Reflections from the Gas Pump

“Everyone has a plan until they get punched in the mouth.” – Mike Tyson

This might come as a surprise to Doomberg followers, but I’m a reasonably serious prepper. Prior to COVID, “prepper” wasn’t a label most people discussed in public, let alone bragged about. Given what society has been through since March 2020, the concept of individual preparedness is becoming slightly more mainstream. For example, I’m openly bragging about it in public now, albeit as a chicken <insert wink emoji>. Still, almost nobody preps.

What is a prepper? To me, a prepper is a person who has observed how operators of modern supply chains have brazenly sacrificed system robustness for short-term financial efficiency and is uncomfortable with what they see. A prepper sees how even the most life-critical supplies have migrated to just-in-time inventory management and decides to pay the working capital penalty at the dwelling level to ensure their family and/or loved ones never get stocked out. If done intelligently, designing and executing a logical preparedness plan can simultaneously provide an insurance policy AND act as a small hedge against inflation.

Of course, over the long run and integrated across society, buying insurance is a loser’s game. There’s a reason why Geico has been a flagship holding of Berkshire Hathaway for all these years. In aggregate, selling insurance is a much better deal, but MY life isn’t measured in the aggregate. It is measured in the here and now, at the dwelling level. I happily pay for home insurance, month after month, and at the same time I’m thrilled to have never filed a claim. It’s not like I’m hoping for my house to burn down to validate my decision to pay for insurance.

So it goes with prepping in general. One of my prepper mottos is buy things when you can, not when you have to, which is why I usually have at least a year’s supply of most disposables at the ready, like toothpaste, shampoo, and various detergents. I also store food, water, medical supplies, and generators. One can never have enough generators.

I also never let any of our family vehicles get below a half tank of gasoline. Is it a small pain to stop roughly twice as often than I theoretically could? Sure. Do I sleep slightly better knowing that, in a pinch, we have a solid inventory of range capacity in our vehicles? Absolutely. Our vehicles are important to us, and gasoline is plentiful and cheap.

Except, when suddenly, it isn’t.

The cyber-attack on Colonial Pipeline has shut down a critical artery that connects Gulf Coast refineries to much of the densely-populated East Coast. I first heard about the incident mid-morning on Saturday. As I read through the carefully-crafted company statements, I quickly concluded that this incident was serious. In particular, I was struck that the company admitted it was still “taking steps to understand and resolve this issue” and that it had hired a “leading, third-party cybersecurity firm” that had “already launched an investigation into the nature and scope of this incident, which is ongoing.” In other words, by the time the company was forced to go public with the attack, it was still defining the problem. Defining is a long way from solving.

As I topped off my spouse’s vehicle a few hours later – just in case - I wondered how long it would take for the East Coast to experience shortages. After all, inventories were robust, alternative supplies would eventually be found, and the pipeline would likely come back online within a few days, maybe a week at most.

Monday, I thought to myself. Monday. If the pipeline wasn’t back online in time for the opening of gasoline futures trading on Sunday evening, we’d see SHORTAGES by Monday. Not just panic. Not just lines. Shortages.

Sure enough, this was the scene at countless gas stations by Monday evening:

Why did I predict Monday? In the debut Doomberg piece entitled Reflections from the Lake, I made the following observation about how social media is changing macroeconomics in ways our leaders likely can’t fathom:

“However, I believe we are experiencing a convergence of three forces unprecedented in our history. These are (1) a combination of extreme easing of BOTH monetary and fiscal policy, (2) huge supply chain hiccups globally, and most unique to today, (3) an interconnected global zeitgeist shaped (controlled?) by social media via viral videos, memes and other dopamine-inducing tools. This last point is critical. Inflation is fueled by FOMO – people assume the today’s price is worth paying, no matter how high, because they KNOW it is going higher tomorrow. We’ve never experienced a bout of inflation in the era of TikTok, Twitter, Instagram and Facebook. What happens when a TikTok video of the first $20 Big Mac goes super viral?”

We see critical evidence of how social media is impacting mindsets and behaviors with the rapid depletion of gas stocks on the East Coast in this mini-crisis. Would there be shortages this quickly if everybody maintained their regular purchasing patterns or went into preservation mode? Of course not. But humans are humans, and we are reacting to unprecedented access to raw information that has been curated to trigger the reptilian portion of our brains. On the heels of the “great toilet paper shortage of 2020,” fear triggers dopamine, dopamine triggers engagement, and engagement is digital gold. By Monday morning, Twitter was replete with images of long gas lines. By Monday evening, the shortages were here.

As an aside, I fully expect to see much hand-wringing by local politicians about price gouging on the part of fuel suppliers. The CURE to supply shortages is price gouging. The market-clearing price for gasoline on the East Coast would probably reach $20 a gallon or higher before this crisis passes. Nobody will dare charge that price, because they know from experience they will be vilified for doing so, maybe even charged criminally. However, if gasoline were allowed to reach its market clearing price, demand would quickly recede and, most critically, supply would arrive much faster. There’s effectively no incentive for suppliers to pay the extra cost of circumventing the pipeline because of this de facto price control. In a crisis, politicians aren’t in the solutions business, they are in the blame-storming business. They need a villain to blame, and price gougers make for great villains.

Back to my personal reaction. Of course, I’m as guilty as anybody. I was just early. Did I need that extra gasoline on Saturday? Probably not, but I might. Am I capable of resisting the impulse to press my pattern recognition advantage for the benefit of my family, however small that benefit might be? Absolutely not. So, there I was, during an otherwise lazy Saturday afternoon, topping off the family vehicles, contributing ever so negligibly to the problems to come.

Tyson says everyone has a plan until they get punched in the face. I disagree. Almost nobody has a plan. As a prepper, at least I won’t ever be sucker punched.

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