 Welcome to the FeeCast, your weekly dose of economic thinking from your friends at the Foundation for Economic Education. My name is Richard Lawrence, and we have with us our esteemed panel, Anna Jane Perrell, Dan Sanchez, Mary Ann March, and our special guest, John Miltimore, our managing editor at fee.org. Welcome to the FeeCast. We're very, very happy to have you here this week. Thanks, Richard. Happy to be here. Yeah. So we are, if it hasn't already, in the midst of a hurricane hitting the United States on the eastern seaboard, Hurricane Florence, of course, has been the talk of the news this week. And in some cases seems to be maybe a little bit overdone in terms of how often we're hearing about it, and sort of the updates regularly of the strength decreasing and increasing again. And by the time we're recording this right now, we actually don't know how bad this hurricane will have been by Friday when we released the podcast, but we're expecting it to be fairly severe. Yeah, already, already we've had four states declare a state of emergency, both the Carolinas, Virginia, Maryland, and Washington, D.C. And it might eventually hit Georgia. It's going to make like a left turn. But then by then it'll have died down. It won't be a hurricane anymore, the prediction. The president is actually giving on the hour updates, I think on this. On Twitter, yeah. On Twitter, of course, right. The great state of Georgia he warned is going to be affected. And so as we're talking about this, obviously, we're not aware of the full extent of the damage. We're aware at this point, at least a million people have been ordered to evacuate from their homes in Virginia, North Carolina, South Carolina. And so of course, our thoughts are with everyone who is being affected by the hurricane. Today, we want to talk a little bit about a couple facets of what we've been able to observe thus far. And one of them, in fact, is sort of the news side of everything, of course. It is the news of the week. And it almost appears as if the media is sometimes maybe cheering it along in terms of gathering strength and encouraging it to be a big story. I noticed this morning, I was having breakfast at the at the Artmore, the wonderful Artmore. And over my exit, there was a news cast on. And they were talking about how the storm might turn. And the anchor is like, but it's still going to be really, really bad, right? Like it's still going to. And he's like, well, the problem is, it could actually weaken. And he said that the problem is it could weaken. And I think it's a slip of the tongue. I don't think they want anybody. They don't have any ill will. But it shows that we do sensationalize these things a little bit. We get wrapped up in them. And sometimes we can maybe even exaggerate the effects of them. And you, John, speak with authority on this as a member of the media before joining fee. So this is not something alien that you're sort of opining on. It's funny. I noticed once, like, oh my gosh, like the media really does love these weather stories. And there was a couple of times during bad storms, they're like, hey, just go get a camera and go over here. There's going to be flooding. And I'm like, all right, like, so we drive to something like these places that are built in very low levels. And sure enough, there's people like they're paddling to get around from place to place. And it is like, I got to say, like that the coverage was kind of interesting. I'm like, I had no idea that people are still building here. And it happens pretty frequently. And they must like it there. They're staying. But there is that propensity for media to, they love weather stories for whatever reason. And they love negative news in general, because it makes people afraid. And it seems people are biased. Yeah, when we say media loves things, it really just means that people that watch media love these things. Right? I mean, I was just talking to to somebody who a friend of mine who's from Florida and she was talking about it with an with an excited tone. She was like, oh my gosh, yeah, she's like, I'm sorry, I'm from Florida. We love storms. And just kind of like it's fun. It's, it's, you know, and it's kind of crazy to think about something so scary and intense to be kind of entertaining. Well, it's interesting too, because for many people in the United States, they don't get to experience this sort of weather. It's usually people in the Gulf, people on the eastern seaboard. Of course, this is being called the storm of a lifetime right now. So on the eastern seaboard, at least, it's being called probably the strongest storm in decades, right? But I think a lot of us on the panel actually have our own experiences with hurricanes. Mine, as a matter of fact, was last year when I got married outside of New Orleans. A couple of you were there. And Hurricane Nate was supposed to hit. And in fact, the very last second ended off and veered off eastward and ended up making landfall probably as a tropical storm in Mobile, Alabama. And so we got the western side of the storm. And basically the best of that was the beautiful sunset, the night of the wedding. The ground was soaked. Some people's shoes were soaked during the day. We didn't actually have it in or outside. We ended up doing it sort of in an inside area. But that was kind of a last second sort of addition to the festivities, which I guess made it a little bit different. Yeah. Well, we were fortunate. I mean, hurricanes, there's, you know, people maybe have a little perverse excitement about them, like I do about the movie Twister, but there's classic of the 90s. I think that there's something about storms is kind of like how people feel about horror films, where we enjoy confronting our mortality in a weird kind of way. But on a more serious note, when we look back at past hurricanes, like when Hurricane Katrina swept through Louisiana in 2005, it was a lot of damage and a lot of deaths. Over 1500 fatalities, over a million people displaced and $125 billion worth of damage. It's not all tender hooks on the news. There's real lives being impacted. It's lives in destruction of lives. Even Hurricane Harvey, which I think they, I remember they said that one technically stalled. There were still 88 people killed in that. There was tens of thousands displaced. And that was one that wasn't, we don't think of as being as destructive. You just see those images last year of Houston underwater. It was incredible. It was absolutely incredible. People on boats, driving past roofs. That's right. Yeah. Was that just last year? It seems longer than that. Wow. And so we live through these storms. We end up observing the effect of these storms. But some people end up saying, and we might take issue with this, that there is silver lining to these sorts of storms. And I wonder, Dan, if you might offer a little bit on that, because I think we talk about that quite a bit at fee in terms of the economic sense. Yeah. I wrote an article back to Hurricane Seasons ago when there was Hurricane Matthew hitting the coast. And I was just noticing that a lot of news reports were claiming, well, you know, our condolences to the people who are suffering from this, but at least we can actually see some economic benefit from these storms. And basically their argument is that there's going to be a lot of destruction, but destruction means rebuilding. And rebuilding means economic activity. And just think of all the rebuilding businesses and how great business will be for them, how great their profits will be. Think about all of their suppliers that they will be boosted. And think about the new buildings and the economic activity that can be, like if it's a new concert hall and the economic activity out of that. And really it just reminded me of a classic that we talk about a lot, the broken window parable. And Frederick Bastiat, a great economist from the 19th century, he was the one who originated it. Someone who was very close to Fee, Henry Haslett, he updated it for the modern audience. And it really showed the economic error in that line of thinking. And so your article that you mentioned on Hurricane Matthew from a couple of years ago is entitled, Hurricanes Have No Silver Lining. And we actually have a link to it in the description right below the video. And tell us a little bit more about this broken window parable, because I think people may have sometimes heard of it, but might not know entirely what it means. Sure. So Bastiat posits, say a boy picks up a rock and throws it through the window of a bakery. And people gather around and the baker comes out and he sees his broken window and he's bummed. But everyone consoles him and says, you know, this is good for the local economy when you think about it. Vandalism is positive for the economy. All right, keep going. Because in order to repair this window, you're going to have to pay the glacier to fix it. And that, of course, is the person who is going to make the window. The window guy is the glacier, right? Yeah. So say you pay him $100 and then he's able to use that $100 to pay somebody for something else. And then they can pay somebody for something else. And it just kind of filters through the economy. And ultimately, that little boy did everyone a service by stimulating the economy. You got to love a good economic stimulus. So why don't we all throw rocks? Right. Yeah. Why don't we just stimulate the heck out of the whole town just by destroying everything? It's like a fundamental breakdown there between like the idea of wealth versus production, right? Like they're two very different things. And I think we often overlook that. I think we're much better at measuring one than the other two. And so Bastiat really emphasized that good economists don't just look at the scene, they look at the unseen. They look at the things that didn't happen. And so, for example, imagine if the window wasn't broken and if the baker had that money to use for a new suit. And so instead of the money going to the glacier, the money would go to the tailor instead. And so that he would benefit instead. And he's the unseen in this situation. And then the baker would then have a new suit and his intact window at the same time. And so really, you're still losing that if you just focus on benefits of one particular party, then that you're missing the whole picture. And then if you think not just in terms of consumption goods like the suit, but production goods, what if the baker had invested in a new oven? Then by not having a new oven that more efficiently produces more baked goods than all these potential consumers of these new baked goods, then they lose out from this act of destruction. Because the price would go down because it's more efficient for him to produce the same good, right? Is that what you're saying? As a customer, you then, oh, a loaf of bread becomes cheaper. So therefore, if he does not, because he now has to pay for the window, which you can invest in, let's say, an oven that now makes bread cheaper or more efficiently, making bread, the price of bread lower, customers lose out ultimately. So the purpose for which the baker is actually there to make bread for people is disrupted by this activity that destroyed rather than produced. Exactly. So along the same lines, when you look at a hurricane disaster area, like, sure, it's good for the rebuilding businesses for their bottom line. But what about all of the economic activity that could have been funded if that money had been directed to something else, to more food or to new buildings or new economic activity? You have to look at the whole picture. It goes back to that superficial excitement that the media will sometimes indulge in that says, because we've seen this one thing happen, everything that happens after that is due to the hurricane or to the storm or to the vandal who threw the rock in there. If you don't have an event that creates a need for something, it's not even worth reporting on, right? If the economy on the coast were just proceeding as usual, producing bread and glass and windows and all the normal things needed for commerce and everyday life, it would be just sort of a everyday activity. There's no story there. And yet we end up confusing destruction for creation. And you see this a lot in news reports or op-eds right after events like Hurricane Florence happened. Oh, well, you know, there was all this destruction of the local economy, but at least the general contractors have something to do now and people will be employed in construction, for example. But it's such a funny way that our heads are programmed to work. Instead of rebuilding all these buildings that we already had before, there could have been like entirely new businesses, like high tech, more modern businesses, as opposed to just replacing what you already had. But I think in some senses, when we talk about civil society, not just the economic side of things, but people helping people, there can sometimes be a silver lining to witnessing how people help each other after storms, right? I mean, when you look at places like New York after what they called Superstorm Sandy, right? So it wasn't just a hurricane, it was Superstorm. So they ended up, you know, inventing sort of a new term to describe that. But you look in New York and, of course, powers out for maybe a week or two. And I was just looking before we had the show, there was an image of a bunch of search protectors and power strips and extension cords outside of someone's house that they were putting onto the street so that people could plug in their phone chargers and end up, you know, giving each other power. That's the least of the examples of how communities come together and these sorts of things. But it's still one of those things to observe as we're dealing with the fallout from these disasters. Yeah, it's interesting. I read a New York Times article several years ago, the writer Walker Percy, who's not well known, not that well known anyway. He was from New Orleans. He's probably best known, I think, for getting the book A Confederacy of Dunces published. That's one of my favorite books. I love that book. After the death of, who's the author? I think it was John Kennedy Tool, I think. John Maynard. John Maynard Keynes. I'm sorry. I don't know just one of those three people names. John Maynard Keynes. So Percy got that published, but he was a great author, Catholic author. And the theme of Hurricanes popped up in a lot of his literature. And he saw them as a very redemptive force. And I think, you know, if you look in his writing, it shows that barriers between people just kind of fall away during these storms. We lean on each other. We look after each other. And I think the theme for him is it offers meaning, you know, for us that sometimes we, in our postmodern world, we don't have. We don't feel. And it reminds us that, you know, this matters. This is all very real and it could end. And there's something human about that, right? And that's why when you look at things like danger, that's why we go to haunted houses or amusement parks. And that's why we do get excited about storms. Because that danger, there is something that attracts us to that, because it does remind us, I think, of meaning to some extent. Makes us feel alive. It reminds me a little bit of the Twilight Zone episode I was watching last night, or the title of it. But this guy ends up making a deal with the devil that lived forever. He's a hypochondriac to begin with. And then he gets the devil to give him immortality, right? And then he ends up doing all these things to, you know, give himself thrills, because he's no longer afraid of dying. Is that the one with Burgess Meredith, the rocky trainer, who does he play the devil? I don't believe so. It looks a little bit like him. It sounds like a little bit different. Okay. But anyway, he ends up trying to get run over by a train, trying to jump off a building to, you know, feel the life again. And ends up in the end, spoiler alert, seeing this after about 60 years, ends up calling in the escape clause from the contract he's had with the devil so that he has a heart attack. But anyway, we do. We get excited by these sorts of things. And hopefully we also become excited by helping each other out. And in fact, going back to sort of the economic side of things, after Hurricane Katrina, obviously, there was a huge response from the federal agency FEMA, which is now working to address the fallout from Florence. And there was a point at which FEMA, which is charged with helping people in storms, was actually preventing people from helping other people. Why did they do that? Robert Murphy wrote about it back then for Fee. And he wrote, FEMA officials rejected trucks of supplies from Walmart, prevented the Red Cross from delivering food, turned back a 500-boat citizen flotilla that wished to help with evacuation, turned down offers of generators, refused the Coast Guard's efforts to deliver diesel fuel, and incredibly actually sent out an alert to first responders nationwide telling them not to respond to the disaster. Wow. What hurricane was this again? Katrina. Who was Katrina? Wait, why? Until specifically requested through the appropriate channels. Like it has to be through us. Oh, it was because it was a process. It was a process issue and not, we don't need that. It was, no, it needs to go through the proper, like the proper channel to get to us, like the help. And that we as FEMA are the only channel. And it's probable that they were thinking something about traffic, not wanting to put other people in danger. These Walmart trucks are just sort of lined up at the border to New Orleans or Louisiana, whichever. And they're saying, no, we don't want to let anybody in. But it doesn't seem like that's a proportional response, especially when these trucks are carrying supplies that can help the lives of many people there. Yeah, I think it just shows the error of central planning, the notion that this big federal agency knows better than people on the ground, what is actually needed. And then because so many times, especially when you're so wedded to just procedure and just telling everybody, wait until I have everyone freeze until I have everything figured out. And you can't figure everything out. So people just keep being frozen and not able to help each other. This leads right into the price gouging issue, right? Like when you say, well, you can't charge that for that. You can't charge that. That's predatory pricing. And we've seen how that plays out. And you mean price gouging in the wake of a disaster of some kind, like how we handle goods and, like, I mean, very limited goods, like water and things like that. Pro price gouging. Yeah, because Murphy mentioned that another response was President Bush himself made stern warnings against price gouging. So and that's sort of the common feeling is that, oh, it's just inhumane to raise prices when people are at their most vulnerable to actually take advantage of that situation and spike prices on what you're selling. But again, it may be well intentioned, but it actually hurts people when you prevent people from charging what whatever the market will bear. So let's talk about price gouging, because, of course, this is probably one of those more difficult conversations to have with people when we're speaking from the economic standpoint, right? And so, like you were saying, Dan, the notion behind the concern and even the term price gouging is that in a moment of crisis or a moment of shortage, that company's sellers will actually hike the price and thereby prevent people who actually need those goods and services from acquiring them, right? And so this can be done with all sorts of things, right? You see it in the news all the time, you got Delta committing now, not to have higher price than $299 for one way out of storm areas, right? And so they, as a company, have succumbed to the pressure that we can't, that they shouldn't raise their prices in order to basically ration goods. And so you get this all the time, things with gasoline, you get it with airplane tickets, you get it with various other generators. Generators, water. Yeah, water is what I saw where people are just scarfing up water, tons of it, and you had people that weren't getting any. Right. Well, it's incredibly difficult to prevent people from stockpiling. And so when you say that we can't raise prices above a certain level, then the people who get their first are going to see that they're going to stockpile, maybe they'll price gouge themselves in the black market. Right. Because when you have a limited supply of a good, it's going to be distributed according to some rule. And if it's not going to be priced according to pricing, it's going to be according to something else, like might makes right, like whoever's, whoever's tough or she is to get to the front line. Or yeah, for who first come first serve. But then when prices are artificially low, that motivates people to just stockpile, like you said, to just even, even if they don't need those items. Yeah, as much. And so the people who maybe desperately need it, but came later, that they are, they won't have any. Whereas if there was a price mechanism, then, then that's when urgency matters when the person who comes there first says like, well, you know, I guess I might like to get extra water just in case, or maybe I'm, I'm like extra thirsty, but it's pretty expensive. So I'm going to hold off. And meanwhile, someone who really urgently needs it, and they're going to say, okay, I'm willing to pay for this. As an example, we have a great speaker that comes to a lot of our programs for high schoolers, specifically Michael Clark. He's actually on the fee audio experience. You can find him there. He actually has to talk exactly about this situation where there was some emergency him and his wife were in. They were in the, in the store and they were going to buy a flashlight. And she's like, Oh, they'll probably be like five bucks, whatever. They find them. It says five bucks. They get to the counter. They're 20 bucks. And she had, she had scooped up a couple. And she's like, Oh, we only need one. Never mind. Let me put these back. And, and thinking about how that does inform your decisions, it changes. Okay, we need these. And then thinking about if they had taken home six versus one, that maybe six other families couldn't, couldn't see. We all do it right. I do it at the grocery store. Whenever I see limes get slashed to like a quarter or 30 cents, I'm like, whoo. And I grab ten of them. You're a big lime guy. Yeah, from a grocery store to the limes, you know. I love limes. I love a lemon gal. They're only a buck a piece. I see them down to 30 cents. I don't get two. I get eight of them. And the store is happy with that. I'm happy with that. So let's talk through it real quick, because let's use the real world example of Delta announcing the other day out of the storm affected areas, places like Charleston, that they're only going to charge $299, $299 in order to get out of those areas. They're capping the price of an airline ticket. What will that do? It will disincentivize making more flights available for that route, because, because other there isn't as much of a profit opportunity. Because people, people think that it's only a distribution problem, but it's also a production problem. And we have this article by Steve Horowitz, where he characterizes high prices as a signal flare. It's a signal flare saying that, okay, stuff is really scarce right here, right now, and there's big demand for it. So the high price is a signal flare that says, okay, there's a profit opportunity here. There's a humanitarian need too, but there's also a profit opportunity that will make airlines and water bottle providers respond to that profit opportunity with more supply. And then as more supply comes online, then the price goes back down. That's the way prices function in general, even in extreme situations. But if we're thinking about a real world application here, I mean, we want, I mean, if you're a business and longevity in profit is important to you, this move might also look good for Delta. It's like, I mean, yes, it may not incentivize them to make any more routes available than they would normally. It's better optics than the profit they might not hit for this. But Dan's point is that's not helping people, right? No, it's not. It's absolutely not. People will ultimately get out because of that, most likely. Yeah. Especially with things like water and resources, maybe I as an entrepreneur can't just throw together an airline, but I could load up my car with bottles of water in Headford, North Carolina. There's people who could do that all over the country, depending on their opportunity costs. And when you have limits in place for prices, they have no incentive to get in their cars and go. Oh, sorry. Well, I was going to say that the optics doesn't matter as much for small businesses because they're not big brands. And so you also want Delta, right? Right. So you also want to incentivize them to really hustle to get these supplies out. Yeah. I want to dig in really quick, Dan, to something you mentioned sort of offhand. And I think it's important because many people will admit that prices have a role in non-emergency times, right? The price system works until there's a storm or until there's an earthquake. And those same people will then say, but when there is that storm, when there's that moment of crisis and people are on, in terms of life and death, right, then prices don't matter anymore. They don't work anymore. Can you talk a little bit more about that? Why would people think prices stop working when a storm happens? Well, I think it's because something that happens in a subtle way on an everyday basis, in an emergency, the same thing is happening on a really magnified level where you're really seeing, you know, you see the supreme scarcity and then you see like the big price hike. And everyone's watching on national media. Right. Right. So I think it's just like the spectacle of the thing. And it's something that they don't understand, but that is all of a sudden more evident and more visible. And so they just want to crush something that they don't understand. I think that's probably the... And so the laws of economics don't get thrown out the window when we have a big storm. Right. Right. That's the title of the Horowitz piece that I mentioned is that hurricanes don't blow away economic law. And that prices have a function and they don't stop having a function when hurricanes happen. And in fact, they have even more of a function because that's when it's even more urgent for prices to do the job of getting goods to the people who need them most. You know, you remind me, Dan, there's a video put out by our friends at the Institute for Humane Studies. They have a series of videos called Learn Liberty. And one of them is an animation from a few years back. And it's all about this notion of price gouging. And in that video, they actually look at an example of an electrical generator and how if you were just to have a cap on the price of an electrical generator, it might not go to the person who needs it most. Right. An electrical generator is maybe something a little bit less necessary than water. But think, for example, if the price of an electrical generator is capped at 100 bucks, where in the usual economic way, it might actually go higher than $100. There are a lot of people who are looking for electricity during a storm. Some of them need it more than others. Right. And so the example of the electrical generator story is that you have, for example, a person who might just want to go in and power his TV and his Xbox so he can play games. Right. All right. That's a legitimate reason to buy an electrical generator. But there's also the person who gets to the store after the person who ended up wanting to buy it for electrical to have games. A person who needs to plug it into their refrigerator so that they can actually preserve not only food, but insulin, a lifesaving substance for that person. And because the cap was in place for that generator, that person who truly needs it more and would have been willing to pay much more than $100, maybe not like the person who needed it just for games. But that person no longer has access to that finite good that is scarce in that situation. And that example has always stuck with me because only you know the severity that you need to get something. Right. Only you know the seriousness of whether you need water or electrical generator or gasoline. And if you're willing to pay, you should be able to have the chance to pay. And these economic principles hold up post-hurricane too. Right. And we've touched on that a little bit. You know, God forbid if, you know, as we're talking, this rolls in and there is devastation, how they choose to operate in the rebuilding is going to matter a lot too. If they let market forces operate or if they put a higher price on labor and more regulations. Or if they subsidize rebuilding in hurricane prone areas and that incentivizes unnecessary risk because the burden of the risk is placed on the taxpayer. And I mentioned that story earlier when we go out to these places that were living in place. I couldn't believe they're living in these low elevation places that are getting flooded. I think, I don't remember 100%, but I'm pretty sure that was the issue there. They were getting loan insurance that they probably wouldn't have in the market, but they were, they were covered by some federal regulations. So they didn't really have an incentive to say, maybe I shouldn't build here. Yeah. Well, we do have to wrap up. Of course, there's a lot to talk about from an economic sense in all of these storms. I'm happy that we covered price gouging. Have we covered the fact that storms don't blow the economic laws out of the window. And of course, as all of this happens, and we want to take teachable moments, we think about all the people who are affected by these storms and hope that they're well and that they recover nicely. But until we are able to join you again next week, we're going to take a break and see you next week on The Feast.