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Ignorance in disasters

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By Walter Williams
Wednesday, Nov. 14, 2012, 8:53 p.m.
 

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. And that decision would make a room available for another family who had to evacuate Sandy's wrath.

But New Jersey Gov. Chris Christie and others condemn this as price gouging. But 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.

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.

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.”

Christie 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.

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.

Walter Williams is a professor of economics at George Mason University.

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