Stocking Up On Food: Kooky, Clever, or Just Plain Clunky?

March 22nd, 2010

In the wake of 2008’s financial crisis and the ensuing recession, speculation about total financial collapse is rife in unofficial circles. Armageddon scenarios are familiar to most Americans. In our lifetimes, we have faced nuclear annihilation, attack by extraterrestrials, collision with asteroids, nuclear winter, global cooling, global warming, various other eco-catastrophes and killer viruses.

 Authorities invariably scoff at such predictions, but in this case they have only themselves to blame. In the fall of 2008, Treasury Secretary Paulson and Fed Chairman Bernanke cooked up their own doomsday scenario in order to terrify Congress into passing bailout legislation. Apparently, this kind of talk is only alarmist when private citizens do it, not when they do it.

 An outgrowth of the current paranoia is the advice to hoard food as a precaution. This advice has a venerable pedigree, dating back at least to the fallout-shelter fad of the 1950s. Is there anything to it?

 Kooky?

The temptation to treat food stockpilers as kooks should be resisted. We have almost no experience with worldwide financial collapse – does it make more sense to assume the worst or hope for the best? There is no reason to think that markets are inherently disaster-prone, but every reason to fear the unintended consequences of political actions.

 Thinking the Unthinkable

Food hoarding is dismissed out of hand by the conventional thinking. Why spend time and effort planning for a collapse that isn’t going to come, anyway? In effect, the critics are assuming they can predict the future sufficiently well to foresee no need to stockpile. Rather than assume the problem away, however, let’s subject it to rational thought.

 Even if we posit the unlikelihood of financial collapse, it can’t do any harm to visualize the possibility and consider the value of countermeasures. What contingency is food stockpiling supposed to counter?

 Presumably, the dreaded scenario is one in which it becomes impossible, unsafe or uneconomic to acquire food through the normal channels. If official money were lose its value in exchange – due to hyperinflation or default by the Treasury, for example – indirect exchange might become less efficient than direct exchange or barter. The normal supply channels for food might be disrupted. Its price might skyrocket. Under these conditions, food stockpiles would certainly come in handy. But how well would stockpiling work under those circumstances?

 Logistical considerations

A financial crisis serious enough to threaten the stability of our monetary unit wouldn’t go away quickly. It would last for months, if not years. Acquiring and preserving a year’s worth of food is not a trivial matter. It requires money, space, and a certain amount of nutritional expertise. The failure to provide dietary balance could cause health problems of clinical severity. (Remember the days when British naval vessels carried limes to prevent scurvy on long voyages?)

 Spatial shortage would be a big roadblock to stockpiling. Any storehouse smaller than a 1950s’-style fallout shelter would hardly be sufficient for the purpose. In fact, the aftermath of nuclear war would have certain things in common with the fallout from a financial collapse. Food storage would have to be not only capacious but also secure, to guard our supplies from those with less foresight and fewer scruples than us.

 Effective food accumulation would take a lot of money. Is stockpiling the most efficient use of such a store of wealth?

 A More Efficient Plan

A bedrock financial maxim says to hold 3-6 months worth of expenses in the form of liquid assets, as a fund for emergencies. People hold money because it is so much more efficient than other methods of facilitating exchange and storing value. Emergency food stockpiles essentially substitute food for money. That is a doubtful choice; either you will have to greatly increase the amount of money you allocate to emergencies or your emergency fund will become much less flexible, consisting of more food and less money.

 Apparently, stockpilers believe that food is an efficient store of wealth because you can always eat it, and everybody needs to eat. The conclusion does not follow from the premise. We need water and fuels, too, but stockpiling them in quantity would be highly impractical. Stockpilers will need to accumulate the right kinds of food – non-perishable, nutritionally dense, flavorful enough to tolerate as regular consumption should the unthinkable not happen – in the right forms – storable in powdered, condensed, packaged, jarred, or frozen – and quantities – enough to last for at least a year, if not longer. Of course, it is just this sort of inconvenience and inflexibility that money was developed to avoid.

 Even a financial collapse will probably not persuade people to dispense with the advantages of money. Not only is it an invaluable medium of exchange, but civilization has stored immense amounts of value in money; savings accounts, bonds and annuities are structured to accumulate and dispense wealth in monetary form. Instead of abandoning money, people will probably eschew official money for something else that functions better. Traditional money is cheap to hold and readily exchangeable for anything else we need. What else fits this description?

 Gold is the traditional money substitute during extraordinary times. One would expect it to perform the same function during an economic collapse. Rather than hold wealth in a perishable, inflexible form, it makes more sense to hold a money substitute that will appreciate in value when the world is crashing down around us. Even if gold does not become that substitute money, it may be exchangeable for it, just as gold exchanges for official money today.

 Of course, if food cannot be had even in exchange for gold, then we will wish we had a stockpile. But the expense of acquiring, maintaining and storing sufficient foodstuffs to last out a world-shaking crisis can be borne only by a few.

 What If There is No Collapse?

Alternatively, assume that the collapse does not come. The sizable investment in food and support structures will not be completely wasted, since the food can always be consumed. But the rate of return on that investment will be low because household consumption will have to be distorted and devalued in order to recoup value on the sizable accumulation costs. Better to hold something that might generate a decent return. Once again, gold seems like the best way to hedge bets since it might well increase in value even if the collapse does not actually materialize.

 Food as “Insurance”

In effect, food stockpiling is a form of insurance. The “premium” is not merely the pecuniary cost of acquiring food but also the ancillary drawbacks, which are many and substantial. The “payout” will occur only in a highly specific case and might have been “purchased” better and cheaper in other ways.

 Not Clever, But Not Kooky – Just Clunky

Food stockpilers are not nutcases – not inherently, anyway. Food stockpiling is not a crazy idea, just not a particularly efficient one for insuring against financial catastrophe. The truly wealthy or those with a fallout shelter left over from the 1950s might be able to execute it. The rest of us are probably better off choosing a more prosaic type of insurance, such as gold.

Category: Annuities, Contingency Planning, Economic Analysis | Tags: , , , ,

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