a simplified list, not one word about duties levied on imported wood even though the United States has not been able to supply it's own needs for years
Its inflation. Despite very high levels of production, there is even higher demand and a willingness to pay the higher prices. When you consider the fed printed trillions of dollars for easing in the last year this should be even more apparent.
This is a highly complex problem. One reason to run below capacity is that many of the trees that have grown in the souther US were left standing to grow longer during persuades of low demand in the last decade. Now that there is high demand it has become apparent that not many sawmills in the south of the UD have the capacity to saw larger trees, and many of the bigger mills that can are in Canada which is being impacted by tariffs that make shipping them back and forth not so economic.
Lumber production at all time high, as easily found in many articles.
It's called demand pull inflation. Suddenly populace has many more dollars, and thus can buy out supply of whatever... In this case, new housing stock. Or it could be driven simply by changes in preferences... The exact breakdown can't be known.
Whether it persists or not is the important question.
A lot of people handwave away shortages as a supply side issue, but an increase in demand leading to a shortage is not supply side at all. The distinction is subtle but important.
The price is off the wall high a 377% increase. Inflation isn't 377% its 4.2%. The price of lumber spiked nearly 100x faster than inflation. Actual inflation is such a small component of the spike that it would be hard to see through the noise.
This implies that lumber is a tiny portion of the basket of goods and is irrelevant for the majority of consumers.
Edit: My point is that if it is such a tiny portion, then a nation wide change in demand can have a huge impact on pricing without necessarily requiring monetary policy as cause.
What high level of production? Please cite your source for this. The production is still lower than it was prior to the last recession and they're ramping to match pre-COVID levels. It may be high relative to the last decade or pre-COVID but in the long run, it hasn't recovered to the pre-recession levels. (https://www.msn.com/en-us/money/markets/wood-production-hits...)
In other words, you have to include past levels when you say it is very high level, it isn't high relative to last year nor last decade either.
Inflation on its own doesn't explain ~100-400% price hike in the past year. Inflation hasn't even broken 10% yet.
It also doesn't explain that this started long before COVID as well.
This is mostly a supply and demand issue; the supply has taken a huge hit since the recession and lot of companies went out of business since then. COVID didn't help the matter.
Prices only tend to rise due to supply demand imbalances. That's exactly how inflation manifests... and in the real world it won't happen at a uniform rate across all goods.
As a thought experiment, imagine we print 2x the money supply and hand it to all citizens. Suddenly they can buy twice as many goods, so we would expect shortages, and prices to rise to compensate.
But likely a surge in discretionary income will hit certain types of goods first. We won't see people start stockpiling toilet paper with their newfound money, will we? Most people have all the toilet paper they need already. Funds will hit discretionary things, before spreading through rest of the economy as it circulates.
This thought experiment demonstrates an extreme, but this is the exact policy we enacted, just to a lesser degree.
While everyone probably caches a bit more toilet paper than before, a whole swathe of people took the plunge on a bidet and will buy 90% less toilet paper in perpetuity.
At the face of it, a shortage looks great for producers, but can bite them in the long-term.
>As a thought experiment, imagine we print 2x the money supply and hand it to all citizens.
I would like to mention that the money supply in this thought experiment is irrelevant. The key reason why the though experiment drives inflation is that "all citizens" includes a large group of people at the bottom of maslow's hierarchy of needs and they all want those needs to be met..
If you were to give all the money to Jeff Bezos he may not even be able to spend the first trillion and we would forever be doomed with extremely negative interest rates.
This shows you fundamentally don't understand how money works in the economy.
Lets say you give that money to Bezos. What does he do with it? Unless he literally builds an Uncle Scrooge money bin and hoards physical $100 bills, having the money allocated to Bezos in no way prevents it from being injected directly into the economy.
Lets say we hand Bezos $1B today, what does he do with it?
Puts it in a bank: Banks want deposits so they can loan more money out at a higher interest rate than they pay to the depositor. Bezos putting money into a bank will cause interests rates to go down slightly and an extra $1B in loans to be issued, and people borrow money to buy things immediately.
Buys stocks: For Bezos to buy a stock, that means someone else sold a stock. Now the cash is in someones hands and they have to do something with it.
Buy treasuries: Treasuries are used to finance the federal debt, which is money the government is already spending now. Most of it goes to salaries of government employees or direct payments such as social security, both of which are spent by regular people for necessities. The rest of the budget is used to purchase things or to pay interest on the debt, and interest payments put cash in hands of people who then have to do something with it.
Note your 4 options is what will happen to prices. If he chooses to buy consumption goods, those things will rise in price by some amount. If he chooses stocks, the person that sold that stock to him will want a higher price than before that $1B was handed to Bezos and he increased the demand for stocks by $1B. Likewise for the other two. These are just supply and demand curves. Basic macroeconomics 101.
So we can see that when new money is created in an economy, it must necessarily be split within all the asset classes according to the decisions made by the person given the money. The person given that money proceeds to do the same thing in a chain of purchases.
So now when we zoom back and look at the Federal Reserves mandate we can see it much more clearly. "We need to ensure that when we print more money than goods are created, that money is chosen to be put into stocks and not consumption goods.". They do so by directly affecting the prices of stocks by buying company bonds, which then is directly used to buyback stocks. In effect, the Federal Mandate is wealth inequality.
The big problem with that is its a house of cards. Once you start supporting inequality, the greater inequality means that you have even less room to mess up and smaller and smaller hedges will have larger and larger impacts. And if the wealthy choose to go against their overall utility and cashout today, the entire system collapses. If the wealthy work out that someone else can cashout and they become the bagholder (like BOA margin-calling Archegos Capital), then that will trigger themselves to do so to save risk.
So we can see that the Federal Reserve's plan does not in fact deal with the risk, it pushes it forward as a bigger risk. The Federal Reserve is just a Martingale.
It might be possible for this system to last for hundreds of years, it's already worked for 50. I have no idea how close we are to some limit.
> It also doesn't explain that this started long before COVID as well.
False, the price run-up started in April 2020, after staying in a fairly narrow band of prices for 40 years. By August 2020 prices had hit an all time high, and then continued to rise to 2.5x that previous record.
Compare these graphs, and explain why we should ignore the obvious possibility that this correlation might be meaningful. The money supply went from 4 trillion to 19 trillion (an increase of 4.75x) and the price of lumber went from $300 per 1000bf to $1500 per 1000bf, an increase of 5x over precisely the same period. Probably just a coincidence...
Wood production is at it's highest level since 2008. There was a slight dip during peak covid lockdown, but there was also an offsetting drop in demand during the same period so this can't be explained by the temporary drop in production.
No, it's not the definition of inflation. If Monet becomes very fashionable and his paintings double in value, that's not 'inflation' it's just something increasing in value.
When the government prints trillions of dollars to bail out corrupt wallstreet firms and hedge funds so that the super rich can avoid the consequences of their high risk investment strategies, and this causes the purchasing power of money to decrease, that is inflation, and that is what is happening. Wood just has a low ability to flex up production quickly compared to many other goods.
The price of a Big Mac has gone up 12% in the last year and a half. I encourage you to pick something and price compare it from pre to post covid and see if inflation might not be higher than the official number.
Seems like a regular run-of-the-mill supply and demand mismatch. Once new mills are open, and existing mills start ratcheting up production, the prices will fall.
That's assuming someone wants to open one. The demand was spiked by the pandemic which is subsiding. According to the article a new mill take 2 years and technology impacted by the microprocessor shortage.
Yes and we're exacerbated by the pandemic. The article said mills lowered production assuming there would be reduced demand during the pandemic but there was increased because people were stuck at home doing projects.
Now that the pandemic waining and people are heading back out, is it not safe to assume some of that demand will be subsiding?
Long dated lumber futures are cheaper than short dated lumber futures. This means the market is betting on lumber prices decreasing. The market is not always correct though.
Instead of reading about commodities on a site called "The Hustle," may I recommend reading another site that is specifically about lumber? Madison's Lumber Reporter[1] is a great site for tracking lumber prices.
I think both the OP’s article and your comment were very useful.
The Hustle gave me a useful overall explanation of the phenomenon, while your comment pointed me to an ‘insider’ resource to refer to for up-to-date information.
I don't know of an official source, but if you can just drive by a mill. I've been by two and witness first hand the pile up. I've driven by one mill two times a year for like 17 years and they have at least 10x the milled lumber stacked up. I've never seen it even remotely that full. I say 10x but it could be even much more. The other mill had probably 3-4x what they normally had.
Maybe because they have ratcheted up production to try and handle demand. A lumberyard filled to the brim doesn't mean what you think it means if that entire yard full is being sold and replenished every week.
No it isn't. Trump decided that Americans harvest and mill their own lumber with the trade wars. That's all there is to it. When you suddenly cut imports then it will take time for your domestic companies to catch up. It's that simple.
The price and lead times on raws are incredible now. Buying steel now is almost 2x in cost. With having 'caps' put onto orders, so that suppliers can keep their customers on.
The resin shortages which hurt the plywood industry also have spilt over into other markets. For example PVC/CPVC manufacturers are experiencing shortages in resins used in their manufacturing of pipe. Thus they're limiting order sizes to their companies and buyers to keep more of them on.
Meanwhile lots of factories and construction have never been busier with more demand for raws. So with large leadtimes, supply chains and manufacturing gets choked up and it just kind of ripples out.
I understand there are shortages of Romex style electrical cable, not because of copper, but because of insulation. Perhaps because of the resin issue you mention?
Is it just me or do “markets” feel like a really dumb AI that is incapable of any sort of strategic planning? It feels like it has the maturity if a child in grocery store swooping up all the candy and scoffing at all the vegetables. Undoubtably markets are great for a lot of things but simply devastating when ineffectively applied to mission-critical goods and services that involve contextually aware knowledge and meta-level thinking. It seems like theres a missing component that would observe swings in demand and try to smooth out the impacts by e.g. subsidizing industries where demand has tanked or taxing industries where demand has skyrocketed in a tapering way (tax that reduces over time as the rate of change of the price of the commodity changes) to avoid something like shuttering a sawmill because of a temporary swing in market economics.
That is because the same happens every year. Even a bad AI or child (using OPs example) can plan for that. But when it comes to events that happen sporadically markets seem to have issues where most sane adults would be able to handle it.
It's probably a sane choice for most products to -not- prepare for very rare disasters like a hundred year pandemic. After all, markets optimize for profit, not convenience or safety.
These shortages will all smooth out relatively soon. It can cost a lot of money to be prepared for everything.
Sometimes the most efficient option is not the safest or happiest or winning option. If our prime goal was cheapest lumber 99% of the time, then sure a traditional market is very good at that. I would happily pay for 1% more expensive lumber all the time to avoid paying for 1000% more expensive lumber (read: not being able to buy lumber) when I really need it.
Markets allow the type of behavior that we see “sane” adults engaging in by design. So if you update the design or the rules of the market, you will observe different behavior from its participants.
From my understanding amount paid for the raw trees by mills hasn't gone up, so it's clearly on the mills that are capturing the excess profit; makes me wonder if there needs to be a mechanism for society to capture much of that unusual profit to then redistribute as one such mechanism.
We already have a system that captures a part of both usual and unusual profits and redistributes them. It even scales with the size of the profits. That’s how taxes work.
You only know it is a temporary swing retrospectively. It is impossible to know if it is a temporary swing. It seemed more likely a year ago that we would still be waiting for a vaccine in 2021. If someone was trying to guess the future and massage the market, they just as likely might have assumed even less demand and subsidized shutting down more mill capacity to reduce virus spread which seemed like a bigger problem than lumber prices.
You can know that the rate of change of a given commodity over some window is higher than an acceptable threshold and tax/subsidize it using funds collected from all transaction made on the market or something until that window passes or until the commodity’s price stabilizes (is no longer unacceptably volatile), whichever is shorter.
The idea I’m trying to capture is to specifically not apply arbitrary human sentiment and planning to the daily operations of the market and instead have the impetus to keep e.g. prices stable built into the market itself (and only in scenarios where a less volatile economy is desirable) so that the market remains like an AI but just operates a little better for the given problem it is solving. I think it’s fair to treat markets like software that can be changed and improved over time in order to better solve the problems they’re deployed to address. Maybe a more volatile market is better for some other set of goods or services? I think it is up to humans to determine the parameters and desired outcomes of the market they want governing the exchange of goods and services in different areas of society.
Do you trust the central planners to plan better than participants with a vested interest in the outcome?
In general, I’m deeply skeptical that central planning and government “picking winners” would achieve an overall benefit. At a minimum, it does not appear to have a strong record so far.
It is the best so far. Show me one that works better on a large scale. The economy makes up of billions of transactions that are not planned but are there to fulfill greed, each in their separate ways end up acting as a choreographed system that the central planners could never replicate.
The naive solution I had in mind isn’t a centrally planned economy. It’s some type of addition to the concept of a market to deter volatility in specifically commodities markets where volatility is often disruptive and potentially catastrophic. I don’t trust a gov’t to centrally plan an economy, thats for sure, but I do believe society could iterate and improve on the way it applies markets to solve various problems.
MarketBuffer was leaking resources and was foundationally unsalvagable; it has been deprecated and future implementations of societies are advised to manage their resources via unique_enterprise and shared_enterprise.
There is a vast space of possibilities between (and orthogonal to!) the line between "unregulated market" and "centrally managed economy." Just because someone says "this didn't work" doesn't mean they would say "let's do 100% the opposite."
Surely, in this case, there are better ways to smooth out these spikes and dips in flows than just letting the price go sky high so that only the rich can build or repair housing for a year or two.
Central planning has a great track record in corporate governance. Walmart employees 2.3 million people and as far as I know is centrally planned. Central planning can at least scale up that far. Sixteen states have a population less than that. I don't see any indication that scale is holding Walmart back.
Plain old supply and demand instantaneous markets are dumb,as you say. However futures markets are just as smart as the humans who run them. If there isn't a futures market for lumber (or microprocessors, or RAM, or whatever else has big fluctuations in price) then whoever starts one is in line to make a killing. Manufacturers want to be able to sell at stable prices so that they can do long term investments in efficiency.
There are smart actors that plan, but that is rare, since most humans are short term thinkers (or are negative term thinkers, e.g. dwelling too much on their past failures to plan ahead).
The whole point of a market is that if you think its wrong you can profit by correcting it. If you think prices will fall, have you shorted it? If they're going up I assume you're long?
So a bunch of people think the lumber market is going down during the pandemic and take out short positions on lumber futures because they want to profit and then lumber mills start closing in response. The problem is the lumber mills closing. That’s not part of the picture that can be easily corrected. Now the market participants, who were wrong, have impacted the production capacity of lumber and we cant get any new sawmills because it’s too expensive to spin one back up? Maybe the info graphic isn’t telling the whole story, though?
Why does this matter? It's an unpredictable short term problem that is going away. If you can build an AI that can predict the increased demand during the pandemic then the market won't need the rest of the AI.
Unless we had a crystal ball we were unlikely to do better than the market and we would have likely predicted demand to go down during the pandemic as well and decommissioned some of the sawmills that we need right now.
If you predicted what the article is citing as the causes for the shortage, you would have started a sawmill in 2020.
Did you read the article? The lumber companies DID plan ahead using their knowledge and experience, it just turned out to be wrong.
I'm curious to see what economic system would be able to foresee a drastic increase in the demand for lumber during the pandemic-induced depression, despite all the evidence suggesting that the opposite would happen.
That’s not how I read the infographic. I read as: wood bug ruins a bunch of trees then human speculators shorted the lumber market which caused sawmills to close. The problem here is humans being able to profit off of volatility in commodities during a crisis. I’m entertaining a solution that prevents humans from being able to do this by including built-in buffers that apply consistently and equally without human intervention.
Demand didn't skyrocket, it simply stayed the same but because humans tried to preempt things sawmills closed and boom now there’s no supply to meet the existing demand so prices skyrocketed.
Enabling more flexible capacity would fix this problem by introducing additional "contextually aware knowledge and meta-level thinking" into the market. Higher prices would spur additional market entrants to come online faster. To do that you'd need to reduce regulation or at least make regulatory processes more efficient.
According to Bloomberg lumber dropped ~18% this past week, the highest drop on record since 1986. [1]
My observation is that there are very little need to understand about market, you only need to know the basic where a young child could understand as lead time and basic cost.
There is a whole lot to understand but possibly never be able to fully understand about human nature.
The market, after all is just a sum of all human behaviours.
Economics is the same, human are highly irrational.
So viewing the whole thing from a rational perspective will make you feel like the market is really dumb. But if you look at it from a human perspective, in the seat of those managing their company from Fear, Greed, Risk and Security everything makes lot of sense.
> First, learn to tell the difference between inflation and congestion.
Inflation: price rises cause prices to rise.
Congestion: squeezes are followed by series of price collapses.
Every time I see posts about/like this and people comment why companies wont ramp up production. I wish they would look into the Beer Distribution Game and the Bullwhip effect.
This is purely protectionism, and keeps lumber prices artificially high. (Mind you, the reverse is true in the dairy industry with the trade barriers that Canada imposes.)
89 comments
[ 3.2 ms ] story [ 117 ms ] threadThe article then discusses the challenge of expanding or opening a saw mill.
You don't talk about expansion if you're running below peak capacity.
They talk about opening new sawmills because a huge number of them went out of business since the last great recession.
It's a supply/demand issue and the production relative to COVID or last recession hasn't recovered.
It's called demand pull inflation. Suddenly populace has many more dollars, and thus can buy out supply of whatever... In this case, new housing stock. Or it could be driven simply by changes in preferences... The exact breakdown can't be known.
Whether it persists or not is the important question.
https://www.google.com/amp/s/fortune.com/2021/06/10/lumber-p...
A lot of people handwave away shortages as a supply side issue, but an increase in demand leading to a shortage is not supply side at all. The distinction is subtle but important.
Edit: My point is that if it is such a tiny portion, then a nation wide change in demand can have a huge impact on pricing without necessarily requiring monetary policy as cause.
In other words, you have to include past levels when you say it is very high level, it isn't high relative to last year nor last decade either.
Inflation on its own doesn't explain ~100-400% price hike in the past year. Inflation hasn't even broken 10% yet.
It also doesn't explain that this started long before COVID as well.
This is mostly a supply and demand issue; the supply has taken a huge hit since the recession and lot of companies went out of business since then. COVID didn't help the matter.
As a thought experiment, imagine we print 2x the money supply and hand it to all citizens. Suddenly they can buy twice as many goods, so we would expect shortages, and prices to rise to compensate.
But likely a surge in discretionary income will hit certain types of goods first. We won't see people start stockpiling toilet paper with their newfound money, will we? Most people have all the toilet paper they need already. Funds will hit discretionary things, before spreading through rest of the economy as it circulates.
This thought experiment demonstrates an extreme, but this is the exact policy we enacted, just to a lesser degree.
At the face of it, a shortage looks great for producers, but can bite them in the long-term.
I would like to mention that the money supply in this thought experiment is irrelevant. The key reason why the though experiment drives inflation is that "all citizens" includes a large group of people at the bottom of maslow's hierarchy of needs and they all want those needs to be met..
If you were to give all the money to Jeff Bezos he may not even be able to spend the first trillion and we would forever be doomed with extremely negative interest rates.
Lets say you give that money to Bezos. What does he do with it? Unless he literally builds an Uncle Scrooge money bin and hoards physical $100 bills, having the money allocated to Bezos in no way prevents it from being injected directly into the economy.
Lets say we hand Bezos $1B today, what does he do with it?
Puts it in a bank: Banks want deposits so they can loan more money out at a higher interest rate than they pay to the depositor. Bezos putting money into a bank will cause interests rates to go down slightly and an extra $1B in loans to be issued, and people borrow money to buy things immediately.
Buys stocks: For Bezos to buy a stock, that means someone else sold a stock. Now the cash is in someones hands and they have to do something with it.
Buy treasuries: Treasuries are used to finance the federal debt, which is money the government is already spending now. Most of it goes to salaries of government employees or direct payments such as social security, both of which are spent by regular people for necessities. The rest of the budget is used to purchase things or to pay interest on the debt, and interest payments put cash in hands of people who then have to do something with it.
Note your 4 options is what will happen to prices. If he chooses to buy consumption goods, those things will rise in price by some amount. If he chooses stocks, the person that sold that stock to him will want a higher price than before that $1B was handed to Bezos and he increased the demand for stocks by $1B. Likewise for the other two. These are just supply and demand curves. Basic macroeconomics 101.
So we can see that when new money is created in an economy, it must necessarily be split within all the asset classes according to the decisions made by the person given the money. The person given that money proceeds to do the same thing in a chain of purchases.
So now when we zoom back and look at the Federal Reserves mandate we can see it much more clearly. "We need to ensure that when we print more money than goods are created, that money is chosen to be put into stocks and not consumption goods.". They do so by directly affecting the prices of stocks by buying company bonds, which then is directly used to buyback stocks. In effect, the Federal Mandate is wealth inequality.
The big problem with that is its a house of cards. Once you start supporting inequality, the greater inequality means that you have even less room to mess up and smaller and smaller hedges will have larger and larger impacts. And if the wealthy choose to go against their overall utility and cashout today, the entire system collapses. If the wealthy work out that someone else can cashout and they become the bagholder (like BOA margin-calling Archegos Capital), then that will trigger themselves to do so to save risk.
So we can see that the Federal Reserve's plan does not in fact deal with the risk, it pushes it forward as a bigger risk. The Federal Reserve is just a Martingale.
It might be possible for this system to last for hundreds of years, it's already worked for 50. I have no idea how close we are to some limit.
False, the price run-up started in April 2020, after staying in a fairly narrow band of prices for 40 years. By August 2020 prices had hit an all time high, and then continued to rise to 2.5x that previous record.
Compare these graphs, and explain why we should ignore the obvious possibility that this correlation might be meaningful. The money supply went from 4 trillion to 19 trillion (an increase of 4.75x) and the price of lumber went from $300 per 1000bf to $1500 per 1000bf, an increase of 5x over precisely the same period. Probably just a coincidence...
https://tradingeconomics.com/commodity/lumber
https://fred.stlouisfed.org/series/M1SL
> What high level of production?
Wood production is at it's highest level since 2008. There was a slight dip during peak covid lockdown, but there was also an offsetting drop in demand during the same period so this can't be explained by the temporary drop in production.
Yes, the increase in price of a good is the definition of inflation.
That’s a tautology, not an explanation.
(It is not general inflation, because the lumber price increases are way out of line with general inflation.)
> When you consider the fed printed trillions of dollars for easing in the last year this should be even more apparent.
That... doesn't explain the specific increase in lumber not seen across the broader market of goods and services.
When the government prints trillions of dollars to bail out corrupt wallstreet firms and hedge funds so that the super rich can avoid the consequences of their high risk investment strategies, and this causes the purchasing power of money to decrease, that is inflation, and that is what is happening. Wood just has a low ability to flex up production quickly compared to many other goods.
The price of a Big Mac has gone up 12% in the last year and a half. I encourage you to pick something and price compare it from pre to post covid and see if inflation might not be higher than the official number.
That's assuming someone wants to open one. The demand was spiked by the pandemic which is subsiding. According to the article a new mill take 2 years and technology impacted by the microprocessor shortage.
Now that the pandemic waining and people are heading back out, is it not safe to assume some of that demand will be subsiding?
https://finance.yahoo.com/quote/WFG?p=WFG&.tsrc=fin-srch
Pun intended?
[1] https://madisonsreport.com
The Hustle gave me a useful overall explanation of the phenomenon, while your comment pointed me to an ‘insider’ resource to refer to for up-to-date information.
My data comes from inside sources in the lumber industry.
Yours comes from… where exactly?
We do have Biden putting tariffs on Canadian lumber to help keep prices high, but that's the only thing I'm aware of.
The price and lead times on raws are incredible now. Buying steel now is almost 2x in cost. With having 'caps' put onto orders, so that suppliers can keep their customers on.
The resin shortages which hurt the plywood industry also have spilt over into other markets. For example PVC/CPVC manufacturers are experiencing shortages in resins used in their manufacturing of pipe. Thus they're limiting order sizes to their companies and buyers to keep more of them on.
Meanwhile lots of factories and construction have never been busier with more demand for raws. So with large leadtimes, supply chains and manufacturing gets choked up and it just kind of ripples out.
These shortages will all smooth out relatively soon. It can cost a lot of money to be prepared for everything.
The market is made up of sane adults. It's a feature, not bug. Fortunately. Or unfortunately.
You only know it is a temporary swing retrospectively. It is impossible to know if it is a temporary swing. It seemed more likely a year ago that we would still be waiting for a vaccine in 2021. If someone was trying to guess the future and massage the market, they just as likely might have assumed even less demand and subsidized shutting down more mill capacity to reduce virus spread which seemed like a bigger problem than lumber prices.
The idea I’m trying to capture is to specifically not apply arbitrary human sentiment and planning to the daily operations of the market and instead have the impetus to keep e.g. prices stable built into the market itself (and only in scenarios where a less volatile economy is desirable) so that the market remains like an AI but just operates a little better for the given problem it is solving. I think it’s fair to treat markets like software that can be changed and improved over time in order to better solve the problems they’re deployed to address. Maybe a more volatile market is better for some other set of goods or services? I think it is up to humans to determine the parameters and desired outcomes of the market they want governing the exchange of goods and services in different areas of society.
In general, I’m deeply skeptical that central planning and government “picking winners” would achieve an overall benefit. At a minimum, it does not appear to have a strong record so far.
Surely, in this case, there are better ways to smooth out these spikes and dips in flows than just letting the price go sky high so that only the rich can build or repair housing for a year or two.
In fact, it’s legal for you to create one today, and if you operate it successfully, you’d make a lot of money.
Blackrock Investment is doing everything you describe, but for housing. They are being heavily derided by the media for doing so.
How do you know the price is low and to start buying or wait because the price might fall down more?
The government wants to make sure things are moving in the government, not sitting around
Unless we had a crystal ball we were unlikely to do better than the market and we would have likely predicted demand to go down during the pandemic as well and decommissioned some of the sawmills that we need right now.
If you predicted what the article is citing as the causes for the shortage, you would have started a sawmill in 2020.
I'm curious to see what economic system would be able to foresee a drastic increase in the demand for lumber during the pandemic-induced depression, despite all the evidence suggesting that the opposite would happen.
Demand didn't skyrocket, it simply stayed the same but because humans tried to preempt things sawmills closed and boom now there’s no supply to meet the existing demand so prices skyrocketed.
According to Bloomberg lumber dropped ~18% this past week, the highest drop on record since 1986. [1]
[1] https://www.bloomberg.com/news/articles/2021-06-11/lumber-pr...
There is a whole lot to understand but possibly never be able to fully understand about human nature.
The market, after all is just a sum of all human behaviours.
Economics is the same, human are highly irrational.
So viewing the whole thing from a rational perspective will make you feel like the market is really dumb. But if you look at it from a human perspective, in the seat of those managing their company from Fear, Greed, Risk and Security everything makes lot of sense.
@nntaleb comment:
> First, learn to tell the difference between inflation and congestion. Inflation: price rises cause prices to rise. Congestion: squeezes are followed by series of price collapses.
https://www.cmegroup.com/trading/agricultural/files/AC-243_R...
https://en.wikipedia.org/wiki/Beer_distribution_game
This is purely protectionism, and keeps lumber prices artificially high. (Mind you, the reverse is true in the dairy industry with the trade barriers that Canada imposes.)