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Tuesday, 12 September, 2000, 17:22 GMT 18:22 UK
When buying spirals out of control
Stock market in 1929
The big panic was the Wall Street crash in 1929
By BBC News Online's Orla Ryan

If there is one thing that smells stronger than petrol, it is fear.

In recent days, many motorists have used more fuel getting to petrol stations than they have been able to buy when they got there.

With petrol stations unable to replenish supplies, the crisis is real, but the stations themselves warn that consumer panic is actually making the crisis worse.

People see a queue and they think they'd better join it

Allan Norris, clinical psychologist

Many financial crises of the past century have been characterised by an irrational panic, which acts as a conductor for fears about the economic future.

Panic as predicted

What has happened this week is entirely predictable, Leo Drollas at the Centre for Global Energy Studies, said.

"It has happened before...People rush out to go and fill their tanks up. Normally, we run around with a third of our tanks full. If every person tries to fill their tank from a third to completely full, then you run out very quickly," he said.

The Petrol Retailers Association has said that in theory garages should have enough supplies for three or four days. These however have been run down because of panic buying.

"Fear is a great motivation for buying...People see a queue and they think they'd better join it, " Dr Allan Norris, a clinical psychologist said.

Chartered psychologist Robert Westlake describes this behaviour as "an emotional reaction. It is based on an irrational belief that I have got to survive. It is irrational because it is the person thinking I don't want to be left without this."

Gimme the facts

In theory these fears should be calmed by concrete information.

Financial panics are often fired by an absence of hard facts, Dudley Baines, economic reader at the London School of Economics, said.

At the time of the Wall Street crash in 1929, the ticker tapes providing news were running hours late. When news did arrive, it was invariably of falling share prices.

"Once people saw this, they sold their own stock without knowing what the price was. That was classic panic behaviour," he said.

Great crashes are nearly always preceded by great rallies.

In modern financial markets, panic buying begins when people become convinced that prices are set to rise even more. The problem then is that investors aren't evaluating the fundamentals of what they are buying, they are just buying before the price rises even more.

Once a few people believe that prices are set to fall, then they will start to sell, prompting a rush of traders keen to sell before their profits - and their bonuses - are erased.

Fear of the future

Sympathies may be thin on the ground for traders scrambling to save their annual bonuses.

Indeed, some economists question how far financial markets or the free market can cope with irrational panics, which can often foreshadow real shortages or even famines.

People may perceive a shortage of food, but it isn't an actual shortage that causes a famine, Nobel prize-winning economist Amartya Sen said.

The Bangladeshi famine of 1974 "occured even when the supply of food was not significantly lower than during previous years" without famines, his research found.

Crucial factors there were flooding and declining work opportunities for agricultural workers.

Often the real forecasters of economic doom are people who fear that unless they stockpile food, their very lives could be threatened.

During the Asian economic crisis, many people in emerging economies were gripped by fear about what the future could hold.

In Indonesia, shoppers grabbed flour, rice, milk and sugar from the shelves, sending prices of basic goods soaring. The fear that the Indonesian currency could plunge further - raising the price of imports - encouraged people to run out and stock up on basic goods.

When Russia's fragile banking system started to creak, central bankers and politicians pleaded with people not to take their dollar and rouble deposits to little avail.
Queue in Russia
People queue to buy food in Russia

Here no matter how much hard information was disseminated or promises made, people rushed to the shops, unable to trust administrations that had let them down before.

The BBC's Paul Moss
"Modern supermarkets only hold the bare minimum"
The BBC's Rory Cellan-Jones
"The impact will be felt across much of the British economy"



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