"Price-gouging" is a good thing

There are aspects of economics that are difficult, abstract, counter-intuitive. And then there are other aspects that are really pretty straightforward, but people get them wrong anyway.
Walter Williams addresses one of them here...

Here’s a which-is-better question for you. Suppose a New Jersey motel room rented for $125 a night prior to Hurricane Sandy’s devastation. When the hurricane hits, a husband, wife and their two youngsters might seek the comfort of renting two adjoining rooms. However, when they arrive at the motel, they find that rooms now rent for $250. At that price, they might decide to make do with one room.

In my book, that would be wonderful. That decision would make a room available for another family who had to evacuate Sandy’s wrath. New Jersey Gov. Chris Christie and others condemn this as price gouging, but I ask you: Which is preferable for a family seeking shelter — a room available at $250 or a room unavailable at the pre-hurricane price of $125?

He finishes by addressing, yet again, the "broken window" crowd, who want to talk about how good it is for our society that the storm destroyed billions of dollars of wealth...

Let’s set one thing straight: Destruction does not create wealth. The billions of dollars that will be earned by people in the building industry and their suppliers will surely create jobs and income for those people. But rebuilding diverts resources from other possible uses. Natural or man-made disasters always destroy wealth. Were that not the case, mankind could achieve unimaginable wealth through wars, arson, riots and other calamities.

Spending and Growth and profound intellectual dishonesty...

From Nobel laureate (Economics) Paul Krugman:

So Japan, which is spending heavily for post-tsunami reconstruction, is growing quite fast, while Italy, which is imposing austerity measures, is shrinking almost equally fast.

There seems to be some kind of lesson here about macroeconomics, but I can’t quite put my finger on it …

Krugman, who believes that the problem with the Obama stimulus was that it was too small, is now going to argue an economic proposition (the broken-window fallacy) that was debunked by Bastiat over 150 years ago?

Wow. Just wow.

So, Professor Krugman, do you want to make the argument that Japan is wealthier today than it was before that tsunami hit? And, if not, then the cost of that temporary growth probably exceeds the benefit, huh?

A couple of economists

Here are two links that you should follow and read. One of the problems that we really need to come to grips with, as a society, is our tendency to ignore trade-offs. These guys did not.

Stephen Heyward at PowerLine on Hayek vs. Keynes.

Amity Shlaes at Bloomberg on Bastiat and broken windows.

Cash for Clunkers

A couple of excellent comments on this economically-illiterate program (a program deemed a success despite, as Howard Kurtz noted, the fact that it was "a billion-dollar effort that was supposed to last till November [but] ran out of money in five days.")

John Hood:

What the federal government is now doing is using taxpayer dollars to subsidize the large-scale destruction of functional cars that would otherwise exchange hands one or more times in the used car market. This will make it harder for poor folks to purchase cars in the future. It’s an income transfer up the income distribution, at the behest of so-called progressives.

Charles Krauthammer:

What we're forgetting is that all of these cars, tens of thousands of clunkers, are going to be turned into scrap. And the question is why? America is going to be destroying tens of thousands of perfectly usable cars, destroying essentially American assets.

A parody of Keynesian economics is to say that you pay half the population to dig holes and the other half to fill them in. This is worse, because we're paying people with the bribe of cash to destroy huge numbers of assets.

Bastiat wrote, over 150 years ago, of the broken-window fallacy, in which a smashed window is looked at as an economic stimulus while completely missing the opportunity cost associated with being unable to spend the window replacement cost on different economic stimulus. The current administration and Congress apparently didn't get to the end of the broken window story, just stopped in the middle, saying, "what a great idea!" They've turned window smashing into the only part of their economic stimulus package which seems to be stimulating anything...