Maybe you should stock up on toilet paper

Shortages of certain goods were easy to anticipate as a result of COVID 19, including hand sanitizer and disinfecting wipes.  An early run on "critical" household supplies is also no surprise; in North Carolina eggs, bread, orange juice and milk vanish from the shelves whenever the local weatherman hints at snow or ice.  

But toilet paper?  Initially many experts assured us that this was a simple inventory management issue and that more product would be rolling out soon.  Now I am less sure, for two reasons brought up in this WP article.  

First, people are spending less time away from home working, traveling, or socializing.  This means a shift in demand from using other people's paper to using your own.  Second, TP away from home is not a perfect substitute for TP at home.  Think about it -- the rolls at work, restaurants and airports are often a foot in diameter.  Even more critical, they are usually single ply.  In other words, there is a mismatch in the specs of much of the TP being produced and the specs of what people want to buy for home use.  

In time I am sure that the makers of Charmin and Cottonelle will figure out how to expand capacity.  But the makers of away-from-home TP will need some time to reconfigure their production lines and distribution channels so that they can sell directly to consumers.  This may take almost as long as it is taking GM and Ford to switch from cars to ventilators.  

This same phenomenon is happening in food production.  Companies that make ten pound bags of shredded mozzarella for Sysco are not going to be able to turn on a dime to make smaller bags for consumers.  

My advice: don't wait until you are down to your last roll before restocking.  

You don't miss your water ...

Want to know why there is a water shortage in California?  Is it the drought? Too many lawn irrigation systems?

Of course not!  It's the government's byzantine system of pricing and distributing water.  Stanford GSB Professor Ed Lazear tells the full story in this WSJ piece.  Preserving the delta smelt is an additional complication.

Will your pilot soon be earning the minimum wage?

The labor market for airline pilots is going through some unexpected turbulence.  Recently WSJ reported that a combination of boomer retirements and new training requirements (1500 hours of flight experience compared to 250 originally) were causing some regional airlines to drop their least profitable flights.  Aspiring pilots can amass tens of thousands of dollars in debt to get the flight time needed to meet the training requirements.  So why do they do this, especially since regional airline pilots earn an average salary of $22,400 and some earn only about $15k?

The answer -- eventually the pilots hope to land a position with a major carrier that pays well into six figures.  That is why they are willing to accept positions that barely pay more than the current minimum wage (and would be below the aspirational minimum wage of the Obama administration).   My expectation: expect to see salaries for regional pilots increase as always happens when there is a shortage and markets are allowed to operate.

Why gas is scarce in NY and NJ

America last experienced lines at the gas pump in the 1970s under Jimmy Carter when OPEC cut back on exports.  Gas lines are back again in NYC and NJ in the aftermath of frankenstorm Sandy and this week's nor'easter Athena.  As we all know, Mother Nature wreaked havoc; shipping terminals have been damaged and many areas still lack power.  Politicians in both states have followed the Carter playbook and adopted odd-even rationing (WSJ report here).  This is expected to last at least two more weeks.

Anyone with a basic level of understanding of economics would immediately consider whether the human element might also be at work.  Let's start with laws designed to prevent price-gouging.  NY will hit gas station owners with a $10k fine for anyone charging 

"unconscionably excessive" prices charged by any party within the chain of distribution for necessary consumer goods and services during a declared state of emergency. Prima facie proof of "unconscionably excessive" includes evidence that (i) of a gross disparity between the amount charged and price for the same goods immediately prior to the abnormal disruption; or (ii) the amount charged grossly exceeds price at which same or similar products.

NJ has a comparable statute. 

Let's also remember that EPA regulations restrict the types of gas that can be sold by location and season.  Ironically gas prices here in Raleigh are cheaper than they have been in years while people in NY and NJ suffer.  Don't you think some trucks could divert supplies if there were an incentive to do so?  As this op-ed from a NJ newspaper points out, higher prices motivate suppliers to find more fuel and encourage buyers to economize. 

Bottom line: there is no doubt that Sandy hit NY and NJ with a wallop but a month of gas shortages is at least in part a man-made disaster, 

The truck driver shortage

Today's N&O runs a story about how hard a time trucking firms are having filling open positions for truck drivers.  Economic logic would make one skeptical of this claim: unemployment remains over 8% and trucking jobs pay relatively well ($38-40k plus benefits for entry level) for work with low educational requirements.  Given the massive loss of construction jobs (compared to five years ago), one would think trucking would easily absorb some of the surplus labor from that sector. 

The article says one cause of the surplus is that prospective truckers are unwilling or unable to pay the $4-6k cost of learning to drive a truck.  Another is federal regulations requiring clean safety records of all new truckers.  But the real mystery to me is why pay is not rising to attract even more people into the field. 

There's a great future in analytics

McKinsey Global Institute has released a new study "Big Data: The Next Frontier for Innovation, Competition, and Productivity" that claims the surge of data we are generating from the internet and electronic forms of commerce will open a huge wave of innovation.  (For a good summary, see this NYT account; a link to the study itself can be found here.)  McKinsey defines "big data" as "data sets whose size is beyond the ability of typical database software tools to capture, store, manage, and analyze."  The study argues that increased transparency, opportunities for experimentation, enhanced ability to optimize products and services for sub-populations, development of artificial intelligence, and new business models will lead to enhanced productivity and increased consumer surplus. 

The only hitch, the study argues, is a potential shortage of talent.  By 2018 McKinsey anticipates a shortage of 140k to 190k workers in mathematically intensive occupations on top of a shortage of 1.5 million managers and analysts "who can ask the right questions and consume the results of the analysis of big data effectively."  My advice to Jenkins MBAs: give the stat course MBA 504 your best shot. 

Aside: The title of today's post is adapted from the famous "plastics" scene in "The Graduate."