Posts Tagged With: Hurricane Sandy

Can You Spot the Free Marketeer?

Let’s play a game.  Reading the two quotes below, can you guess which one is by New York governor Andrew Cuomo, the liberal son of a prominent Democratic governor, and which one is by New Jersey governor Chris Christie, the budget-slashing Republican who was celebrated by the Cato Institute?

Quote 1:

We will not hesitate to impose the strictest penalties on profiteers who, in direct violation of our consumer protection laws, seek to capitalize on the misfortune of others in the midst of a crisis and recovery period.

Quote 2:

“Do not try to take advantage of [our citizens],” he said, stating that if the state believes public energy and transport companies are not being diligent or doing the right thing, they could lose their certification.

Click on the links for the answer.

We might call this phenomenon “the Chris Christie effect.”  That is, it is very nice to talk about the beauty of free markets when you’re speaking to a room full of avid Republican convention delegates.  But what really matters is how you act when you actually have the opportunity to pursue a genuinely libertarian response to a real crisis.

Chris Christie has shown that, whatever he thinks of the theoretical value of free markets, he won’t trust them in practice.  I have the feeling that most other Republican politicians would do the same, if they were faced with a similar option.  But as I’ve mentioned earlier, theory is meaningless if it doesn’t lead to beneficial practical consequences.  It doesn’t matter how you talk; all that matters is how you act.

So remember Chris Christie–convention-hall libertarian, governing statist–if you’re planning on voting tomorrow for the lesser of two evils.

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The Revenge of the Unseen

Many on the statist left are using Hurricane Sandy to prove why big government is necessary and to stick it to the crazy libertarian Mitt Romney.

This is an example of what the French classical-liberal Frederic Bastiat called the inability to perceive both “the seen and the unseen.”  That is, we can all see the actual destruction caused by the hurricane.  But what we can’t see is how a society that didn’t depend on centralized government for disaster relief–not to mention disaster mitigation or prevention–would function in the first place.

At the American Conservative, Rod Dreher, for instance, has a perceptive post about how government disaster relief degrades civil society–it fosters helplessness among neighbors, who rather than helping each other, just wait for the government to arrive.

“Seeing the unseen” doesn’t have the raw emotional power of pointing to burnt-out homes.  But if we want to think maturely about government power, we should ask ourselves how people would act if they weren’t constantly that the government is the proper responder to hurricanes.  What kinds of levees would private companies have built to prevent destruction from the sea?  What drainage technology would private companies use that municipalities have never contemplated?  What kind of insurance contracts would people enter into and what level of responsibility would they feel toward their own neighbors if they weren’t taught that only the government could save them?  What would a privatized FEMA actually look like?  Would it take the form of private companies throwing their clients into the sea, as the picture above suggests?  Or would a more rational business model look something like AAA, where clients pay monthly fees so that, if trouble actually arises, they have an entitlement to relief work?

Above all: is the destruction so bad in spite of government relief work, or is government preemption of the relief market a contributing factor to the extent of the destruction?

I don’t claim to know all of these answers for certain–no one can really predict how new markets will develop.  But those are the kinds questions we should be asking, rather than just looking at destroyed cities and then repeating bromides over “good government.”

 

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Hurricanes and Price Gouging

As Hurricane Sandy hits the east coast, bureaucrats have been predictably warning businesses against price gouging.  On the local news today, I heard official talking about how, during a hurricane, “normal economic operations don’t apply” and price controls become necessary.

Here’s Art Carden, writing at the Ludwig von Mises Institute, on what price controls actually accomplish during natural disasters.  (Spoiler: It’s not pretty.)

First, price controls create shortages because they eliminate the market’s way of telling people to conserve scarce resources. After a disaster like a flood, a hurricane, or a tornado, demand for some goods increases while the supply of some goods decreases. If prices are not allowed to adjust, people will want more “water, ice, storage units, and generators” than the market is prepared to supply at the controlled price. As Michael Munger, chairman of Duke University’s political science department, has pointed out, this means that the effective price of a good for which the price has been controlled is infinite: beyond the amount that the market will supply at the controlled price, nothing can be done to call more goods into existence.

Instead of relying on prices, governments that institute price controls must rely instead on moral suasion. This will help in some cases, but it is unlikely to be as effective as a price increase. One might be tempted to respond that the government should be able to make up for the shortage, but the government’s performance in similar cases, such as FEMA’s ham-fisted response to Hurricane Katrina, provides us with grounds to be skeptical of this claim.

Restricting the price mechanism also means that recovery will be delayed. If prices are allowed to fluctuate freely, resources will be directed to where they are most desperately needed. Someone who wishes to build a new deck in San Antonio will have to think twice if lumber prices increase because people in Iowa are struggling to rebuild their houses. If lumber prices are not allowed to change, our deck-builder in San Antonio lacks the signal he needs to learn that the lumber he would otherwise use to build a deck might be better used rebuilding houses in Iowa.

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