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The Coronavirus Bank Run

empty shelves at a Kroger.
A Kroger supermarket in Ohio, March 15, 2010. Photo by Dan Keck.

The coronavirus pandemic has produced a classic bank run on a vast range of commodities, from toilet paper to ventilators, along with predictable but often unrealistic observations about emergency preparedness.

Our normal daily lives are built on trust. You get into your car trusting that if you have an accident or a breakdown, someone will be available to help and if you need gas, you will be able to find it at the pump. You go to work trusting that your employer will pay you in due course. Most people don’t normally stock provisions for months at a time unless they are planning a round-the-world ocean voyage; we trust that what we need will be available when we need it.

Human nature is such that trust breaks down in the face of worry. It breaks down further in the face of panic. Forecast six inches of snow in Portland, Oregon, and people will strip the shelves of milk and bread. The same forecast merits barely a mention in Portland, Maine – even though the Oregon snow will almost always melt away long before Maine’s does.

Most of us have had some experience with natural disasters; hurricanes, tornadoes, blizzards, floods, nor’easters, wildfires and earthquakes are facts of life in various parts of America. But none of us has lived through a pandemic like the current COVID-19 outbreak. Everyday life is sharply curtailed not just nationwide, but around the world. Instead of localized short-term panic buying, we’re seeing national and global shelf-stripping on a scale unknown to us, and one previously almost inconceivable in peacetime.

Trust has accordingly evaporated. Toilet paper is scarce from Los Angeles to London. Baker’s yeast, I am reliably told, is almost nowhere to be found, even though most people these days hardly seem to know how to turn on their ovens. I like to make my pancakes with Bisquick, but I haven’t been able to get a box of the stuff for weeks. Poor me.

Because trust has broken down, nobody – not consumers, not government leaders, not hospital administrators – wants to rely on supply chains that may or may not be able to meet our needs as they arise. Faced with the nation’s largest early outbreak of COVID-19, New York Gov. Andrew Cuomo demanded that the entire federal stockpile of ventilators be sent immediately to his state. Most were not going to be needed for several weeks. Other states had needs arising in the interim, and rural and government hospitals had far less in the way of available resources than New York. Industry was also gearing up to produce as many ventilators as it could, as fast as possible. No matter. Cuomo, like the rest of us, wanted to fill his perceived future need immediately.

This is why the national supply of toilet paper seemed to disappear overnight. This is why hospitals clamped down on their distribution of personal protective equipment, putting many supplies under lock and key, and telling staff to reuse normally disposable items.

Not all these fears of future shortages are unfounded. Some are clearly justified by the math; shortages of some items are almost inevitable if the pandemic proceeds on its most likely course. By one estimate, the world needs 880,000 ventilators, with the United States alone accounting for 75,000. Those ventilators do not exist, and we probably cannot create them with the available resources in the relevant time frame. People can die for lack of a ventilator, and nobody wants to be responsible for an avoidable death. So people grab what they can, where they can, when they can. It is understandable behavior at the individual level. But from a societal standpoint, it makes an existing problem worse.

The same is true for the masks, gowns and visors that medical professionals need when seeing confirmed or potential COVID-19 patients. Every hospital system, individual hospital, clinic and practitioner would like to know that they have all the gear they need to protect their front-line staff through the pandemic, plus a safety cushion – right now. It isn’t possible. In the best case, production and supply would more or less keep up with immediate demand. But our current situation is far from the best case. Most global manufacturing of this gear (like many other products) is in China, and China has been consuming and reserving much of its own output during the past few months to deal with the initial outbreak of the new virus. Bulky goods do not get across the Pacific Ocean overnight, either – especially in an era of sharply reduced air travel.

Some of these shortfalls were predictable, and predicted. Researchers in Canada warned more than a decade ago that their nation would likely be short of ventilators in the face of the H1N1 “swine flu” pandemic, which turned out not to be as bad as predicted in 2009. Later studies in this country and elsewhere pointed to a shortage of personal protective equipment in the event of a severe flu or other respiratory pandemic, exactly as we are currently experiencing.

With the benefit of current experience and future hindsight, it will not be a surprise to see a larger national stockpile of such goods in the United States and abroad once the COVID-19 pandemic is over. We will learn from this experience, as we learned from the oil embargoes of the 1970s to create the Strategic Petroleum Reserve.

But whether at the national level, at the level of individual health care providers, or even at the level of our own households, there is a cost to maintaining big inventories of seldom-used goods. Every dollar devoted to N95 respiratory masks bought in 2021 and not needed until 2036 (if then) is a dollar that we could have spent immunizing or feeding or educating a child in the meantime. Investing our money in toilet paper carries little opportunity for financial growth to provide for ourselves in retirement.

One of the few providers that did not experience a bank run in this pandemic is ... the banks. While other financial markets experienced panic selling, especially when the scope of economic disruption became clear in mid-March, bank relationships with customers were more or less undisturbed. This is in sharp contrast to past financial panics, like the one famously depicted in the classic film “It’s A Wonderful Life.”

What is the difference between that portrayal of Depression-era panic and now? It is the fact that today the government can issue a virtually unlimited amount of money, and it stands behind household accounts to a degree that leaves most households with nothing to fear.

In the absence of fear, trust can keep things feeling normal. The comfort that normalcy brings can, in turn, make us less afraid.

Larry M. Elkin is the founder and president of Palisades Hudson, and is based out of Palisades Hudson’s Fort Lauderdale, Florida headquarters. He wrote several of the chapters in the firm’s book, Looking Ahead: Life, Family, Wealth and Business After 55. His contributions include Chapter 1, “Looking Ahead When Youth Is Behind Us” and Chapter 4, “The Family Business."

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