Disaster Ignorance

Here’s a which-is-better question for you. Suppose a New Jersey motel room rented for $125 a night prior to Hurricane Sandy’s devastation. When the hurricane hits, a husband, wife and their two youngsters might seek the comfort of renting two adjoining rooms. However, when they arrive at the motel, they find that rooms now rent for $250. At that price, they might decide to make do with one room. In my book, that would be wonderful. That decision would make a room available for another family who had to evacuate Sandy’s wrath. New Jersey Gov. Chris Christie and others condemn this as price gouging, but I ask you: Which is preferable for a family seeking shelter — a room available at $250 or a room unavailable at the pre-hurricane price of $125? It’s not the intention of the motel owner to make a room available for another family. He just sees an opportunity to earn more money. It was not the intention of the family of four who made do with just one room to make a room available for another evacuating family. They are just trying to save money. Even though it was no one’s intention to make that room available, the room was made available as if intended. That’s the unappreciated benefit of freely fluctuating prices. They get people to do voluntarily what’s in the social interest — conserve on goods and services that have become scarce.

Gov. Christie told merchants that price gouging during a state of emergency is illegal because “during emergencies, New Jerseyans should look out for each other — not seek to take advantage of each other.” Christie warned: “The state Division of Consumer Affairs will look closely at any and all complaints about alleged price gouging. Anyone found to have violated the law will face significant penalties.” It’s not just Christie who has threatened to prosecute sellers for raising prices. New York Attorney General Eric Schneiderman has launched an investigation into post-storm price increases after receiving consumer complaints about higher prices for everything from gasoline to hotel rooms.

Christie, Schneiderman and public officials elsewhere know better or have access to economists who inform them.

But they’re playing politics with people’s suffering, emotionalism and economic ignorance. By the way, politicians would serve us better by focusing their energies on tax gouging.

Disasters produce ignorance in another way. Peter Morici is a professor at the University of Maryland and a former chief economist at the U.S. International Trade Commission. He argues that Hurricane Sandy may prove to be an economic boon, writing: “Disasters can give the ailing construction sector a boost, and unleash smart reinvestment that actually improves stricken areas and the lives of those that survive intact. Ultimately, Americans, as they always seem to do, will emerge stronger in the wake of disaster and rebuild better — making a brighter future in the face of tragedy.”

Professor Morici is not alone in this vision. Nathan Gardels, editor of New Perspectives Quarterly, wrote an article titled “The Silver Lining of Japan’s Quake,” arguing the economic “benefits” of that disaster. Even Nobel laureates are not immune from this vision. After the 2001 terrorist attack, economist Paul Krugman wrote in his New York Times column titled “Reckonings; After the Horror” that as “ghastly as it may seem to say this, the terror attack — like the original day of infamy, which brought an end to the Great Depression — could even do some economic good.” He explained that rebuilding the destruction would stimulate the economy through business investment and job creation.

Let’s set one thing straight: Destruction does not create wealth. The billions of dollars that will be earned by people in the building industry and their suppliers will surely create jobs and income for those people. But rebuilding diverts resources from other possible uses. Natural or man-made disasters always destroy wealth. Were that not the case, mankind could achieve unimaginable wealth through wars, arson, riots and other calamities.

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  • Mary Sue

    Yay, Walter Williams!

    Oh yeah, the "broken window theory" of economics. I learned about that. Matter of fact I think I got the full details about it (and how it's fallacious to expect it to produce economic growth) on Rush's show (I think you were subbing in?)!

    Leave it to "compassionate" libs to try to dismantle the very thing that encourages more supply (high prices) during a time when people need more supply. And then not understand what they're doing.

    • tagalog

      The "broken window theory" is a scenario that is intended to address the issue of struggling against deterioration of a neighborhood from crime and neglect, not the alleged creation of new wealth from rebuilding after a disaster.

      • Mary Sue

        Well, I didn't hear anything about that.

      • Mary Sue

        one is the broken window theory, the other is the broken glass theory. My poor memory has forgot which is which.

  • Mark Rogers

    Indeed it is the politico-bureaucratic mindset that leads to nonsense of this kind: people whose response to scarcity is to raise taxes are in no position to understand how pricing works. The result is that even a relatively educated citizenry follow their leaders, see in Mr Williams's article the complaints about the higher prices of everything (and the disgusting political opportunism of the Governor and the Attorney General). Scarcity means that you go without and the prices of what is available are a warning: why should you expect everything to remain the same in situations like this? You have to decide on what your priorities are, and it is precisely this moral aspect of pricing that the welfarist-entitlement mentality destroys. I write on these matters at goldcoin.org.

  • dickymo johnston

    If youe enjoy this compelling common sense reasoning, I highly recommend reading 19th-century economist Frederic Bastiat. His "Economic Sophisms" is an entertaining refutation of many dumb ideas accepted as by too many as beneficial,

  • PhillipGaley

    If in the very least, our learned author fails in opportunity to have made clear: causality, response, and effect.

    If a storm blows down an old fence, and you replace the broken mess with sound posts, can the wind be logically said to have caused a new fence, or a new fence to be built? No. And simply upon the reasoning that, all things being maintained in equivalent status, while for opportunity and necessity to have so done, the rotting posts had been so for some time—and, as to why the posts had not earlier been replaced there may have been various reasons say, your own long-term sickness or, someone else's—the storm merely brought those things (opportunity and necessity) to the fore as controlling considerations.

    It has been said that, a man with a wife and family will do anything for money. I agree with those who say that, most of the world's work is done by people who don't feel well, and in that way, simple storm damage can be a triggering mechanism which combine with other things to bring forth any number of considerations which will impel one to go beyond the limits of endurance and strength and money and time, which one would have wished for himself, . . .

  • http://www.facebook.com/tartanmarine Robert A. Hall

    Unfortunately, nothing is more prevalent in our Obama-Phone, loot-the-Future voters than economic ignorance, which politicians prey upon to hold power. Witness the election. I will link to this from my Old Jarhead blog. (www.tartanmarine.blogspot.com)

    Robert A. Hall
    USMC 1964-68
    USMCR, 1977-83
    Massachusetts Senate, 1973-83
    Author: The Coming Collapse of the American Republic
    All royalties go to help wounded veterans
    For a free PDF of my 80-page book, write tartanmarine(at)gmail.com

  • dan

    Fact is that illegal .You cannot by law jack up prices in a event of like Sandy hurricane

  • tagalog

    Rebuilding after a disaster may bring money into the economy, but one must also take into account the loss of business and the lack of wealth-creation due to the destruction of business from the disaster. One probably outbalances the other. So it's not only the diversion of money to deal with the rebuilding, it's the loss of business from the disruption.

  • Donald DaCosta

    Unfortunately, Mr. Williams cogent analysis requires some thoughtful contemplation. It is not as immediately obvious as the gouging and disaster narratives which are, on the surface, seemingly rooted in comon sense. The economic intricacies of American capitalism is full of these esoteric, illogical situations that render it impossible to understand without digging deep, getting past the initial, emotional reactions that predominate the public mindset. Getting past that is an exercise in frustration.

  • R.C.

    Just because a person is a Nobel laureate–does not mean they are highly intelligent or highly knowledgeable–for the most these people are very ordinary; and its important to note here that often Nobel prizes are handed out for political purposes to people who do not deserve them, e.g., Al Gore and Barack Obama!

  • riverboatbill

    The family could have bought a tank full of gas ,camping gear and left town before the storm hit. Or they could have invested in camping gear,hand pumps for gas stations,spam,bullets, band aids and booze and made a tidy profit. In either case they would have been taking a course of action more helpful than a photo op.

    • Mary Sue

      eeeeeeeeeeeeeexactly

  • tanstaafl

    I can't understand why folks who live next to the ocean never give a thought to what will happen when the hurricane visits. And why the insurance company does not want to sell you flood insurance.