Guest Post: Natural Disasters Are Not Good for the Economy

by Nicolás Cachanosky

Every time there is a natural disaster old economic fallacies make their appearance. And they are usually always the same. In particular, the argument that a natural disaster is good for the economy. This should make little sense.

Wealth is not created by destroying things. A natural disaster destroys wealth, doesn’t create it. I doubt anyone affected by a hurricane would argue that he is better off after the natural disaster than before.

The argument that an event such as a natural disaster is good for the economy rests in the positive impact seen in GDP (as is argued) after the natural event. If GDP increases, then the economy is doing better. But this is a misreading of GDP. This variable is a flow of wealth, it is not a stock of accumulated wealth. It is possible that wealth creation (flow) increases at the same time the stock of wealth is decreasing. And this is what happens during a natural disaster.

Imagine that someone’s house caught fire and burnt down. Because of this situation, this person decides to start working extra hours to increase his income and be able to buy a new one. The extra hours makes his income (GDP) increase. But his situation is considerably worse because he lost his stock of wealth (remember Bastiat’s broken window fallacy…?). Arguing that a natural disaster (or a war, etc…) is good for the economy is like arguing that this person is better of because he has to work extra hours to recover his loss.

This is just another case of a too common fallacy in economics. We know that if the economy is doing better the result will be better GDP and unemployment indicators. But from observing a better GDP and unemployment indicators we cannot, and should not, conclude that the economy is doing better. More important than observing what is happening to GDP is understanding why is changing its behavior.

It could be argued that one of the problems of the Keynesian view of the world is the focus on what happens to output and unemployment rather than why these variables are moving. Not surprisingly, we get to the conclusion that going to war (or having a natural disaster) would be a good way to achieve full employment.

Reprinted from Notes on Liberty.

Nicolás Cachanosky is an Assistant Professor of Economics at Metropolitan State University of Denver, a co-editor of the journal Libertas: Segunda Época, and the manager of El Hub Económico, an index of Argentine economic series. He is a macroeconomist with interests in business cycles, monetary theory and policy, and comparative institutions.

This article was originally published on FEE.org. Read the original article.

Guest Post: Helping Hurricane Victims - There’s an App for That

by Nick Freiling

Everyone talks about changing the world. Gret Glyer is actually doing it.

When Hurricane Harvey hit Texas, Glyer contacted the “Cajun Navy”—volunteers from Louisiana who went to Houston to rescue flood victims. He asked how he could best support their efforts to rescue stranded Texans.

Source: NOAA

After chatting, Glyer set up a new project on DonorSee, an app he himself created. Twenty-four hours later, he sent the Cajun Navy $5,000 to pay for gas. Three days later, $5,000 more.

Within three days of making contact, Glyer had put thousands of gallons of gas into their boats—the same boats many saw on CNN pulling people from flooded buildings.

How is that possible?

Glyer’s app, DonorSee, is a P2P app that connects donors with the needy in real-time, using video, photos, and direct money transfers. The concept is bafflingly simple: allow aid workers to post projects to the DonorSee feed as they would post a photo or video on Instagram. They explain the need, specify the funds needed, then provide real-time updates as donations pour in. Donors give with the press of a button, with all payments processed through Stripe.

When the project is funded, the post closes.

Glyer says, “DonorSee accomplishes two new things: Directly connects people with third-world and disaster-related needs, and ensures 100% transparency about where dollars are going.”

DonorSee now operates in 50 countries. The feed shows a huge variety of fundable needs, from life-saving medical supplies and procedures in Thailand to school tuition for promising students in Malawi. Often, projects are small enough that just a few donors can meet the entire need (often saving a life). Other times, hundreds of donors contribute to single projects, like building a well or water filtration system in poor villages.

Like GoFundMe, the app rewards high-quality posts. Donors can rate the quality of post authors and are told to expect real-time updates about how their funds are being used. If this doesn’t happen, donors can stop supporting those authors.

Glyer says his goal is to change the world—he says DonorSee is the answer to meeting acute, poverty- and disaster-related needs around the world.

After Harvey, it’s hard to disagree.

A 10-minute phone call. An 80-word post. A two-minute video. A few tweets and Facebook updates. This is all it took to collect $10,000 from more than 250 individual donors, from all around the world, to send directly and immediately to the Cajun Navy.

“This is 2017. If people want to give directly to the needy, they should be able to do that immediately, anytime, anywhere,” Glyer says. “That’s what DonorSee does.”

DonorSee is a realistically hopeful app. Glyer believes in the eagerness of people to help one another and uses the power of real-time video to make that happen. In that way, it relies on the same goodwill that underlies the sharing economy—trust in each other, and faith that continuous feedback loops will reward good, honest work.

But DonorSee is also a reaction to the grossly ineffective and corrupt “big charity” model that has the giving industry stuck in the twentieth century. While we can tip our Uber drivers directly and in real-time, we send aid to hurricane victims through massive, archaic organizations—thousands of employees, some paid millions annually, who all sit together in a neighborhood of limestone buildings just north of Capitol Hill.

“When Harvey was impending, the vultures started circling,” Glyer said. “NGOs, federal agencies and big box charities like Red Cross descended on Houston while asking for dollar after dollar from people who wanted to help—most of whom will never know what good their dollars accomplished.”

On UK television last month, Glyer highlighted the problems with big-box charity models—in particular, their inability to tell donors exactly where their dollars are going. Sure, they publish their financials, but they will, as always, fail to show how Harvey relief funds will be used in Houston. Frankly, much of those funds will probably end up back in DC, at Red Cross offices funding the more than 1,000 administrative support staff.

DonorSee is different. Users, not employees, post projects as they find people in need (typically in third-world countries). And money handling is automatic (handled by Stripe), requiring almost no overhead whatsoever. Glyer can monitor DonorSee donations—thousands of them—from his iPhone.

“Helping each other should be about just that—helping each other,” Glyer said. “Not sending checks to NGOs, nonprofits, ‘causes,’ etc. Those organizations might have their place, but when it comes to sudden disasters like Harvey, they’re honestly way out of their element. Helping in situations like Harvey is about how quickly and directly you can give to the actual person you want to help. That’s what we’re doing. That’s what P2P is about.”

Nick Freiling is Founder/Director of Haven Insights, a DC-based market research firm. He studied Austrian economics at Grove City College and George Mason University.

This article was originally published on FEE.org. Read the original article.

Guest Post: Price Gougers Actually Help Solve the Problem of Scarcity

by Tom Mullen

Whenever there is a natural disaster, we see two things: the best in human generosity, courage and resilience and the worst in economic ignorance.

The former includes individuals rescuing stranded neighbors, volunteers lining up to join charity relief efforts, and corporations marshaling their vast resources to pour needed items such as food, bottled water and clothing into devastated areas. The latter includes “economists” repeating the age old broken window fallacy and politicians denouncing and threatening so-called “price gougers.”

Emotions run high during disasters, which is a double-edged sword. The outpouring of sympathy for the victims leads to extraordinary efforts in assistance. But it also leads to irrational resentment of those whose actions are often vital to human survival, but whose motives are judged inferior. These are, of course, the aforementioned price gougers.

One of the weaknesses in rational responses to the accusation of price gouging is just that: they appeal to reason when the accusation is born of emotion. And that disconnect is an irrevocable one until the accuser can be persuaded to look at the situation reasonably. But once so persuaded, the accuser often voices the understandable objection that economic arguments rooted in supply and demand charts and theory are too removed from what the accuser considers “the real world.”

Real World Behavior
Here, then, is a “real world” scenario in which the actors respond to incentives just as anyone in similar situations have countless times in the past:

There is a hurricane and flooding. Drinkable water is in short supply. A man has $100. He needs a case of water to get his family of three through the week. He walks into the store, where water is $25/case. There are 4 cases left on the shelf. He needs one, but can afford 4 and he doesn’t know how long the emergency will last. So, he buys all 4 cases.

Immediately afterwards, a family of five walks into the store with $100. There is no water to buy at any price. This family is now in desperate straits and must look elsewhere to procure what they need to survive.

Can anyone dispute the actors in this little parable have acted rationally and precisely as they would in the real world? No. Neither have any acted in a malicious or overly selfish manner. All have made the best choices among the alternatives presented them.
Now, change the price of a case of water in the above scenario to $100/case. What would be different? Of course, the man with a family of three would now only be able to buy one case of water, giving him what his family needs, but not necessarily as much insurance against future uncertainty as he would like. He gives up a little, but the family of five whose survival was in grave danger in the $25/case scenario is now able to purchase at least one case of water.

In the latter scenario, both families have enough to survive and a strong incentive to conserve water, thereby reducing demand and lowering its price, all other things being equal.

The so-called “price gougers” may have acted in their own interests, but they have not only benefited society economically, they have saved the lives of the family of five. Thus, Adam Smith’s 241-year-old “invisible hand” is confirmed by the real world yet again.

Incentivizing Other Entrepreneurs
But there are still those who claim that, while the price gougers have acted rationally and within their rights and may even have inadvertently benefited others, they have still acted immorally. In the case of the recent hurricane in Texas, many say,
“No, you don’t understand. Many of these people aren’t even from Houston. They knew the hurricane was coming and bought up a bunch of water at regular prices, with the express intent of coming to Houston and selling it for huge profits, while others were giving water away for free. That’s immoral!”

First, anyone selling water at any price is obviously serving people who don’t have access to the free water. If the buyers had access to free water, they wouldn’t pay for it, at inflated prices or not. Second, this sanctimonious moralizing begs the question, “Why didn’t you buy up a bunch of water and go to Houston and sell it at regular prices?”

The answers to the latter question are many, but they can be summarized as follows: most people do not have the time, capital or expertise to do what the price gougers did.

Who can afford to take off from their own job or cease running their own business to start a whole new one on a few days notice, much less donate their time? Some can, but not most, which is why after all those who can be by charitable work are served, there is still a market for those seeking profits.

We Need Price Gougers
Lost in all the moralizing is the reality that the so-called price gougers face all the same challenges as anyone else, having to forego whatever income they otherwise would have earned if not for their disaster-relief project, and face the risk of losing future income because they took off from their jobs or put their own regular businesses on hold. These losses and risks must be compensated, which is another reason they sell products at a premium price, in addition to supply/demand realities.

Thus, in the real world, even with as many people as are able acting as charitably as possible, there is a need for those seeking profits from higher-than-normal margins, whose self-interested actions save lives and mitigate the devastating effects of disasters. Yet, the rest of the world condemn them and governments seek to punish them, threatening not only the price gougers, but those whose lives they may save or whose suffering they may lessen during the next disaster.

Reprinted from Tom Mullen.

Tom MullenTom Mullen is the author of Where Do Conservatives and Liberals Come From? And What Ever Happened to Life, Liberty and the Pursuit of Happiness? and A Return to Common  Sense: Reawakening Liberty in the Inhabitants of America. For more information and more of Tom's writing, visit www.tommullen.net.

This article was originally published on FEE.org. Read the original article.