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Stock Market Trend Forecast March to September 2019

Hurricane Sandy Draws Out Political and Economic Fallacies

Politics / US Politics Oct 31, 2012 - 03:05 AM GMT

By: Jeff_Berwick


Best Financial Markets Analysis ArticleGary Gibson writes: Throughout the next few days in the aftermath of Hurricane Sandy you will repeatedly hear two great untruths:

  1. We need government to protect us from natural disasters.

  2. Natural disasters are good for the economy.

Regarding the first fallacy, let us consider today's New York Times op-ed commentary, which is predictably fawning about centralized political power.

“Most Americans have never heard of the National Response Coordination Center, but they’re lucky it exists on days of lethal winds and flood tides. The center is the war room of the Federal Emergency Management Agency [FEMA], where officials gather to decide where rescuers should go, where drinking water should be shipped, and how to assist hospitals that have to evacuate."

I must have missed something. Can the National Response Coordination Center actually stop the lethal winds and floods? Can the market not provide emergency response experts or drinking water or medical care? It's the typical "If the state doesn't do it, it won't get done" line of thinking that cripples most minds on the planet. The Federal government extracts (by force) about half of its citizens incomes and then gives them these "essential" services while convincing them that these services would be either unavailable in a freed market or too expensive for the average citizen to afford. Papers like the Times help reinforce this myth by reminding the lumpenprole just how lucky they all are that the feds stole their money in the first place and will continue to steal it in perpetuity. It never seems to occur to anybody that in a freed market privated insurers would provide things like protection and emergency services (because prevention is more economical, i.e. profitable, than repair or remuneration). 

And in fact, in our yearned-for stateless world, private insurers would probably provide a lot of the essential services the state claims only it can provide. Plus economic considerations will tend to make people act cautiously and responsibly. Insurance companies in a freed market would restrict payouts for damages incurred because of truly foolhardy decisions in the face of a natural disaster. We remain confident that evacuation and safety can be privately worked out --and with greater efficiency and at lower cost-- without a centralized political authority.

And why is it people are starting to wake up to the fact that consumers and producers can communicate effectively through the pricing mechanism to meet demand...yet they can't imagine that this system would hold up when an impending emergency increases demand? Maybe because the average person is so befuddled with loaded nonsense phrases like “price gouging” that they can't hope to understand the vital importance of rising prices in spurring increased supply. In brief, rising prices reflect rising demand and induce greater supply as producers rush in to take advantage of higher prices. Prices move back down either because of the increased number of competing providers. In the case of a temporary spike in demand due to emergency, prices subside once the emergency does and demand returns to previous, normal levels. Forbid “exploitative” price increases and all you are doing is guaranteeing shortages. 

This notion that the largesse of centralized political force is the ONLY way to handle's just so bewildering. I suppose it's born of the same programming that makes people believe that roads can only be built with money that's been extracted from “taxpayers” at gunpoint.

The article goes on to bash Mitt Romney and conservatives and Republicans in general for wanting to get rid of FEMA...

“...[I]deology still blinds Republicans to its value. Many don’t like the idea of free aid for poor people, or they think people should pay for their bad decisions, which this week includes living on the East Coast.”

Cute. Never say that the NYT isn't full of clever writers. Too bad they use their wits for state propaganda. Now we here at TDV aren't “conservatives” or Republicans, but we do know that human beings don't need thieving men with guns and a monopoly on the use of force to coordinate their movements in the event of an emergency. Last we checked, most people (at least the ones who haven't been completely crippled by dependence on the state) have a pretty healthy sense of self-preservation. The individual also has more information about his immediate needs than a central planner hundreds of miles away possibly can, and can therefore make more informed choices inherently more suited to his particular situation. 

(As it stands right now, the government is indeed encouraging some very bad decisions and outcomes by forcing the hands of both buyers and sellers in the insurance market. Insurers are forced at gunpoint to sell insurance to people living in risky areas. On the other hand, FEMA reclassified a bunch of properties as risk-prone and forced those property-owners to buy insurance. Ah, government...always willing to point guns to cause economic distortions...)

As to the second fallacy, why wait for natural disasters to destroy things if it's so good for economic growth? Why not just create disasters of your own?

Of course, this is exactly what war is. Government goes out and destroys other people's stuff in other countries. Because government is spending on war (the one activity in which governments will always have the free market beat), GDP is going up! Governments won't generally blow up their own subjects or knock down their houses...but their court economists spend an awful lot of time convincing the government's subjects that there is a bright side when Mother Nature breaks their stuff and kills a few of them: GDP will go up because of the clean up process!

This was already dealt with in Henry Hazlitt's classic Economics in One Lesson. It's the “Broken Window Fallacy” all over again. You'd think this bit of idiocy would have died a long time ago...but then again we live in a world where most people think that printing money is the same as creating wealth.

Again, why wait for the hurricane? Why not regularly just run around breaking stuff? Bring the tanks and bombers back from the Middle East and set them loose in downtown Chicago, Los Angeles, New York...or even better, Washington, DC? We don't do it because when it comes to our own stuff we reflexively understand that that kind of vandalism would make us poorer, despite the "economic activity" the rebuilding would generate. Yet the vast majority of people just nod their heads when the mainstream Keynesian on television or in print explains says that war and natural disasters breaking stuff and killing people is good for the economy. 

But Keynesian mainstream economists only think in terms of “aggregates”. Their pet figure, GDP, for example, ignores all the stages of production in which wealth is actually created. They only look at final output with an equation that paints government deficit spending as the greatest possible good. That's why Keynesians can say with a straight face that government spending money on building bombs that will blow up people, buildings and infrastructure is an economic positive. It's a wonder that the comical Paul Krugman hasn't lauded convicted arsonists and suggested putting them on the government payroll.

Material wealth essentially comes from the addition of value toward increasing amounts of conveniance, physical comfort and quality of life. Wealth is the value adding chain whereby man shapes the raw natural world into something more to his liking. Ceteris paribus, a man is wealthier when he has air conditioning in the hot and humid summer and heating in the dead of winter than when he does not have either of these things. Same goes for refrigeration, electric lights, motorized transport and whatever other wonders are coming our way thanks to free market-driven innovation. In may ways, the “poor” of today's First World countries are richer than the kings of the pre-Industrial era. When governments and natural disasters blitz away the supply of clean running water and the electrical supply that powers modern conveniences, they aren't “stimulating the economy.” They're destroying wealth.

Destruction does indeed boost “aggregate” demand and spurs economic activity. But wealth and progress have very little to do with the Keynesian aggregates and GDP. The destruction of wealth (buildings, infrastructure, productive lives) may induce economic activity with all the rebuilding and funerals. But wealth has still been destroyed. The resulting economic activity is energy that could have been used better elsewhere to actually keep building upon existing wealth. That energy is no better spent because nature did the damage as opposed to an arsonist having done the damage. Again, why this isn't obvious is testament to the thorough ability of indoctrination to warp very basic cognitive ability.

Keynesians fail to understand what wealth really is and therefore they have no hope of understanding how it's created. That's no surprise really, though. Keynesianism isn't an attempt to understand economics as human action and interaction (you know, like the praxeology of the Austrian School of economics does) with the goal of increasing quality of life. No, Keynesianism is an apologia for government action. And despite the press they try to give themselves, governments aren't actually concerned with human progress, just human obedience.

We must never forget that economics is actually moral philosophy. Unlike hard sciences and mathematics, economic theory will be shaped by worldview. If you start with the premise that freedom and non-aggression are good, then you end up with a very Austrian school understanding of economics. If you think that people can't produce food, educate their children, get out of a hurricane's path or tie their shoes without politicians pointing guns at them, then you end up with a Keynesian view of things and editorial spots in The New York Times.

For a more economically and morally sensible view of the world –and corresponding ways to add to your own financial standing— turn away from the likes of The New York Times and take a look at TDV's Weekly Dispatch. Every week we offer a decidedly Austrian School macro analysis along with very specific plays to help you prosper. Learn more here.


Gary Gibson

Editor, The Dollar Vigilante 

Anarcho-Capitalist.  Libertarian.  Freedom fighter against mankind’s two biggest enemies, the State and the Central Banks.  Jeff Berwick is the founder of The Dollar Vigilante, CEO of TDV Media & Services and host of the popular video podcast, Anarchast.  Jeff is a prominent speaker at many of the world’s freedom, investment and gold conferences as well as regularly in the media.

© 2012 Copyright Gary Gibson - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

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