How Government Makes Natural Disasters Worse; L.H. Rockwell, Jr.

THEFREEMAN IDEASON LIBERTY How GOVERNMENT MAKES NATURAL DISASTERS WORSE by Llewellyn H. Rockwell, Jr. A n earthquake or hurricane always gen erates an inspiring rush of private gen erosity. People are never more willing to help their neighbors than when they are casqalties of nature. It's also inspiring when, as after the Midwestern floods, the victims adapt to their terrible losses and begin to rebuild their homes and communi ties without a whine, even lending helping hands to others. What Leonard Read called "the miracle of the market" is also on display. Economic conditions are radically changed by a disas ter. Resources that were once in great sup ply go into shortage. Materials and services once desired only in limited markets are suddenly in general demand. Yet free en terprise works rapidly to absorb these shocks. Through a system of private prop erty and free-floating prices, the market coordinates people's needs and transforms tragedy into social cooperation.

Besides generosity and enterprise, some thing else seems ever-present in natural disasters: meddling government. Indeed, bureaucrats and politicians love nothing better than pretending to come to the res cue. Their usual do-goodism appears more Mr. Rockwell is president of the Ludwig von Mises Institute in Auburn, Alabama. plausible and sincere. Their favorite solu tion to social problems-controlling mar kets and pouring in other people's money suddenly appears to be the only way out. Of course, the "solution" creates new imbal ances, slows repairs, and skews the rebuild ing effort. Prices after hurricanes, earthquakes, and floods reflect sudden changes in supply and demand. Essentials like water and gasoline soar in price as if to inform people that they should use them sparingly. What is remark able is not the high prices-which the media always ascribe to "gouging"-but that the market works so well in the face of catas trophe. When local bureaucrats put caps on prices, they create more shortages.

After Hurricane Hugo hit Charleston, the city punished price "gouging" -that is, charging the market price-with fines up to $200 and 30 days injail. Hurricane Andrew, which hit Dade County, Florida, inspired bureaucrats to new heights of tyranny, with fines of $500 and 60 days in jail. When that didn't work, the state attorney general set up a Soviet-style "Economic Crimes Unit" and threatened fines of $10,000. All this is folly. Businessmen will always charge as high a price as they can get away with, whether in the midst of disaster or not. Consumer sovereignty and competition, not 279 280 THE FREEMAN • JUNE ·1994 fines, prevent them from "gouging." Those market forces are always in place, and especially so after a disaster. Businessmen know there are needs to be met, and rush in, sometimes from afar, to provide them. En trepreneurs spend their lives looking for unmet needs they can satisfy. But these providers have to compete with each other, a process which results in prices that are neither too high, which would lead to· un derutilization, nor too low, which would lead to waste.

If government intervenes by mandating artificially low prices, it conveys misleading information to consumers, causing them to use more than they should of scarce re sources, and making existing shortages more intractable. Is it wrong for private enterprise to make money from disasters? Is this "profiting from other people's misfortunes"? If capi talists didn't benefit, it wouldn't make eco nomic sense for them to provide people with what they want. The other beneficiaries, who seem somehow forgotten, are the peo ple with whom the capitalists make their exchanges. It's not only local government that im pedes market adjustment. Natural disasters are boons to the central government as well. The Los Angeles earthquake, for example, inspired the federal government to unparal leled fits of' 'generosity. " One high-ranking officialasked that' 'Congress and the Amer ican people approach this situation with the same sense of compassion and concern for our fellow human beings that we've applied in other disasters."

He did not offer to clean up debris or have Congressmen repair the highways. He wanted the government to transfer $8 billion from its owners and earners, to non-owners and non-earners, the government and its selected clients. By the time the transfer was finished, the total exceeded $8.6 billion. The timing worked in the government's favor as well. The extra spending came too late to be included in the FY 1995 budget, so spending and deficit projections were even more off the mark than usual. The central government did not,route the money directly to the L.A. residents. That would have taken much of the fun and political advantage out of government com passion. Instead, much of the money went to agencies within the central government itself. The Federal Emergency Management Administration (FEMA) received $3.9 bil lion, the Small Business Administration $1.44 billion, the Education Department $245 million, the Transportation Depart ment $1.4 billion, Veterans Affairs $280 million, and Housing and Urban Develop ment $500 million.

The central government's infusion of cash provided a new lease on life not only for FEMA but for every other bureaucratic beneficiary. They all got budget increases they couldn't have negotiated through the usual political process. Not only did their budgets zoom, but they were offered the chance to.appear essential to the common wealth. "Good thing we didn't cut those agencies way back when," we are encour aged to think. "What would we do without them now?" Most people hurt by the L.A. earthquake will never see a dime of the $8.6 billion. To get a small business loan, you would have to fill out a giant form, subject yourself to federal scrutiny, be politically correct, wait a surprising amount of time, and then rely on the discretion of bureaucrats. Even if you did get the money, you should tear up the check, since such wealth transfers are both immoral and socially damaging. Most of the money, of course, ends up in the hands of lower levels of government, who take their cut and disperse the remainder to favored contractors and other campaign contribu tors.

Henry Hazlitt, in his book Economics in One Lesson, encouraged us to look at the unseen consequences of government benev olence. The billions extracted from the pri vate economy to clean up the Los Angeles earthquake could have been left in private hands to expandinvestment andjobs. Some of this capital would have flowed to Los Angeles, where people's needs are the high est. The private sector could have invested at a profit in a place with high consumer HOW GOVERNMENT MAKES NATURAL DISASTERS WORSE 281 demand; instead private earnings were forcefully taken by government, which em powers that institution at the expense of society, penalizes work and savings, and rewards the socially unfortunate skills nec essary to get loans and grants from politi cIans. Oddly, wealth destruction (through either earthquakes or taxation) does not appear in the official data. In a strange statistical anomaly, wars and natural disasters appear to increase economic growth. The reason is the manner in which the Gross Domestic Product is calculated. It counts only spend ing and production of goods and services.

When flood waters engulfed the Midwest, for example, the result was not a declining GDP but an expanded one. The GDP also counts government spending as wealth, when in reality it subtracts from wealth, only one of many other reasons that the construct deceives rather than informs about the economy. Government aid also squeezes out private solutions the crisis would have generated. Consider, for example, the highway system. In Los Angeles, several crucial highways collapsed, and everyone bemoaned the fail ure of their "earthquake-proof' design, and screamed for roads with more reinforce ment. Why not use this golden opportunity to let private companies own and build them, and charge a fee for their use? The roads would have been built much faster, and because private companies could be held responsible for a future collapse, they would have added incentive to make them as strong as possible.

An added benefit of private roads would be reduced congestion. In Los Angeles, traffic jams cause billions in lost productiv ity and even lead to violent fits of rage. When road service is offered at zero price, as economists point out, the inevitable re sult is overutilized resources. If private companies ran the roads, prices would match supply with demand. The roads would be safer, in better repair, less con gested, and taxpayers all over the country would have been spared higher taxes for Los Angeles "freeways." Instead, Los Angeles will pay a heavy price for its reliance on federal aid. Newly built roads willbe even more congested than the old ones. Schools will find themselves more subservient to Washington than ever before, since the Education Department will take credit for rebuilding classrooms. And businesses that do get money from the Small Business Administration and other agencies will shift their loyalties from customers to executive agencies.

After a crisis, the government rarely shrinks to its pre-crisis levels. This has been the pattern throughout this century, as Pro fessor Robert Higgs has pointed out. After the Great Depression and the Second World War, for example, we never returned to normalcy. Similarly, the Cold War helped justify huge military budgets and expanded Pentagon power, but once it ended, the promised "peace dividend" turned out to be a tax increase so we could play vice squad to the world. The only way to prevent government at all levels from taking unfair advantage of nat ural disasters is to keep it from intervening in the first place. Two months before the earthquake occurred, former Senate candi date Bruce Herschensohn spoke at the Claremont Institute near Los Angeles on disaster aid. In his speech, he urged that California turn down all central government aid when the next earthquake hit. He cited the waste and unfairness of taxing people all over the country to pay for California's ills. And he nbted that nothing in the U.S. Constitution gives the central government authority to bail out earth quake-prone areas. The Tenth Amendment reserves to the states and to private enter prise the responsibility for such disasters.

If California had tried such an experiment and rejected government aid, it would have set-as Mr. Herschensohn noted-a shining example for the rest of the country. And it would have been the first major step away from leviathan. Instead, we witnessed an other bad example of the government pre tending to rectify every ill in society except statism, and making us all worse off in the long run. D Ideas and Consequences Economic Opportunity Needs A Moral Dimension by Lawrence W. Reed I n this Congressional election year, expect to be barraged with rhetoric about "get .. ting America moving again," "creating jobs, jobs, jobs," and ' 'stimulating the economy." Politicians love to promise the future and ignore their own handiwork of the past. They typically spend much more time con.. cocting new schemes for intervention than they spend searching for old ones that de serve to be repealed. What really deserves our attention are those specific barriers to economic oppor tunity erected by government-regulations, taxes, licensure laws, unfunded mandates, building and zoning codes, special privileges for organized labor, subsidies to business, chronic budget deficits that consume needed capital, a welfare system that puts a pre mium on idleness and a penalty on work, and an education monopoly that fails to teach children as it vacuums their parents' wallets, to name a few.