Another Theoretical Question

There is a provision in the new Campaign Donor Reward Program Stimulus Package that prohibits the use of foreign steel in any of the new highway and infrastructure projects.

We currently purchase 40% of Canada's steel output.

Canada currently purchases lots of software, technology, and food from the U.S.

Let's assume that the Christmas Tree With Presents For Everybody ! ! ! Stimulus Package makes it through the Senate.

What do you think Canada will do in response ?

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.

A Theoretical Question

A hurricane hits the Gulf Coast. Supply chains are disrupted, and will likely remain that way for days.
The Home Depot store in the hardest-hit area doesn't raise its prices immediately before or after the hurricane. Their shelves are quickly emptied.
Let's say that another retailer called "Big Box", located next door to Home Depot, doubles The Price Of Everything in their store. They still have many of the items (like flashlights, batteries, diesel generators, etc.) that are in high demand after a hurricane. Big Box keeps the high prices in place until the replenishment system returns to normal.

People are outraged. Shortly after the storm, customers arrange a protest.

With which store should the customers be angry?

After you've had time to think about it, click here for more info on the origin of the question....