Hoarders, Speculators and Other Scapegoats; R. Clites

Someone who had even a small amount of sugar on hand when the announcement was made that sugar was to be rationed was required to declare it so that it could be counted among the rations to which he was "entitled. " Does that make sense? Does his having sugar deny it to other people? No! Much to the contrary, if there is actually a shortage of something the person who already has the product on hand does not have to compete with others to obtain it from a seller. It might be better to tum around the emphasis and say that someone who needs to buy it does Professor Clites teaches at Tusculum College in Tennessee. not have the hoarder competing with himfor it. The hoarder actually reduces the impact of a shortage by reducing demand during the time of shortage. Foresight caused him to purchase previously, during a time of greater availability. That enables him to avoid standing in line, searching from store to store, or otherwise competing for the scarce item with those who are in immediate need to acquire it.

People who have an urgent need for the product that is in short supply should actu ally be grateful to the hoarder. We must not overlook still another point: The person who hoarded or stocked up might have anticipated incorrectly. A sur plus could have developed and pushed the future price downward. Then the hoarder would have paid a higher than necessary price for the product plus he would have given up use of his funds during the period of stockpiling. So-called hoarders take on a risk for themselves as well as provide a service for others. Castigating them is irra tional. Speculators Similarly, speculators are almost univer sally reviled. Yet, they, too, act in a bene ficial way. Contrary to widespread belief, they do not destabilize markets, cause gy rations in prices or profit at the expense of 635 636 THE FREEMAN • NOVEMBER 1994 others. Simply stated, a speculator tries to buy when prices are relatively low and sell when they are relatively high. Like the hoarder the speculator also takes a risk. He may buy only to discover later that he was wrong. He may be forced by future circum stances to sell at a still lower price, to take a loss.

But, suppose that a speculator does suc ceed in buying low and selling high. Ifprice is low it is because demand is low relative to supply. The speculator by purchasing at that time adds to demand and keeps price from falling quite so far. If price is later at a relatively high level it is because supply is short relative to de mand. By selling at that time the speculator keeps price from rising quite as far upward. Thus, the speculator reduces the ampli tude ofprice swings, supporting prices when they are low and holding them down when they begin to climb to higher than usual levels. Scalpers Scalpers are a specialized type of specu lator. When they perceive that tickets to an event will bring a higher-than-original-price on the free and open market. Scalpers try to buy tickets with the objective of reselling them for a higher price. A scalper may be wrong in his analysis. He may find himself stuck with tickets that he must resell at a lower price than he paid for them, if he can sell them at all.

Often a scalper cannot just walk up to a box officeand buy all of the tickets he wants. They may be rationed at so many per buyer. In that case he may have to pay a premium price himself to obtain them initially. Or he may have to wait in line for them, possibly even have to wait all night in an extreme case. The person who buys from the scalper is paying for a service. He is obtaining some thing that he might not have been able to obtain directly for himself. Or he may be avoiding waiting in line for hours, perhaps even overnight, to obtain highly valued tickets. In any event, he willingly pays the scalper's price. He is not forced to buy from the scalper. He prefers the tickets to the money that he pays. What the scalper has done is bring to gether the two sides of a market in which the initial price was set too low to bring about market clearing. The price may have been set too low because of misjudgment or it may have been due to social pressure.

Whatever the reason, the marketers of the event set the price below the market clearing level and caused an artificial shortage to develop. The speculator guessed that this was the situation and tried to profit by correcting the error. Remember, it is always possible that the scalper may lose. Regardless of the outcome the scalper is not an exploiter. He is a benefactor. Even when he is wrong he helps someone. He helps the seller to sell more tickets than he otherwise would have. Savers Even savers are looked on with disfavor. Keynes postulated that savers reduced the flow of spending and that in doing so they reduced the level of economic activity. Sav ers seldom hold their money idle. They may invest the funds themselves. They may lend them to someone who will invest them in production or they may leave them with a bank or other lending institution which will lend them for productive investment. The saver gives up current consumption to bol ster future production.

Even in the rare case in which a saver holds funds idle he does not injure others. He reduces demand. That holds prices to a lower level and benefits consumers. The terms hoarder, speculator, scalper, saver-and even black marketer are used in an attempt to automatically discredit vari ous people who actually perform useful eco nomic services. When we hear such pejora tive labels we must look into the motives of the person who is using them. D Correction, Please! The Perversity of Wall Street "Strong employment gains tend to be negative for both stocks and bonds." -Marty Zweig, The Zweig Forecast July 29, 1994 G DPrises 5 percent? The market dives! Unemployment jumps to 7 percent? Hurray, bonds rally! Why is it that good news on Main Street is bad news on Wall Street? And vice versa? Financial analysts and institutional inves tors are convinced that strong economic performance is bad for the financial mar kets. High economic growth or good jobs reports can only mean higher inflationdown the road, they assume, which in tum will force the Federal Reserve to tighten money and raise interest rates. Presto, stocks and bonds decline on good economic news.