In an interesting story about the logistics of baby formula shipments, the Wall Street Journal quotes a reflection from a freight broker executive (see Paul Page, “Baby-Formula Shipments Come With High Security to Deter Cargo Thieves,” May 28, 2022). The reflection is interesting because it points to a confused view:
During the Covid-19 pandemic, items favored by thieves included the paper goods and cleaning supplies that were in high demand and hard to find. “We were seeing things like hand sanitizers and masks targeted,” Mr. Bowyer said. “It wasn’t about the price of the product but the scarcity of it. And that’s something we are seeing now with the anxiety of parents who are looking for formula.”
It was (and now is for baby formula) about the price of the product and not merely its scarcity. The only reason reason why thieves were interested in PPE was the price they could get for it on the black market. The government-capped legal price would not have motivated thieves more than they incentivized legit producers. The market-clearing price is the result of both scarcity and demand, that is, supply and demand, or, expressed in another way, a result of demand relative to scarcity. A four-leaf clover is also scarce but its price is very low (if at all positive) because the demand for it is also very low (if it exists at all). Mr. Bowyer correctly hints at demand in his last sentence.
The price of baby formula motivates thieves because increased scarcity and continuing demand have pushed it up. (It’s the same when copper prices increase on world markets and thefts of copper wire jump.) The big difference between PPE during the pandemic-related states of emergency and the current market for baby formula is that there are currently no government price controls on the latter. This explains why, in baby formulas, there is little if any black market other that what may be fueled by possible theft. Note that as much as theft is a real crime, black markets by themselves are a very useful outlet for voluntary transactions when prevented by price controls or other government interference.
When trying to understand the economy and society, neglecting prices is a big analytical error.
READER COMMENTS
Jon Murphy
May 29 2022 at 11:38am
I don’t think resale is the only reason. When price controls cause shortages, there are lots of ways the deadweight loss could show up: queuing, rationing, multiple trips, hoarding etc.
Another big one is theft. If one cannot find what one needs on the legitimate market, the relative cost of theft falls.
Pierre Lemieux
May 29 2022 at 3:45pm
Jon: The factors you mention affect the black market price consumers are willing to pay, but it remains that, from the thieves’ viewpoint, their only (gross) benefit is the price they get on the back market.
Jon Murphy
May 29 2022 at 5:28pm
I meant not just theft for resale, but also theft for personal use. If you see your neighbor has something you cannot find anywhere, some folks might be tempted into theft (especially if they have the “my neighbor is hoarding, they don’t need it” mindset). I speak from experience. I had toilet paper stolen out of my car in early 2020
Dave
May 29 2022 at 5:36pm
Jon, how do you know the thief didn’t resell the toilet paper?
(Your point was good but I didn’t quite see the connection to your story. To some extent, the story undermines the point — I suppose you infer that the stolen toilet paper was for personal use because of the small quantity, but conversely, the reports of ppe thefts involved large quantities and were unlikely to be for personal use.)
Jon Murphy
May 29 2022 at 5:40pm
I don’t, but given the context (residential neighborhood, crime of opportunity), I think it’s a safe bet.
I guess I don’t see how anything undermines anything. I’m agreeing with Pierre and pointing out that there are other kinds of theft as well.
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