I am in Florida and currently expecting a hurricane or some kind of effects from a hurricane in the coming days.  There are several economic lessons to take away from a hurricane or some kind of natural disaster.

It is a good lesson in supply and demand.  And while this may seem like Economics 101, I can only conclude that most people don’t understand it or don’t believe it based on their political views. Anyone who thinks there should be price gouging laws does not get it, or else they are being dishonest.

Almost a week before the hurricane was originally scheduled to hit, bottled water was running low in stores.  People went out early to stock up.  Some stores will limit the amount, while others have no official limit.  This is up to each store, just as it should be.

With social media now, you can typically find out places that may have the supplies you need. At the same time, because of social media, those supplies may not last long.  There aren’t many secrets.

With the storm only a few days away now, gas is running low.  People are filling up their tanks in anticipation of gas running low. There will really be a need for gas this weekend as people evacuating from further south will need it on their trip up north.

I have a heard a few people being critical of those stocking up supplies in advance.  I believe the line of thinking is that there are people buying 10 jugs of water, which means those who have not already gone shopping (not being prepared) will be stuck without any.

I would argue the opposite.  The people who stocked up early were not only doing a favor to themselves and their family, but also for the general population.  We bought a few cases of water (and I do drink bottled water regularly anyway, so it won’t go to waste) a week before when the storm will likely hit. This is much better for everyone that we didn’t wait.

Walmart (where we bought the water) and every other major store have inventory systems.  If you buy 3 cases of water, then that gets recorded.  If all of the water is gone from Walmart a week before the storm, the people ordering inventory (or the computer ordering inventory) know it.  There is plenty of time to get new shipments in before the hurricane hits.

If most people waited until the last minute, then there really wouldn’t be enough to go around. The shelves would clear out and there wouldn’t be enough time to get fresh shipments in.  And the store is probably not going to order more water if the shelves are already filled.

Prices

When it comes to supply and demand, prices are the key ingredient.  Prices act as a coordinator of scarce resources. If there is a high demand and low supply for certain goods, then prices should rise to reflect this.  This is part of the coordination process.

Unfortunately, do-gooder politicians prey on the economic ignorance of the general population by enacting these so-called price gouging laws.  This just serves to enhance the already existing problem of high demand and low supplies.

If there is a high demand for water, batteries, and plywood right before or right after a storm, then prices should be allowed to fluctuate to reflect this.  Some stores could have their own voluntary policy of keeping prices the same no matter what, and that should be their right.  Stores that didn’t adjust prices would find inventory cleared a lot faster.

If there is a high demand and low supply of water, higher prices will serve to help correct this situation.  Let’s say that a gallon of water usually costs one dollar.  Due to the high demand from a hurricane, maybe the price temporarily rises to five dollars per gallon if there are no government price controls.  This sends a signal to both buyers and sellers.  Suppliers are more likely to ship in extra supplies knowing that they can make a profit.  Meanwhile, some consumers will cut back on their purchases, likely buying only what is necessary.

Will some sellers be taking advantage of helpless consumers?  This really depends on what you mean by “taking advantage”. As long as it is a voluntary transaction between consenting parties, then I see no problem.  If someone really needs a jug of water, then I don’t think they will mind paying five dollars for it.  Maybe they will be irritated, but they don’t have to buy it. If it is a choice between buying a jug of water for five dollars or not buying any at all, I would rather have that choice than have the choice made for me that there is none available.

This is what price gouging laws do.  They make supplies unavailable.  Those caring, compassionate politicians would rather see you not have a choice to buy water for five dollars.  So even if you desperately need water for baby formula, they would rather see your baby starve than to have a seller “rip you off” by charging five dollars.

Human Economics

I know that many people consider economics to just be a boring type of science that sounds good on paper but is not useful in real life.  But if you are practicing good economics, then it is should be useful in real life.  In fact, that is its purpose.  We don’t study economics just so we can sound smart (although some might). Economics is so vitally important because it tells us about real world consequences.  It has everything to do with human prosperity and human suffering.

When people are secure in their property and are allowed to voluntary interact (or not interact) with others, then we tend to see prosperity.  It doesn’t mean that life is perfect or that nothing will go wrong.  It just means that it is the most efficient system for human flourishing.

Waffle House has a reputation for opening its doors quickly after a hurricane strikes.  This is a major benefit to those in an area that has been devastated by a hurricane.  People can get food and a little bit of comfort after this ordeal.  If they have a little money and can get to a Waffle House that is still standing, then someone will be there serving them. These are the true American heroes that make the world go around.