Mike Munger of Duke University recounts the harrowing (and fascinating) experience of being in the path of a hurricane and the economic forces that were set in motion as a result. One of the most important is the import of urgent supplies when thousands of people are without electricity. Should prices be allowed to rise freely or should the government restrict prices? Listen in as Munger and EconTalk host Russ Roberts discuss the human side of economics after a catastrophe.
Hurricane Fran, 1996, Raleigh, NC, far inland. Trees, chain saws, chaos. Why doesn't somebody do something? Markets? Gov't.?
When electricity is out, people need ice to preserve food and medicine. Coolers, closed freezers help, but only for a while without more ice. But ice was unavailable or frightfully costly!
How did Raleigh's anti-gouging law, previously passed in anticipation of such an emergency, work out? What did the law actually say? What were the fines for violations of actions like charging for ice what it cost to bring it in? Analagy to Marx Brothers' film, Coconuts: "Do you know what causes wage slaves? Wages!"
Mathematicians vs. economists. Paradox: "The only way to guarantee low prices is to allow sellers to charge high prices." Government facilitating vs. retarding free flow of goods like ice. Four young entrepreneurs from Goldsboro, NC, saved the community, but risked breaking confusing laws, by bringing in ice. Yeeha! Yahoos clear the path with chain saws, sell ice at $12/bag, help hundreds who wait on line, but annoy others.
Allocation by choice and market. What if it were you in line and you'd reached the front only to discover the price really put you at the edge of your decision? Buy the ice or step out of line? Some left; but for others the choice was at the margin: "That's outrageous! That's too much! Give me four bags." How did the entrepreneurs even choose the price?
Someone called the police, but who? Police closed down the ice entrepreneurs, impounded the trucks, turned off the trucks (thus melting the ice). Yet some people standing in line actually clapped when the police closed the line down. Why?
Small towns vs. big cities. The film "It's a Wonderful Life" depicts a run on the bank. Mary helps George (Jimmy Stewart), and as private citizens they rescue the local bank, a business they don't even own. But it worked out in a small town because of self-rationing when everyone knew each other. Who needs it the most? How do we ration scarce goods?
What works best when there is not enough to go around in a crisis? Number of bags of ice coming in differs depending on price system. Low price is guaranteed best by allowing high prices. But people still seem to favor anti-gouging laws and disallowing high prices even during crises. "Does the seller care?", is possibly the interesting question. Market prices are not always charged in every situation, but what are those situations? Maybe when the sellers and buyers know each other and can allocate otherwise. But what about when they don't know each other? See also Hayek.
Burger King in New Orleans after Hurricane Katrina gave a $5000 premium to incoming helpers as a housing allowance. The workers weren't arrested for accepting it! Why arrest individuals for accomplishing the same thing--providing necessary services--quicker and faster in the interim before corporations or the government can act? Vaccines, help to the elderly, critical services, and more are often supplied privately in emergencies, and more is often available. Anti-gouging laws do more to hurt than help in these emergencies.