same way and 2008 and 2009 saw panic buying that drove up prices and created shortages.  What kind of shortages?  At the time .380 caliber pistols were one of the hottest selling items, and most places were sold out of .380 ammo for a year, and that was after prices went up to about double what they were.  A local shop owner would ration it out when he could get it and only sell it to people who were buying a 380 pistol.  The supply was that tight because of all the panic buying.

Panic buying drives itself, it is a self-fulfilling prophecy.  When people get the idea a product is going to be hard to get or cost more and start buying more of it than they would, it sets a snowball into motion.  This happens with commodities (look at gold prices over the last 5 years), small items and even things like cars and homes.  When gas went up to $4 a gallon people rashly traded in SUV's for compact cars.  Lots sold their inventory quickly, and when they got new inventory in they started charging a premium for that class of car.  Often this ends up slowing the buying over time and prices and supply settle back down.

But this is how it works.  Person A, B, C and D all buy a box of 9mm each month at Walmart to shoot at the range.  Person A decides Obama is going to take away all the guns so instead he buys 5 boxes.  Walmart only carries 10 boxes at his store, so he bought half the supply.

Person B hears from his friends that Obama is going to take away all the guns but he doesn't really believe it.  "We've got real problems" he says, "The president has many issues to address before gun control".  But when he arrives at Walmart he sees they are half sold out of the 9mm he normally buys.  So he buys 4 boxes instead of his usual 1.

Now when person C shows up they are down to one box.  He freaks.  He's heard rumbings of looming gun control, and if other people are buying lots of ammo it must be true.  He's no longer a rational shopper.  He buys the last box, then drives his wife and kids across town to another Walmart to buy everything they have.

This puts person D flat out of luck.  He now has to buy his ammo at the range, where it costs 50% than Walmart.  And when that range sells out, they're going to raise prices 10% when they see there is greater demand.  The longer it's sold out, the higher businesses can charge for a product when they do get some.

As an anecdote, a place I like to buy ammo from has been spotty on their supply of .223 ammo.  They'd been sold out of the cheap stuff for a month or so, then they got in a couple pallets of .223 at $300 a case.  Many other places were already charging $350 a case for the same ammo, and in general stock was spotty everywhere.  But the store charging $300 sold out their entire supply in less than 48 hours.  That's a quarter of a million rounds of ammo.  Normally that's the amount they'd sell in a couple months.  That's panic buying in effect.

So, whether there is an actual threat or not, panic buying creates tightness in the market that has the same effect.  People think prices are going to go up and goods are going to be harder to get, so they buy more, which creates exactly the same effect they are worried about.  It's a self-fulfilling prophecy.

What can a person who is prepared do?  If you are one of the people who buy a box of ammo (or cereal, or gasoline, or whatever) a month and you know there is an event coming up that will drive people to panic buy, it's reasonable to stock up in the months prior to the start of panic buying.  That way when prices go up you can ride it out and use what you have stored.  Or, if you are a real privateer, you can really stock up and then sell off some of your supply at the height of the panic buying and price increases.  That's how financial brokers make money in the stock and commodities markets- buy low and sell high.

Myself?  I'm not planning on buying any ammo for the next 6 months.  I see no reason to participate in the panic buying and I have enough ammo to shoot regularly for that period of time.

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