Whenever a major disaster strikes, the public is confronted with all sorts of unpleasantness. The source of the unpleasantness is a sudden change in scarcity conditions: The immediate demand for many goods and services exceeds their immediate supply. What to do? The typical response is for prices to rise dramatically. While buyers are not thrilled by rising prices, rising prices are one of the ameliorative responses to changes in scarcity conditions. They get people to voluntarily do what's in the social interest. Let's look at it using a couple of goods and services important to disaster recovery and ask a question or two.I can echo what my economist husband would say. More people need to learn the basic principles of economics. People respond to incentives.
In Isabel's wake, private contractors from nearby states brought their heavy equipment to Virginia to clear fallen trees from people's houses. Producers and shippers of generators, plywood and other vital supplies worked overtime to increase the flow of these goods to Virginians. What was it that got these people and millions of others to help their fellow man in time of need? Was it admonitions from George Bush? Was it conscience or love for one's fellow man?
I'll tell you what it was. It was rising prices and the opportunity for people to cash in on windfall profits. Windfall profits are one of the vital signals of the marketplace. It's a signal saying that there are unmet human wants, leading people to strive to meet those wants. It stimulates the supply response to a disaster
Wednesday, March 24, 2004
Walter Williams explains why there is so-called "price-gouging" after disasters.
Posted by Betsy Newmark at 6:32 AM