The Number One Libertarian Lesson From Harvey

Hurricane Harvey, and then Tropical Storm Harvey, did great damage to the people of Texas.  The direct impact was one thing, but the rainfall, and the flooding that came with it, is another.

There are many useful libertarian lessons with this storm, and the lessons are similar whenever a major storm hits, or really any kind of natural disaster.

Houston is similar to New Orleans in that it is almost like a bowl.  It is quite prone to flooding.  It is questionable whether a major city should have ever been built there.  But either way, there are problems (misallocations) created by the state.  The government interferes with the insurance market.

It is not to the same extent as interference in the health insurance market, but it is still significant.  Many homeowners who live in areas prone to flooding are subsidized by the government with their insurance.  There are cases out there where homes are rebuilt three or four times because of flooding.  In a true free market, these houses would be virtually uninsurable.  Or at the very least, the market prices would be much higher and would limit the demand to live in these areas.

Another area of government interference is with the existence of FEMA.  This is a federal agency that is supposed to help in such situations.  To be sure, the agency probably has helped some people who were hard hit by the storm.  But when an agency has billions of dollars to spend, that should be expected.  In the case of New Orleans, FEMA seemed to hamper the situation by actually preventing the victims from receiving help by willing parties.

Another area that gets attention in these situations is that of “price gouging”.  Businesses and people are prevented from charging higher than normal prices, even though there are shortages and higher demand.  We are told that businesses shouldn’t be trying to gouge and make an extraordinarily high profit in such situations, but it is in these situations where the laws of supply and demand are most vital.  If the government would allow sellers to raise prices for such things as bottled water, batteries, and hotel rooms, then it would ensure that only those buyers in high need would buy.  In other words, it decreases demand.

The higher prices also send a signal to suppliers to bring in more supplies.  If you can charge five dollars for a one-gallon bottle of water, then maybe you load up a truck with water that is available 100 miles away and you drive it to the hardest hit areas.  This helps relieve the shortages.

There are many other areas where government interference can hamper recoveries.  The establishment media tends to focus on the government officials who did heroic rescues, but there are many more non-government people who did this while not getting paid.

With all of that said, there is one major lesson that I think we can take away from all of this, but it is a bit harder to see.  It is something that libertarians should point out often.

Since the storm hit, there has been tens of millions of dollars given to charity to help the victims.  And when I say charity, I actually mean charity.  This isn’t government spending taken through the threat of force.

There is certainly plenty of government spending on disaster relief, and this is what gets much of the attention.  It is almost as if it is put in the face of libertarians.  “See, if you had it your way, there would be no government to help these victims.”

But let’s flip it over.  If governments at all levels (federal, state, local) didn’t take nearly half of our money, then we would be able to afford to help these people to a much greater degree, and likely in a much more efficient manner.

Actually, it is incredible that there is so much voluntary charity.  Businesses have donated huge sums of money.  Even if it is just for good public relations, who cares?  It is helping provide disaster relief.

There are many celebrities who have donated their own money and time to help.  Some of them hold fundraisers.

This all happens in spite of the fact that nearly half of our money is taken from us.  Imagine if only one-tenth of our money was taken from us instead.

Rich celebrities and big businesses can afford to donate some substantial money.  Most middle class people cannot afford big donations.  Most of their money goes toward their living expenses, and taxes of course.

If the average middle class family received a raise of 50% in the form of lower taxes and lower inflation, imagine how much more generous people would be.  They could increase their living standards, save extra money, and still afford to be extra charitable.  Plus, people wouldn’t have the excuse that they don’t really need to be charitable because they are already charitable through their tax contributions.

Imagine if the federal government spent $1 trillion per year instead of $4 trillion per year.  Yes, there would be some “benefits” lost to people.  But with an extra $3 trillion per year, that is almost $10,000 extra per American.  That is about $25,000 extra per family per year. That is a huge sum of money.

What would you do with an extra $25,000 per year for you and your family?  I think it is safe to say that you might be a little more charitable.

Whatever numbers you use, the major point is that the government consumes a lot of resources.  When it comes in for the rescue in these situations, it should not be surprising.  If you gave me $13 billion per year to spend, I could make a big impact with that too.

As any good economist knows, we should not just look at the benefits that are easily seen.  We have to look at the unseen consequences.  In this case, if the government didn’t take so much of our money, then people and charitable organizations would be able to help so much more in these situations than they already do.

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