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Thursday, September 15, 2005

On Sacrifice, Government vs. Private Response and Price Gouging

From Bob Novak:

When Congress was called back before Labor Day to pass a $10 billion first installment, [Senator Tom] Coburn on Sept. 1 declared Congress should "make budget sacrifices of its own if we expect the American people to do the same." On Sept. 6, Sen. John McCain, a longtime anti-pork crusader, joined Coburn's effort. They declared: "Members of Congress should, at least temporarily, deny themselves a few of the comforts of political office." But there has been no word of support from Republican leaders or the administration.

The $15.3 billion in OMB proposed cuts is just the beginning of the Coburn "sacrifices." He would cut into $27 billion of spending earmarked by individual senators and House members in this year alone. As chairman of the Senate subcommittee on federal financial management, he has found $41.5 billion in government overpayments because of poor accounting practices, $1.2 billion in an "over-priced" renovation of United Nations headquarters, $18 billion in General Services Administration (GSA) middle-man fees and $46 million in cost overruns at the Securities and Exchange Commission (SEC).

From Thomas Sowell on the response of government and private enterprise in Katrina relief:

Well before Katrina reached New Orleans, when it was still just a tropical depression off the coast of Florida, Wal-Mart was rushing electric generators, bottled water, and other emergency supplies to its distribution centers along the Gulf coast.

Nor was Wal-Mart unique. Federal Express rushed 100 tons of supplies into the stricken area after Katrina hit. State Farm Insurance sent in a couple of thousand special agents to expedite disaster claims. Other businesses scrambled to get their goods or services into the area.
Meanwhile, laws prevent the federal government from coming in without the permission or a request from state or local authorities. Unfortunately, the mayor of New Orleans and the governor of Louisiana are of a different party than President Bush, which may have something to do with their initial reluctance to have him come in and get political credit.

In the end, there was no political credit for anybody. There was just finger-pointing and the blame game.

Larry Elder on "price gouging":

Alabama Attorney General Troy King says price gouging occurs when the seller prices an item or service at 25 percent or more above the average price which was charged in the same area 30 days before the governor declares a state of emergency. The law allows exceptions for price increases attributable to "a reasonable cost."

Hm-mm, does this apply to, say, housing prices?

For example, the city of Baton Rouge, almost 80 miles from New Orleans, saw its population double as a result of the people displaced by the hurricane and flood. Practically overnight, housing prices in Baton Rouge increased some 20 percent. Yet one reporter explained, "In a phenomenon familiar to Southern California's housing market, prices are rising not so much because sellers are gouging, but because buyers are bidding up the prices." "Not so much"?

In economists Milton and Rose Friedman's classic book "Free to Choose," they explain supply and demand. " . . . [I]f an exchange between two parties is voluntary, it will not take place unless both believe they will benefit from it. Most economic fallacies derive from the neglect of this simple insight, from the tendency to assume that there is a fixed pie, that one party can gain only at the expense of another. . . . Prices . . . transmit information. . . . Suppose that a forest fire or strike reduces the availability of wood. The price of wood will go up. That will tell the manufacturer of pencils that it will pay him to use less wood, and it will not pay him to produce as many pencils as before unless he can sell them for a higher price. The smaller production of pencils will enable the retailer to charge a higher price, and the higher price will inform the final user that it will pay him to wear his pencil down to a shorter stub before he discards it, or shift to a mechanical pencil. . . . Anything that prevents prices from expressing freely the conditions of demand or supply interferes with the transmission of accurate information."


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