Today at work we were talking about New Orleans,
hurricanes, etc. and there was a lot of ignorent talk about the
economics of the situation. The thing that made me the most nuts was
the talk about the “bright side” of the disaster. “At least the
recovery will employ lots of people, it will really be a boon to the
economy of Louisiana and New Orleans.” Good God, what a load of crap. A
similar idea was publishe after 9/11 by an economics professor at
Harvard, Harvard! Let’s look at this reasonably. Yes, lots of money
will be spent on rebuilding. This will employ a lot of people in the
building industries and the the various support industries that go
along with them. There’s a big problem though, all of this money will
be spent to get back to where they were before. If there was no
hurricane, then the residents, businesses, governments of New Orleans
would have the city plus all of their money. Now since the hurricane
did come through, they will eventually have their city, but not the
money. All of the jobs and money that get spread around due to
reconstruction simply replace the jobs created by discretionary
spending. Think of it another way, if widespread dustruction is so good
for the economy, why wait for a disaster to happen? Why not have
scheduled destructions to keep the economy going? Put this way it is
obvious why not. Society would be continually getting back to where it
was, not progressing, certainly not growing. Money does a lot of work
when it is circulated in the economy, but that work usually leaves
behind things that are very useful. Once that “thing” has been built,
society receives the value of that thing and can then use money for
something else. Constantly rebuilding the same thing ties up money that
could be used for other things.
Price “goughing” was another topic that made me grit
my teeth. The rapid rise in prices for various goods is usually
considered despicable by most people. But selling things for what they
are worth is a very good thing to do. First of all, it is the most
efficient way to get more goods and services to the afflicted area. We
would all like to think that people and businesses would be willing to
help in times of need. Many do, but you will get far more action when
there is money to be made. If regular things now bring in much more
money in New Orleans (lumber, flashlights, water, etc.) you can be sure
that every major seller of these things will send as much as they can
without batting an eyelash. It is the quickest, most reliable, and
least complicated way of providing massive amounts of needed supplies.
As supply grows, compitition will eventually reduce the price back down
to more normal levels. If you didn’t have this massive influx of
supplies, the value of these items would take far longer to drop in
price since the demand would not slack up. If artifical price limits
are placed on items (a la price goughing laws), a black market develops
along with widespread shortages of products. If water would sell on the
open market for $15 a gallon but the law requires stores to sell it for
a maximum of $1 a gallon, something very predictable happens. First of
all, all the stores would be sold out of water. Secondly, water will be
widely availible on the black market for $15 a gallon…
Isaac