How Government Price Controls Are Keeping Toilet Paper off the Market
A reader, A.B. Sterner, writes:
Toilet paper, for reasons I still can’t grasp, is experiencing a severe (in store) shortage in a lot of areas of the country. Yet in some areas price ceilings—in the form of "anti-gouging" laws—have been put in place to keep those prices artificially low, despite the unprecedented increase in demand.
Our family is one who gets a predetermined order of paper and other products delivered by Amazon monthly, through their subscribe and save feature. One of the items we receive monthly is toilet paper. This last delivery, Amazon was unable to fill the order. Thanks to our overestimation and failure to adjust our previous orders, we have been unintentionally hoarding toilet paper for years. When set up initially, we assumed we would use a package equivalent to 56 “regular” rolls of toilet paper each month. As it turns out, we have used an estimated average of 38 regular rolls of toilet paper per month. So even as we did not receive our shipment this month, we still had plenty of stock on hand, the equivalent of nearly 500 rolls, or enough to easily supply our family for at least a year.
We are now faced with a far larger than needed inventory of toilet paper. Our first thought is we should hold onto it, given the uncertainty of when we will be able to purchase more. Given we have more than a year’s supply, there isn’t a likely scenario where this would be necessary. It's a sunk cost, we have the room to store it without sacrificing the storage of other items. The do-nothing approach is the most appealing option right now. But what if we were to try and sell it? We paid roughly $0.30 for each regular roll. It’s $150.00 worth of inventory we are currently carrying. Our subjective value of this toilet paper is at least what our costs were, as of now. As laws to prevent price gouging are in effect, and if we were to try to sell any of our inventory for more than $0.30 per roll would be considered illegal, there is no incentive to let go of our current inventory.
As of now, our subjective value of each roll is probably $0.50, a 67% premium over what we paid for them. If we could receive more than $0.50 per roll, instead of hoarding them, we would put at least a couple of cases up for sale. If we could get $1.00 [per] roll, we would likely put most of my inventory up for sale. If we could get $5.00 per roll, we would sell every last roll and either purchase a bidet or two, or maybe even use warm wash cloths and do quite a bit of unpleasant laundry every day.
I’m sure plenty are thinking that we should do the “right” thing and just donate them to others less fortunate. The problem with this is prices have remained unchanged, thanks to price ceilings put into place by the government. You may not think this would have any effect on our willingness to donate our inventory, but it has a large impact. Donations to a qualified non-profit carry tax benefits. Our $150.00 inventory, if donated, would generate a tax deduction of no more than $150.00, since this is the current artificial price. The actual tax savings to us would be less than $50.00, well below what we paid and far below our subjective value per roll. The incentive isn’t there. If we could deduct $500.00 or $1,000.00 worth of income by donating our excess inventory, because prices were not artificially restricted, there would be an incentive to donate our extra to those in need.
If the price system were allowed to work, even though we would gain more profit from selling them outright, we would more likely donate our excess, because the monetary benefit would be equal to or more than our subjective value. In addition, we would also profit from the psychic benefits we would get, from knowing we were helping those who are in need during this time. So even if we had the opportunity to be selfish, uncaring capitalist dogs, we wouldn’t.We are not the only ones in this situation. Others are have inadvertently overordered their supply of toilet paper and have inventories such as ours. Even more have purchased well more than they need in the short term and have subjectively valued theirs at more than they have paid. If prices were allowed to work, ask yourself, how many of just these rolls of personal inventory would be put back out into the market? The answer is an easy one. It would be more than enough to satisfy the current needs of every American. As we established, there is no shortage of toilet paper out there, just a shortage of toilet paper in the marketplace because of the price ceilings put in place by our philosopher kings.