Total Market Breakdown

It took a couple of days after typhoon Yolanda has left for people to realize how devastating she has been. The hardest hit was the island of Leyte in which more than a thousand dead have been recovered, and the casualty count is still climbing as more dead bodies are found. This morning I tried to explain to my nine and ten year old how it is like to survive the typhoon itself in that island. I asked them to imagine that we were in that island right now, and that we all survived, in spite of what happened there.

My wife objected to the scenario I was painting: “But don’t you think we would have flown to the island of Mindanao or even to Manila even before Yolanda struck?”

“Remember that we here in Cebu City got the same warning”, I explained. “We got the same Storm Signal #4 as Leyte. Why did we decide to stay? The fact is that there was no way to predict how hard Yolanda would hit any one island. The inhabitants of Leyte stayed, just as we would had we lived there. The path she took was not exactly as predicted because predictions are just that, predictions. The path you saw drawn on TV in vivid colors before she hit any island was a probability map, not an accurate navigational map of a ship. We need to understand that.” She nodded her head in agreement.

Let’s imagine we are in that island right now. I want to paint a picture how horrible it would be, how difficult it is to keep surviving in a situation where there is nothing you can buy, and there is total market breakdown, for that is one after-effect of a calamity, total market breakdown.

In the morning after the typhoon, we find the ground floor of our apartment filled with mud. There is no electricity, and so we try to save as much food as we can from the refrigerator. We realize that by tomorrow, we will be out of food and water, and so our first instinct is to go buy food at the nearby grocery. But one of our neighbors tells us that she had gone there, and the neighborhood grocery is all in shambles. People have looted whatever was left, and there was absolutely nothing to pick up, much less buy, by the time she got there in the early morning light. It does not take long for us to realize that the same fate has befallen all groceries in the city. We hear on the radio how a big grocery store was attacked by swarms of hungry people. The lone guard attempted to control the crowd, only to be killed himself. We can only imagine how his family is now suffering in his absence.

We need to decide what to do. Our prime objective is to get food and water. How? Our car still has some fuel left. May be we can drive to where there may be some food left. However, we hear on the radio that the whole island is devastated, and we can easily run out of fuel in the middle of nowhere looking for food and water. We decide to stay put. We cannot do anything but pray. In the evening, even starting the fire for cooking is not easy. We find out that our cooking gas fuel tank is empty. We gather wet twigs and branches to start a fire.

In the following couple of days, we start to feel the pangs of hunger. The kids are crying all the time. We start to smell this terrible stench of dead bodies still uncollected. There are dead cats and dogs all over the city, not to mention dead human bodies still undiscovered in some crevices and abandoned houses. Why is it taking so long for the rescuers to reach us, we wonder. I suggest that we start thinking about catching mice that somehow start to proliferate everywhere. I ask our maid whether she knows how to cook freshly caught mouse. She grimaces and says she will never cook a mouse, much less eat it.

Pre-Calamity Functioning Market

Indeed, why is it that help is always slow to arrive in any calamity? Before the calamity, when everything is normal, we take for granted so many things around us: businesses that literally put food on our table. We forget that when we go to the grocery, food does not just get there on the shelves for us to pick up, but that is what it seems. We don’t realize the sheer number of people involved to get all kinds of food on the grovery shelves. Early in the morning on any normal day, trucks would arrive at the grocery to deliver both perishable produce and packaged goods. Every food item is delivered from somewhere else, may be middle men who have boght the items from some other supplier, may be farmers. Imagine the number of people involved to produce each item. How does it all happen? How do the producers know exactly what kind of item to produce, and how can they get their produce to the market on time? How do the distributors and middlemen organize themselves so that every item is delivered and distributed to all grocery stores on a daily basis?

In a functioning market, there is nobody coordinating the truckers, the distributors, the middlemen, and the producers. It’s all based on the idea that each one of these market participants are in it for the money. The better each one of these participants serve their markets, the more profits they get. By its very nature, the market rewards those who can deliver food from the farmer to the consumer in the most efficient manner. How does this happen, as if by magic? Each one of us participates in this phenomenon: by simply choosing to buy the best that our money can buy at the grocery on a daily basis, by doing so we reward those who can deliver the best product for the least cost. The price of each item in the market serves as a signal, a feedback to the producer, how much of it to produce.

Helping Is Not Easy, and Neither is it Simple

When a calamity like typhoon Yolanda hits the islands, we get a taste of how it is like to live without the market. We cannot expect goods to be delivered as efficiently. People think that giving is all that is involved in helping. I take my family to a donation center and donate food and water. I remind them how complicated and difficult it is to deliver and distribute what we just donated to the victims. In order for every donation item to get to its intended recipient, think of all the logistics and planning that has to happen first before such endeavor can even begin. What you are doing is basically substituting a hierarchical logistical system for the most efficient delivery and distribution system a market can provide. The substitute system will have to be centrally planned and coordinated. If not, you may miss an area and the consequences would be severe for that area. Or you can simply deliver the wrong goods to the wrong place. People would greatly suffer while a vast quantity of food can lay rotting in some storage building. No wonder you need a regimented, obey-all-detailed-commands type of organization like an army to replace all the logistics of a well-oiled market.

A news item relates that PNoy walked out of an organizational meeting out of frustration. We complain about the inefficiency and think that PNoy as president should get down and dirty to get it all done. It’s not that simple. It’s more like formulating a strategy for war than anything else. There are strong disagreements among the different government agencies. Any meeting to formulate strategy can easily turn into a shouting match. None of those C-130s would be of any help if you don’t have the goods all ready to be delivered. None of those hundreds of millions of dollars donated by other countries would be of any help if an agreement cannot be reached how best to use them. I am sure that, given the climate of mistrust of government right now, none of PNoy’s more reputable cabinet members would want to handle such large amounts of money. It is a political hot potato.

I Propose an Emergency “Market”

To the degree that the authorities suppress the market, hunger and starvation on a mass scale can occur. The most efficient organizations, like the Red Cross, are huge, well-managed organizations. Executives of these organizations are skilled in running such big organizations, especially during an emergency. These skills require a market, and indeed these organization reward their leaders well. Some of us think that these people should not be so rewarded, thereby killing the market for organizational talent in these big organizations. If this happens, and organizational skills become lacking in charitable organizations, hunger and starvation can happen in the time it takes to distribute food and water.

Our instinct is to reward charitable people and punish the profit seekers, especially during a calamity. Such instinct is nt necessarily beneficial. For example, we have laws that punish “profiteering” or “price gouging” during a calamity. Our Christian instincts lead us to promulgate such laws. My opinion is that such laws can be very harmful. Imagine, again, being in Leyte right now. What you need is food more than anything else, because you happen to have a large tank full of rain-water in your backyard. How can the authorities know this fact? They have no way of knowing that you need food more than anything else. Or may be what you need most of all is medical supplies because your wife is badly bruised and just need some ointment to heal the wound and prevent infection. There is no way that the authorities can know all of these circumstances for every family. No way. So you would be very lucky to receive exactly what you need in a centrally planned distribution system.

Now imagine that instead of delivering goods outright, the authorities focus on establishing an emergency market. Prices are not controlled, and profiteering is not prohibited in any way. Money is then distributed, instead of goods. It is easier to distribute money than goods: in the worst-case scenario, a charitable organization can just distribute money by throwing bills in the air from a helicopter. People can then buy goods from a market that will find its way among the ruins to deliver. Calamity victims would then decide, based on their individual circumstances, what to buy from the emergency market. Those businesses that deliver first to the hardest-hit location will be rewarded. Of course, charitable distribution systems would still be allowed, to ensure that those not strong enough to even pick up money dropped from helicopters are taken cared of. I am not claiming that such a system would prevent horrible tragedies, but I do claim that the current system of total market breakdown is more catastrophic in terms of the sheer number of people dying because they did not receive exactly what they needed.

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About ctapang

I am a Software Design Engineer. I live in Wenatchee, Washington, a city in Eastern Washington which I call the Bitcoin Mining Capital of the world. Aside from my work on crypto-coin mining, I am also involved in a movement (http://correctphilippines.org) to correct our constitution. It's an ambitious undertaking in itself, and there's no guarantee that improving our constitution will improve things. However, one thing is certain: if we don't establish a rational constitution, we will continue on our path of self-destruction. What kind of government is best? For me the best government is that which governs the least. We need the government not because it can provide for us but because it keeps us from running into each other. The proper function of government is that of a traffic light: it prevents us from bumping each other, but it does not tell us where to go.
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2 Responses to Total Market Breakdown

  1. ctapang says:

    Anthony Lopez-Vito makes a very good point in facebook:

    “… The problem is that the normal distribution mechanisms (e.g. roads) are down. People want to send goods but they cannot. What is the point of dropping money out of helicopters? People cannot spend the money to buy the goods that don’t exist. Why not just use the money to fix the roads?”

    In fact, fixing roads and infrastructure should be part of reestablishing the market. To reestablish a functioning market, the government must first of all establish law and order, which should include protection of property rights. Second, it should rebuild the infrastructure (which includes cleaning up and getting rid of dead animals and the deceased). On the first days, the government should have used all resources available for distributing food and other necessities, as a matter of course. We are past several days now from the time it all started. At this point, the government should mobilize a large part of the army to restore law and order and clear the roads so that charitable organizations including entrepreneurs can distribute food and other necessities. The exclusive focus on the market in this blog does not preclude help available from charitable organizations. I want to emphasize the market because it is very important and yet is usually ignored by authorities.

  2. ctapang says:

    Contrast this idea of reestablishing a functioning market with this idea from Sec. De Lima:

    http://www.abs-cbnnews.com/focus/11/11/13/should-govt-punish-looters

    Allowing the looters to loot would set back the reestablishment of markets by weeks, if not months. This is a very important issue. The government would not be doing one of its prime functions (protection of property rights) if it were to allow looting under any pretext, including “self-preservation”. In essence, to fight to preserve one’s property is also “self-preservation”. The question is, whose self-preservation takes precedence? Every individual’s right to self-preservation should be protected, not just the looters’.

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