May 21, 2010

We depend on, and take for granted, the supply chain which brings us goods from all over the world. In an emergency, like a hurricane, flood, earthquake, or war, the supplies of various items are interrupted. What to do?
The free market has the answer. Supply and demand directs products and services to the people who want them most, as measured by their willingness to pay. Price is the signal which controls supply and demand to keep them in balance.
The market does this quickly and efficiently, directed by prices. Yes, prices may rise dramatically, for a time. And yes, somebody will make profits, for a time. It is the prospect of those profits that will impel producers, and all the people in the supply chain, to the extraordinary efforts needed to get the most essential items to the people who want them most, as quickly as possible.
It is the suddenly higher prices that impel consumers to reassess their priorities and limit their consumption to whatever they see as most essential.
You may feel that poor people may die for lack of cash. In an emergency, government always fails. Nobody yet has found a way to eliminate poverty. As always, charity does the best possible job of relieving the effects of poverty.
In an emergency, people show their best qualities. Those who share the emergency share what they have, and rescue others if they can. Outsiders come to help and bring supplies. People far away send supplies.
Do you think the government should step in to prevent price gouging? All that government has to offer is to freeze prices, which will simply extend the shortages.


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