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This e-mail is to a self-described “skeptical but curious reader” of my blog.
Mr. Chris Pham
Mr. Pham:
Thanks for your e-mail.
You ask if I’m inconsistent, on one hand, to support higher prices caused by natural disasters yet, on the other hand, to oppose higher prices caused by tariffs.
Your question is good, yet there’s no inconsistency. In the absence of government-imposed price ceilings and price floors, prices reflect prevailing supply scarcities and consumer demands. When, say, a hurricane strikes, nature simultaneously reduces available supplies and increases consumer demands. The result is higher prices.
In addition to telling the truth about the underlying economic misfortunes caused by the hurricane, these higher prices serve two important functions. First, the higher prices give consumers incentives not to use the now-scarcer goods and services as casually as they would if the prices were lower. Second, the higher prices both inform suppliers of the unusually intense ‘need’ of hurricane victims for more units of these goods and services, and give suppliers incentives to exert the extra effort necessary to bring additional supplies into the devastated region.
Higher prices caused by tariffs are completely different. I don’t oppose per se the higher prices caused by tariffs. Given the tariffs, prices should rise and should be allowed to rise. What I oppose are the tariffs themselves. Tariffs are not disasters inflicted on us by nature; they are disasters inflicted on us by fellow human beings (namely, those in government). Like natural disasters, tariffs make goods and services more scarce; but unlike natural disasters, tariffs are completely and easily avoidable. The increased scarcities caused by natural disasters are, well, natural; the increased scarcities caused by tariffs are artificial.
Put differently, it would – for obvious reasons – make no sense for anyone to rail against nature for its policy of routinely inflicting hurricanes, earthquakes, and other such disasters on humanity. Yet for reasons equally obvious, it does indeed make sense for people of goodwill to rail against government for its policy of routinely inflicting tariffs, import quotas, and other such disasters on humanity.
Sincerely
Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030