As Hurricane Irene hits the east coast of the United States, Americans are continually reminded by the media of the great importance of institutionalized governmental disaster relief programs to society and how Americans just could not survive without these programs. Then, when people, especially libertarians like Ron Paul advocate abolishing government agencies like FEMA, people lose their minds because they have become so dependent of the government for their lively hoods.
But is government disaster relief a good thing? Many people would answer in the affirmative. Or is it an inefficient system of bureaucratic socialism that fails to help the people, robs other people of their wealth, and expands the power of the state?
As William F. Shughart II explains:
the public sector predictably fails to supply disaster relief in socially optimal quantities. Moreover, because it facilitates corruption, creates incentives
for populating disaster-prone areas, and crowds out self-help and other local means of coping with disaster, government provision of assistance to disaster’s victims actually threatens to make matters worse.
Looking back on the debacle of Hurrican Katrina, Shughart's concerns seem to be correct. As Lew Rockwell documented:
Consider first how the much-glorified Department of Homeland Security responded to the Katrina crisis. There is a mysterious missing day between the time the hurricane hit and the levees broke and flooded New Orleans. During this strange Monday, August 29 — a day in which there was a window of opportunity to prevent the meltdown of civilization — why didn't federal officials respond or even pretend to respond?
The head of the Department of Homeland Security, Michael Chertoff, said that he read in the Tuesday morning newspaper that, according to the headline, "New Orleans Dodged the Bullet." So, to his mind, there was nothing to do. This was his testimony. This is not exactly an awe-inspiring admission, but it speaks to a truth that few are willing to admit: government officials live normal lives. They do not partake of the mind of God. They get their news just like you and me. And they have far less information than the body of knowledge generated by the signaling process of the market economy and the private sector.
We might even say that they are in effect sub-normal in intelligence, because government officials stand outside of society, cut off from normal channels of information that the rest of us take for granted. They are isolated from markets and the regular pressures of life. They are not owners of what they control, and have no real stake in the value of their product. They are surrounded by some of the most peculiar people in the world, namely lifetime bureaucrats, power-mad politicians, and lobbyists on the make. This is their world and this is what they know.
Now, they enjoy the illusion of being better informed than the rest of us, so it would never occur to a high official to surf Google News to find out what is really going on. Thus was it apparently beyond the capacity of FEMA to find out that the National Weather Service had issued a flood warning soon after the hurricane hit. The National Weather Service in turn was only reporting what many private local media outlets were saying.
As with Katrina, there is hysteria about "price-gouging" since Irene hit the East Coast. As Lew Rockwell further points out:
As the Hurricane approached, for example, Mr. Bush, along with nearly every office holder in the entire region, immediately announced that there would be no tolerance of so-called price gouging. What is and what is not gouging remain #ff0000 by law, but there are still criminal penalties attached to doing it. If you raise your prices to the point where you attract a complaint, there is a good chance that you will be thrashed as a gouger.
And yet, we have to ask ourselves what the purpose of a price is. It is a signaling device that allows market players, including both producers and consumers, to adjust their economic behavior in light of supply and demand. If supply remains the same and demand rises, the price too will have to rise so the market can clear properly. Otherwise there will be shortages and surpluses that will prove to be a benefit to no one. William Anderson has called gouging rules a form of back-door price control, and he is right. They create victims, encourage economic dislocations, and foster black markets.
One might think that a Republican administration would understand this, but reflect on the fact that Iraq still has very strict price controls on gasoline, controls that were instituted by the US after Saddam was overthrown. Don't think for a minute that it is beyond the capacity of the Bush administration to do what the Nixon administration did, which was to believe that the laws of markets can be overridden by regulatory force.
Anti-gouging laws, to the extent they are obeyed, will create shortages. But in telling the sad tale of Katrina, I would like to begin not with a case of shortage, but with a strange case of surplus.
Jacob Hornberger reports that,
North Carolina Attorney General Roy Cooper announced that he would prosecute anybody engaging in price-gouging during Hurricane Irene. Cooper declared, “We’re warning price gougers that you can’t use a crisis as an excuse to make an unfair profit off of consumers. If you think that someone is trying to use Hurricane Irene to justify ripping you off, let my office know about it.”
It’s enough to make you wish that American law schools offered courses in Austrian economics.
Hornberger continues:
What people like Cooper fail to understand is that the price system is simply the free-market’s method of communication. Prices impart valuable information to both producers and consumers that enable them to make rational economic decisions. When the government tampers with the price system by setting maximum prices or prosecuting “price gougers,” it mucks up the communication system on which people are relying.
Let’s take a hypothetical example. Let’s say that a hurricane hits the Outer Banks in North Carolina and that people are desperately in need of ice on the islands. One store has 50 bags of ice on hand. Immediately, it raises its price from $5 a bag to $25 a bag.
Now, we all know what Attorney General Cooper would do. He’d start screaming like a banshee and sending out state troopers to make an arrest.
Actually, however, that’s the worst thing that Cooper could do.
When the price of ice soars, it communicates valuable information to consumers on the island. The new, higher price says to them: You need to conserve your use of ice.
At the same time, the new, higher price imparts valuable information to producers on the mainland: You need to produce more.
There is so much detail about the disaster of governmental efforts to help in disaster relief that I implore you to read the articles that I linked to above.
Free-market economist Walter Block has some simple solutions for the problems here
As the Hurricane approached, for example, Mr. Bush, along with nearly every office holder in the entire region, immediately announced that there would be no tolerance of so-called price gouging. What is and what is not gouging remain #ff0000 by law, but there are still criminal penalties attached to doing it. If you raise your prices to the point where you attract a complaint, there is a good chance that you will be thrashed as a gouger.
And yet, we have to ask ourselves what the purpose of a price is. It is a signaling device that allows market players, including both producers and consumers, to adjust their economic behavior in light of supply and demand. If supply remains the same and demand rises, the price too will have to rise so the market can clear properly. Otherwise there will be shortages and surpluses that will prove to be a benefit to no one. William Anderson has called gouging rules a form of back-door price control, and he is right. They create victims, encourage economic dislocations, and foster black markets.
One might think that a Republican administration would understand this, but reflect on the fact that Iraq still has very strict price controls on gasoline, controls that were instituted by the US after Saddam was overthrown. Don't think for a minute that it is beyond the capacity of the Bush administration to do what the Nixon administration did, which was to believe that the laws of markets can be overridden by regulatory force.
Anti-gouging laws, to the extent they are obeyed, will create shortages. But in telling the sad tale of Katrina, I would like to begin not with a case of shortage, but with a strange case of surplus.
Jacob Hornberger reports that,
North Carolina Attorney General Roy Cooper announced that he would prosecute anybody engaging in price-gouging during Hurricane Irene. Cooper declared, “We’re warning price gougers that you can’t use a crisis as an excuse to make an unfair profit off of consumers. If you think that someone is trying to use Hurricane Irene to justify ripping you off, let my office know about it.”
It’s enough to make you wish that American law schools offered courses in Austrian economics.
Hornberger continues:
What people like Cooper fail to understand is that the price system is simply the free-market’s method of communication. Prices impart valuable information to both producers and consumers that enable them to make rational economic decisions. When the government tampers with the price system by setting maximum prices or prosecuting “price gougers,” it mucks up the communication system on which people are relying.
Let’s take a hypothetical example. Let’s say that a hurricane hits the Outer Banks in North Carolina and that people are desperately in need of ice on the islands. One store has 50 bags of ice on hand. Immediately, it raises its price from $5 a bag to $25 a bag.
Now, we all know what Attorney General Cooper would do. He’d start screaming like a banshee and sending out state troopers to make an arrest.
Actually, however, that’s the worst thing that Cooper could do.
When the price of ice soars, it communicates valuable information to consumers on the island. The new, higher price says to them: You need to conserve your use of ice.
At the same time, the new, higher price imparts valuable information to producers on the mainland: You need to produce more.
There is so much detail about the disaster of governmental efforts to help in disaster relief that I implore you to read the articles that I linked to above.
Free-market economist Walter Block has some simple solutions for the problems here
No comments:
Post a Comment