Aiyar and Boudreaux — Part II
Published by Yazad Jal January 11th, 2005 in Economics, EnvironmentDon Boudreaux responds to my post yesterday by pointing out that the high prices of goods following the tsunami is not a second disaster, but simply part of the original disaster. He also recalls a conversation with a student who disagreed with him and shows how these price increases are not incompatible with charity or compassion.
While on Cafe Hayek, here’s another tsunami related piece, on Helping the Poor Around the World.
The problem isn’t lack of effort, it’s lack of results. And the reason for that unfortunately, is that most poor countries are not really poor, as I heard Arye Hillman explain it. His point is that the richest people in the poorest countries live as well as the richest people in the richest countries. The real problem is that in most so-called poor countries, the powerful people, the government and their friends, live at the expense of the rest of society.(snip)
The best way to help those countries is to encourage reforms that disperse power either through political change or economic change. A good place is to start is to lower trade barriers.
Brings us back to the point about economic freedom.
I find Boudreax’s point no. 5 the most amusing:
Aren’t he and Yazad doing the exactly the same to all of us. Both George Mason University and Praja receive forced charity from all of us. How you ask?
Well George Mason gets government funding and Praja gets a tax break because it does not make a profit - all of this is funded by the enforced charity. We all have to pay a higher tax because Praja is designed not to make a profit and is then rewarded for it.
But these same people have no sympathy for people who have been hit by a tragedy and cry that the market is not being allowed to operate because of the heavy handedness of the governemnt all the while when their salaries and organizations are quietly being funded by enforced charity from all of us.
I suggest that first they give up their tax breaks and get their own organizations into the free market before trying to pontificate to the poor who lost their all in the tsunami.
CK,
Its not about “sympathy” or the lack thereof. Its pure pragmatism - what works and what doesn’t.
Funny thing about compassion, sympathy, socialism, etc. - they only work within the framework of a free market. That is, the free market (trade) creates the wealth your good heart wishes to redistribute. They cannot stand on their own.
The issue is not the overall scarcity of a particular good in an economy but a short-term regional scarcity because:
a) the stockpiles have been destroyed
or
b) the access routes (roads, rails etc) have been destroyed.
or
c) there is a sudden need for a good because of the disaster (e.g. bottled water because the local water supply has been contaminated).
a,b and c are not your typical market driven reasons for a price increase which is caused by a problem in production.
Boudreaux and others assume that all the production facilities are alwys running at optimum and a diversion of resources from one are to another needs to be accompanied by a price rise - when in fact no company runs at this optimum production output and most usually have huge stockpiles of products sitting in warehouses. There is no additional cost to dicert these resources to another region.
Well, CK, if the infrastucture is really badly damaged by the tsunami (as you stipulate), it is not at all the case that “there is no additional cost” to shipping supplies from surplus areas to affected disaster regions. In fact the cost could be quite high.
Boudreaux’s point, which I think you misinterpreted, is that since a shopkeeper faces higher costs due to things like roads being made impassable, why should we impose a unique moral and legal responsibility on him to accept lower profits or even losses because he happens to do business in an area hit by the tsunami. This is quite different from questioning the general principle of government-provided disaster relief. The issue is that the forced burden of providing supplies for the people is not shared evenly. You don’t need to be a libertarian to find it strange that a shopkeeper (who may have even lost his own home in the disaster) be uniquely obligated to tsunami victims in a way that a five-star hotel owner in Bangkok, an NRI living in Seattle, or a grad student living in California are not.
CK,
How do you manage to say so many fallacious things in the space of one paragraph without noticing the contradictions? If access routes to a place are destroyed what magic is a company supposed to use to get supplies from its warehouses to the affected areas without incurring an additional cost?
CK,
If there is no extra cost for ACC and Ultratech (cement firms) to send their cement to a tsunami hit area, then the one who raises its prices above the other loses. So, very soon, the increment in prices in the new scenario are reflective of just the additional transport cost. If ACC charges unreasonably high, ultratech will sell more and vice versa.
The laws of economics are immutable, Ck. Better realise that earlier rather than later.
-
Anyway, a good suggestion I read in yesterday’s paper was - a one year suspension of tariff by the developed world for all products coming from the tsunami affected countries. - instead of giving out aid separately, take the hit in the accounts of the tariff.
I say, why depend on the westerners and why stop at that - let all disaster zones be made totally tax free areas. Let people, companies who live there be exempt from income tax, corp tax, etc for 15 years. Let the market work its magic. You’ll see dubais rising where today you see disaster.
Prakash,
You would have to make the entire country a tax free zone. If you make only the “disaster area” a tax free zone, you will give an enormous incentive for govt. officials to be corrupt. [Imagine the money they can make in order to certify that a particular company is actually in the disaster area and not a street away]