Last week, YouHodler did a humorous take on the current toilet paper situation currently playing out in many western countries as a result of Covid-19. After a few days of social distancing and economic inspiration from Nassim Nicholas Taleb, we’ve come to realize that toilet paper is more than just the subject of a joke. Instead, it’s a symbol of the world’s over-optimized supply chain and holds the key to preventing situations like this in the future.
The good news to this Covid-19 crisis is that eventually, we will start to see the infection rates curve, stabilize and eventually decrease. Yet, in the wake of this good news is an economic problem that is quickly taking on a life of its own. Recently, renowned author Nassim Nicholas Taleb took to twitter to describe “the convexity of economic effects from pandemics”.
In this Tweet, Taleb showed several graphics highlighting the economic impact from a pandemic like Covid-19. Many people are too focused on data regarding infections. Instead, the real issue to analyze is the economic data. As seen in the graph, the economic impact does not rise in fall parallel to the infection rate. Instead, it continues to rise well after the infection rate starts to stabilize. Why is this? The answer, of course, lies in toilet paper.
Costs often rise in a convex (arched) way even if the infections are slowing down. This is a simple effect of supply and demand. During shortages, supply decreases and as a result, the cost goes up. That’s why we are seeing a massive surge in prices for basic needs like toilet paper, masks and hand sanitizer. Over the past 100 years, we have optimized global supply chains to the point where it is not ready for pandemics like the one we are experiencing.
Hence, by the time the pandemic hits its peak, it’s far too late for the economy to react in a timely manner, which is why the negative impact continues to increase well after the event. There is a way to prevent this though. As Taleb stated in Twitter, “INSURANCE is cheaper than a catastrophe, which is why under convexity you act early, quickly, and ... CHEAPLY.”
Given the recent events, it’s a safe bet to make that we are heading in the direction of a global recession. The good news is, the cryptocurrency market may be safe. After a recent panic selloff dropped the market dramatically, what we’ve seen in recent stays is a more stable market that is operating independently from the traditional market. Still, the future is always uncertain with all financial markets so here is a few tips to help you prepare for a potential recession:
These are just a few quick tips to help you prepare for an unfavorable economic climate. The financial impact of this crisis may be far from over but if you are well prepared, you may not feel the negative effects. In fact, you may even be setting yourself up for great profits later if your tasks are executed correctly.
Please contact us at email@example.com to ask any questions about how YouHodler can help you plan for your financial future.