HURRICANE HARVEY OBSERVATIONS
“Price Gouging” = Political Rhetoric and/or Economic Ignorance!
Every time a disaster happens the term ‘price gouging’ is used to describe what happens to the pricing system when normal supply and demand is disrupted. The first rule of economics is scarcity. Man’s desires are unlimited while resources needed to satisfy these desires are scarce. This constraint of scarcity exists for any economic system, be it free market or any of the other centrally planned economic systems (socialist, communist, fascist, democratic socialist). The question we must ask is; which system best deals with this inherent constraint? In a free market, prices ration scarce resources to their most valued uses according to the subjective valuations of consumers. In a centrally planned economy, bureaucrats make the decisions on what is valuable and how scarce resources are to be rationed .
A natural disaster quickly shows how a free flow of prices conveys knowledge about where resources are needed most. Prices rising in the affected area constrains consumer demand for these scarce resources on the one hand and incentivize suppliers to bring scarce resources to the affected area on thee other. Prices coordinate supply and demand, and at the same time the coordination of supply and demand is revealed through changing prices. Price rise or fall incrementally during normal market conditions. But during disasters there are wide swings in prices.
The wild swing in prices allows political demagogues to prey on the economically ignorant. This free flow of market prices is called “Price Gouging”. Politicians win when they demagogue rising prices, and the people affected most by the disaster are hurt. Even though the people hurt most don’t realize it.
Here are some videos that explain the role of prices in a market economy.
Walter E. Williams.
John Stossel
Stossel vs. O’Reilly
This video proves Bill O’Reilly’s ignorance about economics. When he is losing the argument he cuts Stossel off and tries to play on emotion instead of logic. He then resorts to calling Stossel a ‘fascist’. These are the tactics of leftists.
People who are being charitable with their own time and money don’t need to be incentivized to “do the right thing” (supplying goods and services to the affected area). Rising prices incentivize, non charitable people (if that’s what you want to call them ), to supply much-needed goods and services to the affected area.
Gas Prices To Rise Even Faster As Tropical Storm Harvey Floods Texas, at usa.com. I heard a gentleman call into a talk show complaining about the rise in gas prices in his part of the country. He didn’t think the prices should go up since his area wasn’t affected by Harvey. This shows the economic ignorance of a vast majority of people in the country. At least 12% of the countries refining capacity is being disrupted by Harvey. Gasoline distribution infrastructure is also being disrupted. Economic law states when supply decreases against a fixed demand the price will increase. This increased price works to coordinate demand to the new reality of the decreased supply. This works to ration the scarce resource to its most valued use until supply can be brought back on-line. Allowing prices to rise allows the coordination of supply and demand to happen much faster than if prices were fixed by government.
Private Sector vs. Public Sector
Private Sector To The Rescue In Texas: Never Underestimate The Power Of The Private Sector To Rise Up To An Challenge, by Mark J. Perry, at carpediamblog. First responders are individuals on the scene at the moment something happens. Second responders are police, firemen or FEMA. In New Orleans people relied on Government to help them. In Texas people are relying on themselves to help each other. Big difference! Many people think order can only come from central planning from Government. They can’t conceive of order happening spontaneously by individuals voluntarily cooperating.
EPA Approves Emergency Fuel Waiver For Texas, at epa.gov. The best way government can help is to get out of the way. Since refineries are down, Texas will now be allowed to purchase gasoline that is banned for use in Texas by EPA regulations. But don’t worry the lifting of the ban will expire on September 15th. Why do we need such regulations in the first place?
Thanks To Markets, Houston’s Disaster Isn’t As Bad As It Might Have Been, by Christopher Westley, at mises.org. Excerpt from the article: “At the time of this writing, 26 Harvey-related deaths have been confirmed in the United States….. imagine what the death toll would have been if a similar storm slammed into comparable population centers in the Pacific Rim, Venezuela, or other outposts of the Third World. No doubt: They would be in the thousands…… What makes Houston different has to do with property rights institutions taking root and developing there over decades, making it a center for capital investment, because capital always flows to those areas where it is most secure. The continued increase in the quantity and quality of capital over time increases wealth, allowing its owners to afford better infrastructure and safety, relative to more benighted areas that attract less capital over time. To get an idea about the effects of decades of capital formation on Houston in 2017, consider the devastation that befell Galveston in 1900, when another Category 4 hurricane swept the Texas coast and claimed about 8,000 lives.”
Why Houston Doesn’t Need Federal Flood Relief, – In Four Charts, by Ryan McMaken, at mises.org. Let’s not promise federal tax dollars to be assigned for rebuilding Texas. The funds will be subject to crony political distribution. And where ever there is a pile of Federal dollars there will be no shortage of people, who don’t need the money, trying to appropriate it. Excerpt from the article: “This isn’t to say real sharing and kindness are a bad thing. It’s excellent that private charities have already been hard at work helping with the cleanup in Houston. If one wants to insist that governments be involved, there’s nothing stopping other states from handing over funds to Texas directly. The federal government need not be involved at all”
The Broken Window Fallacy Hasn’t Been Brought Up…. Yet!
Maybe we have won the war against ‘The Broken Window Fallacy‘. Usually after disasters like this we start to hear ‘experts’ talk about how the disaster will help the economy because of all the jobs created to replace and rebuild the things that were destroyed. I guess that sounds logical on its face, but if we remember our lessons from Frederic Bastiat we should look at what is seen, we should look at what is not seen. You will see the people employed in the rebuilding process. What you don’t see is what could have been done with all the resources, capital, time and labor used for the rebuild. The economy as a whole has less wealth because of a disaster. Everything that was destroyed has to be replaced just to get back to even par. If your car is destroyed. Not only do you not have a car, you won’t have what you could have purchased with the money used to replace your car. The economy as a whole, and you, are poorer by 1 car. The car was a useful good and was destroyed long before its normal replacement time. The broken window fallacy is simply the idea that consumption creates wealth. Production creates wealth. Consumption is the destruction of wealth.
Media / Politics
Fake News About Hurricane Harvey Is Why Americans Hate The Media, at thefederalist.com. This is just one example why the mainstream media has lost credibility.
Trump To Donate $1 Million To Texas Recovery, at cnn.com. I’m not a fan of people being public about their giving. Here is an excerpt from article: “President Donald Trump will donate $1 million of his fortune to recovery efforts in Texas……”
Hillary Clinton To Tell Audiences Her ‘Personal, Raw, Detailed and Surprisingly Funny Story’ In Nationwide Tour With Tickets Selling For Up To $1,200, at dailymail.co.uk. I wonder if Hillary is going to donate these proceeds to the recovery efforts in Texas? Or is she going to give some of he money donated to the Clinton Global Initiative for relief efforts in Texas? Oh! I forgot. Donations to the Clinton Global Initiative have dried up since Hillary lost the Election! Maybe Hillary and Bill will just have to give some of their fortune to the relief effort?
CARTOONS
From therightreason.net.
AUSTRIAN ECONOMICS ADDICT 