Friday, January 16, 2009

A Theoretical Question, Part 2

Here are my thoughts on The Theoretical Question in the previous post.... and if you want to see more comments, I cross-posted it on Reddit, where it has kept my hit counter whirring nicely.

Let me begin with a story from a George Mason University economics professor named Russell Roberts:

"After Hurricane Isabel hit Washington D.C. in September 2003, one of my students whose husband was a contractor told me how disgusted her husband had been with the high prices people were charging for generators. Surely a contractor would want a backup energy supply, I said. Surely he had paid the high price. No, she explained, he already had a backup and had been considering buying a second backup. But at double the regular price, he passed. Someone else got that generator and I got a richer understanding of higher prices."

That encounter with a student was the genesis of Roberts' latest book, "The Price of Everything". The book begins with a hurricane. One store leaves prices alone and sells out. The other store doubles prices, which automatically acts as a rationing mechanism, but there's a near riot at the checkout line. Some university students stage a protest a few weeks later, but then....well, I hope you'll read the book.

It's not the best-written book I've ever read, but when I finished it I immediately turned back to page one and plowed through it again.

Do you every wonder why the shelves in our supermarkets are full? Ever wonder why countries afflicted with the blessings of communism had supermarket shelves that were mostly empty? Ever wonder why we don't have to wait in long lines for gasoline, or endure rationing like we did in the early 1970's? Ever wonder why the minimum wage in Cuba is somewhere near $14.00 (PER MONTH !!) ??

Do you want to know how to ensure that more people will die during a famine? Legislate artificially low prices. Want to keep people from delivering water to drought stricken areas? Put anti-gouging laws into place.

Do you ever wonder why we can simply go out and buy our basic necessities?

It's because our (somewhat) Free Market Economy allows prices to go up when there's a shortage, and decline when there's a glut. We don't have an idiotic Flashlight Czar (yet), setting flashlight prices all over the country based on hours of darkness, hurricanes, or electrical problems. People can charge whatever they want to for flashlights. Therefore, when you really, really need see in the dark, somebody out there is probably willing to sell you a flashlight.

So, according to Professor Roberts, not only was the Big Store doing the right thing economically when it doubled its prices after the hurricane, it was doing the right thing logically, socially, and morally.

Once again, the book is called The Price of Everything: A Parable of Possibility and Prosperity, by Russell Roberts.
Professor Roberts also blogs at Cafe Hayek, which I wish was read daily by everyone eligible to vote.


Dr Ralph said...

Interesting...One of the colleges Son of Ralph has applied to is George Mason University. They seem to be a hotbed of Libertarians and Free Marketers.

This once gave me cause to be concerned, but I've since recognized the truth in the old saw that virtue untested is no virtue at all.

Should he be accepted, my hope is that I've sufficiently corrupted him that he will bang heads with his professors the way I bang heads around here (a pleasant pastime, but not for the faint of heart).

TarrantLibertyGuy said...

If Dr. Ralph's son goes to George Mason University, I would consider giving $20 in tuition assistance.

My libertarian prayer that I'll tuck into my Jeffersonian Gospels will be that Dr. Ralph's progeny goes classical liberal! Later, Dr. Ralph Jr. gets a paid internship at the Cato Institute. After graduation? A staff position at the Ayn Rand Institute! AWESOME!!

The Whited Sepulchre said...

For those whose definition of the word "liberal" comes from the U.S. media, (see Tarrant Liberty Guy's comment above) a liberal is someone who advocates a laissez-faire, leave it alone, that-which-governs-best-governs-least approach to government and life.

When the word "liberal" is used in Europe, it has the same basic meaning as "libertarian" in the U.S.

Explaining this distinction grows tiresome after a while. I'm relieved that most U.S. liberals are now starting to call themselves "Progressives", now that they've managed to associate so many negatives with Liberalism.

On Son #2 going to GMU.... Now that I can look back on my life and career path, I can't honestly claim that I wish I'd gone to major in Economics at GMU. But I'd have a lot less catching up with reality to accomplish if I'd done so. Russell Roberts, Don Boudreaux, and a host of other Free Market demigods all teach there.

My mental image of the place: You walk into class and everyone is wearing white robes, sitting in a circle at the feet of a toga-clad Master of All Knowledge. Every once in a while, a teacher or a student is caught advocating an import quota, and is forced to drink hemlock.

Dr Ralph said...

WS and TLG: My father was/is a Barry Goldwater Republican - and you see how I turned out. Despite that, the seeds of my own Liberal (Progressive) world view were planted by my father's sense of tolerance and fair play.

If Son of Ralph (gasp) turns Libertarian on me, it will be (I'm guessing) because the Libertarian Party espouses views on a lot of social issues that I've worked hard to teach my children.

If GMU does turn him, I will see it as a failure on my part, not his.

And the Ayn Rand Institute? Brr...I just felt a cold chill run down my spine.

TarrantLibertyGuy said...

Oh and speaking of 'The Price of Things...'

I notice your blog is worth over $57K - or so says the scientically sound 'blog-o-meter' on the side of you post.

Talk about gouging! :-)

TarrantLibertyGuy said...

And Dr. Ralph...

If you're son is a libertarian, it's nothing the GMU professors said and it's not a failure on your part. In fact approximately 10% of any culture's population is libertarian. Nothing going against religion or nature... I think it can be shown that they were 'just born that way'. Once I came out of the political closet to my mom, she was fairly accepting. However, she did say "I'm just glad your father isn't alive to see this. He'd never understand."

Just hug your son whichever his political preference...

With Libertarian Pride,