Toilet Paper and the Credit Crunch

 

 

Don't Panic!

Way back in the last century, in the late 1970’s, the US wasn’t doing so well.  The USSR was being ornery, OPEC was being tetchy, and that whole Vietnam thing hadn’t worked out quite like we’d hoped. The economy was troubled, too: jobs were scarce, prices were high, and inflation was ridiculous.

So then-President Jimmy Carter instituted a (wildly unpopular) series of price freezes on consumer goods. Now what happens if you hold the price of something artificially low? Sellers don’t want to sell, so they hold back as much as they can, limiting supply. Buyers do want to buy, though, and shortages are readily created.

And, if you hear that a price control is about to be put on something like bread, which means there might be a shortage, you might run out and buy a couple loaves – and if I do that, too, and that guy over there buys a couple loaves, and so do a couple hundred thousand of our closest friends – and lo and behold, now there is a bread shortage.

And what with people’s tendency to behave according to the laws of human nature, people reacted to the possibility of shortages by stocking up on whatever they thought there might be a shortage of, which only made any shortage that much worse.

Now, if stocking up on something is considered a wise and prudent thing to do, it’s called “stocking up.” If it’s considered a greedy and selfish thing to do, it’s called “hoarding.” President Carter and various other politicians, newsmen (they were almost all men in those days), and celebrities made announcements condemning hoarding; and assuring us that, if everybody just stayed calm, everything was going to be all right.

(As  words to the effect of “just stay calm and everything will be all right” were invariably the first piece of government-sanctioned advice regarding what to do in case of a massive nuclear attack (such an attack was considered a very real and uncomfortably immediate possibility), some people found that last part less soothing than was presumably intended.)

Now things were so primitive back then that, as our pet  dinosaurs curled up beside us on the bearskin sofas in the living room areas of our caves, we only had three (only 3!) channels to watch on our knapped-flint TV sets. But if it was 11:35 on a weeknight, that didn’t matter, because everybody was watching the same channel anyway. Johnny Carson didn’t quite invent late-night TV (or even “The Tonight Show”), but (begging the pardons of his predecessors, Steve Allen and Jack Paar) he might as well have.

So everybody who wasn’t already asleep was watching Johnny’s opening monologue when he made a joke about reported of toilet paper shortages, primly admonishing the audience not to hoard this vital commodity. (I happened to be watching, and I remember dismissing it as cheap bathroom humor and hoping that his next joke would be funny.)

And the next day, grocery stores across the nation were sold out of toilet paper, some well before noon. (The first thing on “The Tonight Show” that night was Johnny explaining that it had just been a silly  joke, and encouraging the American people to refrain from buying toilet paper unless they really, really, needed it.)

But it was, for me at least, an object lesson in self-fulfilling prophecy and the power of a single influential individual or idea. Johnny said there was a toilet paper shortage – et voila! – there was a toilet paper shortage.

I mention all this now because I think may partly explain the current global economic whatever-it-is. (Is it just me, or does “Credit Crunch” sounds like what financiers have as breakfast cereal?) One bank heard, rightly or wrongly, that some of the other banks weren’t going to be lending any money, so they stopped lending money. Then, once the other banks heard about that, they did stop lending money. Those banks that had been counting on borrowing a bunch of money, as they routinely did to cover some routine transaction or other, got caught with their coffers empty and went bankrupt. Any banks that had lent the bankrupt ones any money now weren’t going to be getting it back, causing some of them to go bankrupt, and all of them to be that much more unwilling to lend anyone any money.

Now, one thing I don’t understand about this is why everybody, not just banks but almost every business of any size, needs all this credit all the time – why can’t they just use their own damned money instead of incessantly borrowing from Peter to pay Paul? – but apparently they do. (Maybe it acts as the grease that lets the metaphoric wheels of finance and industry turn?)

But I understand that President Bush has just released a statement saying that, as long as everybody just stays calm, everything is going to be all right.