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LMV: Wow! Did you like my show intro? I thought it was pretty cool but then I remembered this intro.
Audio clip: Intro to Rolling Stones song Brown Sugar.
LMV: And then I remembered this intro.
Audio clip: Intro to Rolling Stones song Gimme Shelter.
LMV: So I must confess my intro is not as cool as the Stones’. Nevertheless, welcome to another edition of Liberty Watch. I am your host Liberty Man Van. The hurricane season of 2017 has been a particularly active one. Coincidentally, the Miami Hurricanes are off to a great start at 7-0. It seems that every ten years or so we have a bunch of hurricanes in one season and the years in between are relatively inactive. No matter how many inactive seasons we have someone is sure to attribute the active one to global warming, rather, to climate change. They used to call it global warming but after several years of cooling recently they have renamed it climate change- that is sure to encompass whatever happens.
Hurricane Harvey, the worse storm of the year hit Texas hard, including staying stationary for a while and dumping megatons of water on the Houston area; massive flooding was the result. Here is a little of the news coverage from that storm.
Video clips of Hurricane Harvey in Houston.
LMV: And whenever nature moves to damage an area and citizens, the price gougers are soon to follow.
Video: Price gouging report.
LMV: Should these natural disaster entrepreneurs be arrested or fined? The emotional response is to say “hell yes!”, but a more careful look reveals a more nuanced answer. Consider the following article from FEE.org entitled “Anti-Price Gouging Laws Make About As Much Sense As Anti-High Temperature Laws.” The article begins with the typical defense of anti-price gouging laws:
“Many residents in Texas and Louisiana have suffered from the devastating effects of Hurricane Harvey in recent days, and some of those residents are now being unfairly subjected to further suffering from the unconscionable actions of businesses and individuals who are engaged in illegal price gouging for essential goods like gasoline, water, and food.
To prevent residents from being victimized by ruthless and greedy price gougers, Texas law prohibits businesses from charging “exorbitant prices” for gasoline, food, water, clothing, and lodging following natural disasters like Hurricane Harvey.
Despite those price gouging laws, one large Texas retailer was allegedly charging $42 for a case of water and a gas station in the affected area was reported to be charging $99 for a case of water according to the Texas attorney general. Those retailers are now subject to legal prosecution and fines for charging “excessively high” prices in violation of price gouging laws in Texas.”
LMV: What is the libertarian way to view this question? In short, the government should butt out and allow the free market to sort out prices. This approach allows the maximum amount of freedom for people and businesses to sort it out. In addition, it just happens to be the most humane approach because it allows precious resources to be allocated to those that need them the most. The FEE.org article continues:
“The artificially low, government-mandated prices will cause distortions and inefficiencies in Texas and Louisiana because the artificial prices won’t accurately and truthfully reflect the economic reality that supplies of critical goods are extremely low at the same time demand for those goods is extremely high.
Price gouging laws create a government-mandated fantasy world with prices that create a complete disconnect between the true measure of a scare good’s value and a fantasy measure of that good’s value.”
“When it comes to maximizing the efficient allocation of resources following a natural disaster like Hurricane Harvey, what we want are accurate, truthful and precise measures of market conditions (supply and demand), and we can only get those measures from market prices, not from artificial, government-mandated price gouging laws.”
LMV: When I see anti-price gouging laws and sentiment I am reminded of President Nixon’s response to the Arab oil embargo of the early 70’s. I can remember watching the evening news and seeing the video footage of the long lines at the gas stations. Nixon’s response was to impose price controls and rationing. The price controls prevented price gouging and the result was scarcity and prolongation of the crisis.
Whether rising prices are due to an oil embargo or to a natural distaster, if we allow prices to develop naturally rather try to put artificial caps on prices, we are more likely to ensure that people get the scarce resources they need. Prices convey a vital piece of information. They tell us where goods are needed the most so that market actors can make accurate decisions and move goods with the maximum of efficiency. In other words, anti-price gouging laws are counter-productive because they are likely to prolong the scarcity of goods. Those who are “too greedy” will end up with goods they cannot sell and will be undercut by competitors. Allowing the free market to determine prices will be more compassionate, more efficient, and allow maximum freedom.
LMV: That brings us to our next article from the mises.org website entitled “The Broken-Window Fallacy is Alive and Well.” The broken-window fallacy was passed down to us from nineteenth century French economist Frederic Bastiat. It goes something like this. A shopkeeper has a window at his business broken by a careless son and pay a glazier six francs to replace it. This stimulates the economy because it has put the glazier to work. Right? Wrong! The happy glazier is what is seen. What is not seen is that the shopkeeper had planned to spend that six francs on a good pair of shoes. So, not only is the shopkeeper out of six francs but so is the cobbler. That is a net loss of six francs; that is what is not seen.
Fast forward to 21st century Houston in the wake of Hurricane Harvey. The mises.org article states:
“As Hurricane Harvey, now tropical storm Harvey, makes its way across the southern US, estimates have already come in as to the cost of the storm. According to AccuWeather, Harvey is expected to cost upwards of $190 billion in damages, one percent of the national GDP. This makes Harvey the costliest storm ever to hit the United States, more than Katrina ($100 billion) and Sandy ($60 billion) combined.
Here Come The Clowns
As in the wake of every disaster, pundits and politically biased economists — including Larry Summers who declared Japan’s 2011 Tsunami would boost economic growth — will wax elegantly on how Harvey will end up being a boon for “the economy.” CNBC, for example, reports that Hurricane Harvey may ultimately “raise wages.” It will spawn government spending and insurance payouts to flood victims, we’re told. These victims will spend that money in the economy which will put people back to work, employ the factors of production and so on and so on.
LMV: This fallacy seems to surface every time we have a disaster but common sense tells us that if you have to spend money to replace something that you already had, you have not created any new wealth. In fact, you have lost wealth.
You have heard similar logic from historians discussing how World War ll helped end the Great Depression. After all, didn’t the GDP explode upward during the war? Yes it did but we must keep in mind that government spending is counted in the GDP numbers. And does it follow that spending on tanks, battleships, and bombs really adds to wealth? Surely not. If a family spends funds on guns and ammunition to protect the home, it means you have less to spend on bicycles or televisions. In a word, resources used to recover from a natural disaster do not spur economic growth.
LMV: And now for our final angle regarding this year’s hurricanes. I have noticed through the years that it seems the same flood prone areas get hit again and again. And the houses are rebuilt in those same flood prone areas again and again. Why does this happen? Why do we never learn from our mistakes? Why do we continue to engage in this risky behavior?
The short answer is that someone other than the property owners are paying for it. If the property owners had to pay a market price for flood insurance the cost would be much greater and many of them would be discouraged from rebuilding in the same flood prone areas.
One article that captured the folly appeared in the USA Today and was entitled “Dear Texas, how many times do we have to rebuild the same house?”
From the article:
…Hurricane Harvey offers the clearest lesson why Congress should not perpetuate the federal National Flood Insurance Program (NFIP), which expires at the end of September. The ravages in Houston and elsewhere would be far less if the federal government had not offered massively subsidized flood insurance in high-risk, environmentally perilous locales. But this is the same folly that the feds have perpetuated for almost 50 years.
…NFIP embraced a “flood-rebuild-repeat” model that has spawned an almost $25 billion debt. The National Wildlife Federation estimated in 1998 that 2% of properties covered by federal flood insurance had multiple damage claims accounting for 40% of flood insurance outlays, and that more than 5,000 homes had repeat claims exceeding their property value. A recent Pew Charitable Trust study revealed that 1% of the 5 million properties insured have produced almost a third of the damage claims and half the debt.
…NFIP paid to rebuild one Houston home 16 times in 18 years, spending almost a million dollars to perpetually restore a house worth less than $120,000…The Washington Post recently reported that a house “outside Baton Rouge, valued at $55,921, has flooded 40 times over the years, amassing $428,379 in claims. A $90,000 property near the Mississippi River north of St. Louis has flooded 34 times, racking up claims of more than $608,000.
…FEMA has loitered on updating in part because many members of Congress vehemently oppose accurate estimates of the risks and updated, higher insurance rates for their constituents.
…The financial soundness of federal flood insurance will always depend on politicians’ self-restraint in buying votes. In other words, the program is actuarially doomed. There is no constitutional right to federal bailouts for flooded homes. The sooner the feds exit the flood insurance business, the safer American coasts and paychecks will be.
LMV: In other words, like all government programs, it is to benefit the politicians and their well connected friends that tax money is spent. There are precious few politicians in D.C. that are taking up for the taxpayers. The expense is accrued by the many and the benefits to the few. The is same old tired story we see again and again with government. Let me say it as I have said it before. The government always looks out for its best interests first. It is not there to protect you or to be your congenial benefactor. Get those ideas out of your head and you won’t be surprised when these types of bad programs continue to exist decade after decade.
LMV: Our next story is a about big shot Hollywood film producer Harvey Weinstein. As you may have heard, he has been accused being a sexual predator over the many years of his Hollywood career. Here is a snippet from a USA today article:
…Since the New York Times and New Yorker published bombshell reports detailing decades of alleged sexual harassment and assault by producer Harvey Weinstein early this month, dozens of women have come forward with similar claims against the movie mogul.
60 women have accused Weinstein of inappropriate to potentially criminal behavior ranging from requests for massages to intimidating sexual advances to rape.
LMV: This is not surprising for those of us who are enlightened by our love of rock and roll. As a matter of fact, the Eagles wrote a song about this activity years ago.
Audio clip: From the Eagles song King of Hollywood.
LMV: The fact is, this type of behavior has been well known in Hollywood for decades. Why is everyone so shocked. This is old news.
LMV: And finally, it is time in the show for a little libertarian humor. Did you ever wonder what the libertarian version of Star Wars would look like?
Video clip: Libertarian Star Wars.
LMV: And that’s our show for today. Thanks for joining us, tell a friend, and join us next time on Liberty Watch where we don’t believe you need some guy with a bullhorn to tell you what to do.