I fear I'm going to say something snarkfully inappropriate in this post. But here goes anyway:
Reports are being investigated in New York City, the Hudson Valley and on Long Island by state Attorney General Eric Schneiderman.
Schneiderman said Monday that he's investigating an increasing number of reports of spikes in prices for essential goods including gasoline, food, bottled water, generators, batteries and flashlights. The probe can include sharp, unwarranted increases in the cost of prices by retailers including supermarkets, hardware stores, bodegas, delis, hotels and taxis, he said.
In one report, the cost of a bag of potatoes jumped to $7, up from $3 before the storm hit. The cost of the box of matches appears more than three times the usual cost, and the loaf of bread is more than double the usual cost.
New Yorkers can report price gouging by telephone at 800-771-7755 or through his office website.
What's the phone number for reporting public officials who break the laws of supply and demand?
"We are actively investigating hundreds of complaints
we've received from consumers of businesses preying on victims of
Hurricane Sandy," Schneiderman said. "Our office has zero tolerance for
And I have zero tolerance for offices with a blatant disregard for economics.
No arrests were reported as of Monday. Schneiderman wouldn't discuss details of the reports or the investigation.
Wait...what? You can be arrested for raising prices in light of dramatically increased demand and inelastic supply?
Vendors may defend higher prices if
they can show an increased cost of obtaining goods from wholesalers or
in delivering services, making prosecutions difficult.
Supply is very inelastic in the very shortrun--but really that's really only one side of the story. Think of it this way, if the area hot by the hurricane is completely isolated for a couple of days, the supply of essential goods and services is fixed. That is, there is no way to increase the quantity supplied in the very short run. But, during a disaster, the demand for essentials (you know, those things that are absolutely essential and indispensable) increases quickly and dramatically for a short period of time. This increase in demand puts quick upward pressure on prices. Failing to raise prices will result in what we economists like to call shortages.
A telltale sign of a shortage is more people wanting/needing a good than is currently available. Costs may be an issue, but prices are the markets' means of rationing a limited supply. Restricting the price rationing mechanism during a warranted increase in demand (see the definition of unwarranted above) is a highly inefficient way to try to ration the available goods.
No one likes higher prices. And no one is comfortable with having to deal with higher prices at a time when everything else in their life is in turmoil. But what is the alternative? Failing to raise prices simple makes the shortage worse. How high should we allow prices to go?
I have no idea...retailers have a much better read on what the market will bear than I do, and for that matter than any government official does. In an attempt to maintain the appearance of 'doing something' what the officials are doing is making the problem worse by restricting the rationing ability of markets. Now who is doing something unwarranted?
State law should prohibit unconsionable excessive lack of understanding of how markets work. And don't get me started on fairness. Nothing about this is fair. But that's really irrelevant. Because no matter how fair you want to be, in the immediate short run, there simply isn't enough of the essential goods to go around. One way or another the price is going to rise until supplies are restored and demand decreases.
When you spend "other people's money", do you have the right incentives to rebuild in a smart way? ... What if New Jersey's residents knew that there would never be another FEMA $ for rebuilding their state's residential and commercial structures and any new structures that would be built post-Hurricane Sandy would have to withstand future natural disasters or the people of New Jersey would be on the hook for such damage? ...
Given the reliance on FEMA $, how will coastal areas such as Atlantic City be rebuilt? Will a higher quality capital stock that is more flood resilient be built? Will FEMA $ be used to rebuild in the same places using the same materials as before?
During a time of tragedy, we seek to make the victims whole but is an unintended consequence of such well meaning aid to create a "moral hazard" effect such that the next natural disaster causes equal pain? Could "tough love" (i.e no FEMA bailout) actually aid climate change adaptation efforts?
... Will liability laws need to be strengthened to hold home owners liable for their trees? How do we incentivize such owners to invest in costly precautions such as tree trimming? ... How do we use the legal code to encourage more ex-ante self precautions to reduce the damage caused by natural disasters?
How do natural disasters affect population migration patterns? ...
Economic damages inflicted by Hurricane Sandy could reach $50 billion, according to new estimates that are more than double a previous forecast. Some economists warned on Thursday that the storm could shave a half percentage point off the nation’s economic growth in the current quarter.
Losses from the storm could total $30 billion to $50 billion, according to Eqecat, which tracks hurricanes and analyzes the damage they cause. On Monday, before the storm hit the East Coast, the firm estimated $10 billion to $20 billion in total economic damages.
The flooding of New York’s subways and roadway tunnels and the extensive loss of business as a result of utility failures across the region were behind the sharp increase in the estimate, the firm said. ...
Eqecat predicted that New York would bear 34 percent of the total economic losses, with New Jersey suffering 30 percent, Pennsylvania 20 percent and other states 16 percent. That includes all estimated losses, whether covered by insurance or not. The estimates and the share that will be covered by insurers are far from certain at this point, as government officials, property owners and insurance adjusters struggle to assess the destruction. ...
Hurricane Sandy will rank high among disasters in terms of economic impact but will not be at the top of the list, said Mark Zandi of Moody’s Analytics. He estimated that the losses would be less than half of those suffered because of the 9/11 terrorist attacks and from Hurricane Katrina.
Moody’s Analytics also put the impact in the $50 billion range, with about $12 billion in losses falling in the New York City metropolitan area.
About $20 billion of that total is from lost economic activity like meals not served in restaurants, canceled plane flights and bets not placed in casinos, Mr. Zandi estimated. The rest, about $30 billion, will be from property destruction, including damage to homes, cars and businesses, Mr. Zandi said.
*Dang, first rule of blogging: one cup of coffee before the first morning post.
Some environmentalists say New Jersey should consider not rebuilding everything lost to Superstorm Sandy.
U.S. Geological Survey scientist Jeffress Willliams says that rising sea levels and changing weather patterns make it likely that the coast will be hit by more frequent destructive storms.
He and other shoreline advocates say officials should consider restricting development to reduce the harm storms can do. They suggest relocating homes and businesses farther from the ocean, building more seawalls and keeping sand dunes high.
Gov. Chris Christie says the shore is too important not to rebuild. But he leaves the decision whether to build again to individual property owners.
OK, I'm about to step in it. One of the reasons the cost of coastal disaster mitigation is so high is the inefficiencies created today by perhaps efficient development patterns from years past. What I mean is that development patterns are at least currently efficient if they are based on the best and most current information about potential current and future contingencies. So let's suppose that the pre-Sandy Mid-Atlantic coast was efficiently developed over the past 300 years (a leap, I know, but go with me). Even if that were the case, doesn't a storm of historic proportions that rearranges many of the past development afford loclas the opportunity to develop newly efficient development patterns based on the supposedly better current knowledge of the potential and future contingencies (like erosion patterns and hurricane evacuations and yes, even climate change contingencies)?
And doesn't letting individuals decide whether to rebuild leave us with the same type of insurance market failure that we get when we continue to allow residents to rebuild in flood plains after flood events? The systemic risk overwhelms the insurance system during catastrophic events and it forces the government to once again become the insurer of last resort. I'm not opposed to individuals rebuilding. But the efficient decision will only be made if any insurance on the rebuild is priced at market rates (and not subsidized or backed by local, state or federal government).
*I don't really know what that means, but it seems like it might be appropriate. Besides, I just like the song.
Nearly seven years after flood waters from Hurricane Katrina gushed over New Orleans, $14.5 billion worth of civil works designed to block such surges is now in place — a 133-mile chain of levees, flood walls, gates and pumps too vast to take in at once, except perhaps from space. ...
The new system was designed and constructed to provide what is informally known as 100-year protection, which means it was built to prevent the kind of flooding that has a 1 percent chance of occurring in any given year. That standard is used by the Federal Emergency Management Agency to determine whether homeowners and businesses must buy flood insurance to qualify for federally regulated or insured mortgages.
But New Orleans has seen storms far more damaging than the 100-year standard. Katrina is generally considered to have been a 400-year storm, and rising seas and more numerous hurricanes predicted in many climate-change models suggest harsher conditions to come. ...
Building greater than 100-year protection might not be simply a matter of building walls ever higher. It will also come from restoring the coastal environment that slows and buffers storms and their surge. It means restoring wetlands that have been rapidly disappearing, and perhaps creating barrier islands to act as speed bumps for storms.
Assuming no annual maintenance costs, if the damages are $145 billion from a 100 year storm then the expected benefit (i.e., damages avoided) is $14.5. These discounted in perpetuity at a 10% rate are $14.5 billion.
Using some more realistic numbers, if the damages from Hurricane Katrina were between $100 billion to $125 billion then the expected benefit discounted in perpetuity at 7% range from $14 billion to $18 billion. Discounted at 2% in perpetuity then the damages avoided could fall to $30 billion to make the expenditure worthwhile.
And this does not include the avoiding deaths. Saving 1000 lives at $6 million each adds $60 million in expected benefits.
Standing in the living room of their house, now full of mud, slime and debris, Helen and Peter Kelly cannot believe that Congress is bickering over disaster aid to people like them.
The stories are truly heartbreaking and yes, I feel like a total heel. But still, the economics is impeccable. Am I right?
But note that one's wasteful spending might be someone else's government program with positive social net benefits:
The government, [a female flood victim] said, would have more money for disaster assistance if it spent less on inessential amenities: “a park where people sit to watch the river and eat lunch; a playground in the middle of an empty field.”
Er, I imagine the hapless lunch eater might say if folks didn't live in risky places and ask to get bailed out all the time there might be more money for parks. Am I right?
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