This is the first part in a prepper’s economics series here on 3BY by Paranoid Prepper.
Living near New York City, some of you might suspect that I work in the local industry, finance. I do, but I am not a gazillionaire, as Bernie Sanders would have you believe. I did not cause your 401(k) to collapse, or any of the other stuff the government has been desperately trying to blame the financial services industry for.
However, I can speak knowledgeably about economics. Today I would like to discuss why prices go up and down, using our favorite market, the gun and ammo market, as an example. When prices are stable, we are in “equilibrium”. Suppliers are able to service existing demand without having a lot of leftover capacity. Customers are happy. Suppliers are happy. Everything feels right. We have a balance between supply and demand. Yin and Yang are in harmony. 😊
Several things can happen to upset this stability. Demand can go up, or down. Supply can go up, or down. Let’s examine each of these alternatives.
Demand goes up
After the 2012 Sandy Hook shooting, many people thought new gun controls would be enacted, and some states did enact new infringements on the 2nd Amendment. There was an immediate demand increase for all things weapons related, especially AR-15s, but eventually working all the way to 50 cal. ammo cans. (What am I going to use for Faraday cages?) As a purchaser, you might think this is perfect for the manufacturers. They can sell more right? Sure, as soon as they build a new factory, train new workers, and figure out for themselves whether their products will remain legal. In other words, they can meet the higher demand in a couple years, not immediately.
We have an immediate change in demand, matched with a supply that will take years to adjust. That difference gets filled by prices going abruptly skyward until demand reduces to meet supply. Prices essentially determine where the new equilibrium point is for that product.
Demand can generally move faster than supply and this is an example of that occurring.
Demand goes down
As mentioned above some states did pass new restrictions on “assault weapons”. The effective dates of these restrictions were not immediate or concurrent, but we have had demand reduction in recent years at the state level, while we have a somewhat national market for firearms. However, when a major state bans a product, that means the existing supply will land in the remaining areas where the product is still legal so the equilibrium is upset. It is interesting to note that post Sandy Hook, while ARs were not banned, registration schemes were put in place in NY and CT and “evil feature” restrictions became worse.
Furthermore, in MA the state Attorney General declared that not only were ARs banned, as they had been previously, but that any firearm with a similar “action” would be banned as a clone. This was done without any legislation passing. Don’t even get me started on California. The result is in the various People’s Republics, ARs have been either banned or have so much nuisance red tape that they have become unattractive to own in those locales.
Notice that ARs have gotten very cheap lately? We are in the opposite position from late 2012.
Supply goes up
Mosin-Nagants were mass produced in such huge quantities that they are the VW Beetles of the firearms world. Mosins probably represent the largest number of rifles of a single model ever produced. As they became technologically passé for military use, the Russians crated them up and stored them. Other countries were not quite so careful in their storage, but firearms are pretty durable and can take a lot of abuse. Then the Soviet Union collapsed and the Russians were looking for stuff to sell. Why not some antique rifles? So they dumped what felt like a limitless supply of Mosin rifles onto the US market. The supply went from 0 to almost infinity, and the equilibrium price for a Mosin became $79. It slowly crept up from there as a collector market developed, and certain preppers acquired them, but the demand never went up to the point where a Mosin would be considered expensive. The market for Mosins reached equilibrium.
Supply goes down
Then Russia decided to annex Crimea and generally cause difficulty for Ukraine. Sanctions were placed on Russia and the marginal supply of Mosins went from large to zero instantly, not to mention the dirt-cheap ammo that went with them. Prices had to adjust upward and did so rapidly. Someone who bought a $79 Mosin now has a $300 Mosin, at least for the moment. (Congratulations Salty!) That is the price at which the supply that is already in the country, meets the demand for cheap Russian bolt action rifles in highly variable condition. 😊 Unfortunately, for someone sitting on a $300 Mosin, if the Russian sanctions are lifted, that price will almost certainly fall, as the demand will not support a $300 price with additional supply becoming available.
Summary
If you are into excuses for price movements like “Banksters” or “Hoarders”, you can see that I don’t agree. Prices change without any sinister party involved.
Prices make abrupt changes in response to changes in demand, with no corresponding change in supply, or vice versa. Some of these changes are caused by ham handed government action. Similarly demand for other products, e.g. houses, can change abruptly. If supply cannot adjust, prices will move to a new equilibrium. Government can exacerbate normal price movements by requiring banks to lend money that they might not otherwise lend, or for people to buy products or services they might otherwise skip. Other changes occur naturally, e.g. oil goes up and down in price as new supplies come online. When the cycle turns in the opposite direction, the result is not pretty and blame goes everywhere, except to the government policy, or natural supply and demand forces, that set the swings in motion. The rules of Supply and Demand will assert themselves, just as the sun will continue to rise in the East.
Good illustration with the Mosins. That’s exactly what happened with them and previous milsurp guns.
Thanks for the post.
I’m glad you enjoyed it. I am hoping to do a few more posts to illustrate basic economic principles applicable to preppers. Thanks for the feedback.
With the sad news today, we are about to see this article’s examples kick in to action, perhaps?
The news today is certainly heartbreaking. Assuming that demand goes up, as it has in the past, I would expect that firearm and ammunition demand will move up for some period of time. There are already a bunch of calls for stronger gun control on the news as well, though it seems less likely to me that any federal changes will be made. Note that firearms related equities are up today, so obviously some investors are thinking the same way. Because production capacity has adjusted upward since Sandy Hook, my guess is manufacturers will be able to adjust to the higher demand rather quickly, in comparison to Sandy Hook. Of course, I could be wrong. We’ll know after the fact what really occurred.