St. Maximos' Hut

I left Lousiana for Michigan in 1992 so missed hurricane Andrew wjen it struck Baton Rouge. A former colleague at LSU observed numerous responses by hardware stores faced with an excess demand for chain saws. Some raised price, others gave preference to regular customers, others operated on a first-come-first-serve basis, of which there were two variants. Some sold them to whoever happened to be at the store when the supply truck arrived and others kept lists and let those on the list know when new supplies had arrived.
It is easy for an economist to think that letting price allocate the resource is always the best way, but the owners of the stores often had other concerns. For example, a hardware store that has a regular clientele may fear that raising price may alienate regular customers and cause more harm for his business in the long run. A large hardware chain may want to use first-come-first-serve since the extra money from raising price may not outweigh lost goodwill, both in the stricken area and elsewhere. One of the advantages of markets and private enterprise is that multiple solutions to a problem that can coexist. One solution, not even price, is always the best solution for all.
That said, I am puzzled by the emotion that "price gouging" can raise. One response of people to the possible damage Rita may do to oil refineries is to race to gas stations to fill up their vehicles before prices go up. This seems as selfish and egoistic an act as the gas station owner who raises price anticipating a shortage. Yet, the latter behavior is condemned and the former receives no comment.

A spate of recent news stories like this one have reported that many charities are worried that people are diverting gifts to Katrina/Rita relief funds from more traditional charitable causes. It seems to me that anything else would be a bizarre result.

Let’s suppose that an individual is planning to contribute $1000 to charity this year. He usually splits his giving between his local church ($400), the local art museum ($300), and the American Cancer Society ($300). After Hurricanes Katrina & Rita, he ups his total donations to $1200, but reallocates to church ($300), art museum ($100), American Cancer Society ($200), and hurricane relief ($600).

The new demands on his charitable impulses increase his total giving, but also produce a changed distribution.

Presumably the pre-hurricane distribution of his charity reflected his sense of the marginal value of the last dollar contributed to each charity. Adding hurricane relief would be expected to change that – the marginal value of the last dollar to hurricane relief should be the same as the marginal value to the other charities. Since contributions to hurricane relief were zero before the hurricane, we’d expect the first dollar contributed to have a high marginal value. It is not surprising, therefore, that the marginal value to hurricane relief of the last dollar of the amount by which our individual increased his total contributions is higher than the last dollar to which he gave to the other charities. After all, the increased contributions represent additional sacrifices the giver has made to enlarge his pool of charity and so there must be larger marginal value to the giver from those contributions than from the contributions he was previously making.

If this is correct, reallocation by contributors in the face of new information ought to be both an expected phenomenon and a one which maximizes welfare. Just as we think government ought to reallocate funds from low marginal value projects (e.g. the Alaskan “bridge to nowhere”), individuals ought to reallocate funds to the higher marginal value projects until the marginal value of the last dollar to each charity is equal. If it is a good thing, then we ought to tell charities facing a shortfall in giving as a result that the appropriate strategy is to find ways to ensure that donors reevaluate the marginal value of their contributions upward. (For example, they might cut their own administrative costs and so increase the percentage of giving that goes to the charitable purpose directly.)

The incomparable Mark Steyn has an excellent column on the German election, which includes the following:

what does it take to persuade the citizens of "enlightened" social democracies that sometimes you've got to give up the benefits cheque? Guardian and Independent types have had great sport with America over the last couple of weeks, gleefully citing the wreckage of New Orleans as a savage indictment of the "selfishness" of capitalism.

The argument they make is usually a moral one - that there's something better and more compassionate about us all sharing the burden as a community. But the election results in Germany and elsewhere suggest that, in fact, nothing makes a citizen more selfish than lavish welfare and that once he's enjoying the fruits thereof he couldn't give a hoot about the broader societal interest. "Social democracy" turns out to be explicitly anti-social.

Old obdurate Leftists can argue about which system is "better", but at a certain point it becomes irrelevant: by 2050, there will be more and wealthier Americans, and fewer and poorer Europeans. In the 14th century, it took the Black Death to wipe out a third of Europe's population. In the course of the 21st century, Germany's population will fall by over 50 per cent to some 38 million or lower - killed not by disease or war but by the Eutopia to which Mr Schröder and his electorate are wedded.

He raises an important point - institutionalizing charity has an impact on the community as a whole, and the impact is a pernicious one. One usual argument against allowing private charity to handle tough issues is that it might miss some deserving potential recipient or not provide enough. But once we consider the dynamic impact, it seems to me, that there is a very strong argument for relying on individuals to act morally as a means of creating and sustaining community.

There is a really fine column on the new World Bank report "Where is the wealth of nations?" at Tech Central Station by Tim Worstall.
He sets out in clear language the case for free trade:

The poor countries must industrialize in order to be adding value, so that they can feed themselves, grow, without entirely consuming the environment around them. While there is debate about exactly how this should be encouraged as was shown at the United Nations last week there is something simple that we can do to encourage it. Yes, our old friend, free trade. Not managed trade, not fair trade, not trade except in those things that we produce, but pure, simple, free trade. The benefits that flow to the poor countries are but a side effect, for free trade makes us richer ourselves, must do or we wouldn't indulge in it.

My favorite bit is his dissection of a report by the British newspaper The Guardian on Norway's success at being a nice place to live (according to a UN report). The Guardian said:

If they could bottle and sell their secret to the rest of us, Norwegians would be even richer than they are already.

Worstall's response:

Bottle it? Well, as that figure for resource consumption shows us, actually they barrel it. It's called oil. As Odin (which is I think a wonderful name for part of the Norwegian Ministry of Foreign Affairs) points out:
"In 2001 petroleum-linked activities made up almost 23 per cent of the GDP, while manufacturing accounted for 9 per cent."
Which leads, I think, to an interesting conclusion about the criteria that the UN uses to determine what is a good place to live, what it is that makes a nation the ne plus ultra of the human experience, similarly something that is to be praised when viewed from Planet Guardian. It's OK, admirable even, to rape Gaia, deplete the Earth's precious natural resources, boil the planet and drown Bangladesh as long as you have free child care while you do so.

In my reading to understand why so many theologians don't like the market system, I find many references for the need for more community, which is lacking in modern, capitalist societies, as well as concerns over consumerism. As a Christian, I am sympathetic toward both notions, but am not convinced that the problems are due to capitalism. I have visited a museum in Rottenberg ob der Taube that covers medieval punishments. You can see a rack and thumbscrews there, as well as a number of odd devices. One such item has the shape of two violins and has room for two necks and two sets of hands. It was used to force bickering women to face one another until they could agree to stop bickering. It is somewhat humorous (and sexist--there were also punishments for men who failed to control their wives), but illustrates the idea that community implies intrusiveness into individuals' and families' lives. Community provides benefits but also costs.
There were also laws concerning how wide a woman's collar on her dress could be. Upper class women could have broader collars than lower class women, and there was a tendency for the members of the lower classes to emulate the upper classes. Madison Avenue didn't exist yet, nor television commercials, nor fan magazines.
It would be nice if we could have only the positive attributes of institutions and not the negative--only the positive aspects of community, the medical care available today without the cost of expensive equipment, the ability to travel the world without oil spills or pollution. It would even be better if we human beings weren't so deeply flawed.

An interesting new economics paper:

Wen-Chun Chang, Religious Giving, Non-religious Giving, and After-life Consumption vol. 5(1) Topics in Economic Analysis and Policy (2005).

Here's the abstract:

Religious giving has been argued to be different compared to non-religious giving, because it influences after-life consumption while contributions to non-religious organizations are irrelevant to after-life consumption. The study herein examines this theoretical argument by investigating the relationships between age and religious and non-religious giving using the data of the Survey of Social Development Trends from Taiwan. From categorized contributions, this study estimates the effects of age, income, and price of giving on religious, charitable, academic, medical, and political contributions, as well as on the probability of providing volunteer work and the frequency of religious participation. The findings suggest that the positive relationships between age and the level of giving are stronger for religious and charitable giving while the positive effects of age on academic and medical giving are much weaker, and there is no significant relationship between age and political giving. That is, religious giving and charitable giving are closely related to after-life consumption, but the effects of age on academic giving and medical giving are considerably different. Moreover, older people are more likely to provide volunteer work and attend more religious activities than younger individuals. Contributions to religious and charitable groups are positively related to contributions to academic, medical, and political organizations.

You can find it here.

Fred Turner is my favorite poet. Hearing him recite parts of his Genesis and the Book of Job were stunning experiences at a conference on Job I attended a few years ago.

He's also a very perceptive analyst and has some interesting thoughts on the logic of terrorism.

Russell Roberts, the only economist who manages to write high quality fiction that incorporates economics (at least as far as I know), has some interesting discussion (including comments from William Polley) on Smith's views on prudence at Cafe Hayek.

I need to reread The Wealth of Nations, which sits on my bedside table causing me guilt feelings. Roberts and Polley remind me that I need to reread The Theory of Moral Sentiments as well.

Ignorance of Smith's other major work leads people to think that economics is only about greed, self-interest, and rational maximization. As a result, many intelligent people who would be quite capable of becoming economically literate are turned off to economics because they see it as promoting a "greed is good" mentality that doesn't square with their world view. Unfortunately, this perception is so well embedded in the pop culture view of economics and economists that it may be very difficult to reverse.

And that reminds me that I need to read James Otteson's Adam Smith's Marketplace of Life (review here) (from EH.NET - a great resource that our own Rob Whaples is involved with) and here (from The Independent Review, a magazine everyone should subscribe to). Jim is a great guy and a great scholar and I should have read his book long before now.

So many many books and so little time.

Update: I had listed Russ Roberts' blog as Marginal Revolution; it is, of course, Cafe Hayek. Sorry for the error!

Economics is almost getting to be popular. Orson Scott Card has a good column at The Ornery American on why.

Here.

Fr David Garretson is an Orthodox Priest who was studying at St Vladimir's Seminary while I was at Fordham. He's been working on hurricane relief & this was reported of him in one of his local papers.

Rector aids storm cleanup
Says faith-based groups outdoing the feds

Home News Tribune Online 09/19/05

"The people were the walking wounded."
- Rev. David Garretson

By JOHN MAJESKI, STAFF WRITER

SOUTH RIVER - It's been said that any form of devastation or violence seen on television can never fully prepare a person for witnessing the real thing.

Recently back from the Hurricane Katrina-ravaged Gulf Coast, the Rev. David F. Garretson knows this to be true.

"It had a sense of unrealness," Garretson said of the landscape in and around Biloxi, Miss., where he spent more than a week coordinating relief efforts with International Orthodox Christian Charities. "I've never seen anything like that. It looked like the set of a sci-fi movie.

"The people were the walking wounded," he added.

Garretson, rector of Saints Peter and Paul Russian Orthodox Church on Whitehead Avenue, was flown to Mobile, Ala., on Sept. 8 with the Rev. David Kossey of Manhattan. Garretson said his services had been requested by IOCC because he had received disaster training following 9/11. He arrived home two days ago.

During his stint down south, Garretson worked from Biloxi, helping get trailers of aid and distribute the emergency supplies to the right places. He said some of the goods received down there had come from IOCC parishes throughout the country.

While IOCC crew workers were providing relief in that region, other faith-based groups worked nearby. Did the organizations ever step on each other's toes?

"There was too much work to be done for that," Garretson said, sitting in his office yesterday.

Garretson said such workers - unencumbered by concerns such as liability and red tape - had been the only ones to provide assistance there for a long period of time following the disaster. He said he witnessed a lack of leadership by federal workers in Mississippi.

"It's not a function of being angry, it's a function of ... " he said, pausing, "I just think the faith-based groups are good first responders."

Much of his day was spent on a cell phone coordinating trucks and supplies, but he said he spent about 30 percent of his time counseling people - even volunteers whose own homes had been destroyed. Garretson recounted images of people who were grateful, but largely "shocked, running on adrenaline." As Garretson helped out, victims sifted through the rubble where their homes had been, searching for something to save.

To save himself from letting the hurricane's effects get to him too much, he relied on his faith, escaped to a novel and kept his mind focused on his current duty.

"You say, "I've got to get this truck to this point so people can have food,' " he said. "You focus on the task."

In this "classic case of innocent suffering" - as Garretson put it - people must contribute only requested items. He said clothing and stuffed animals, as many want to give, only become a burden for workers. The best thing to contribute, he said, is money to a reputable charity.

"I thought "This is a good thing,' " his wife, Shari, said of when she found out her husband was leaving for the South. "I was pleased and honored my husband's skill-set was needed."

With the media's focus on the devastation in New Orleans, she didn't expect to hear her husband's stories of Mississippi.

"I was picturing much smaller (destruction) than he's described," she said.

Garretson said he will go back down for a day or two later this month to help new workers get situated.

"I'm still overwhelmed by the experience," he said.

I found this via Instapundit.

Thank God for the evil pharmaceutical companies. One day, when the history of this period is written, I have a feeling we will look back with astonishment as we recognize that advances in medical science, particularly pharmaceuticals, were arguably one of the most significant developments of this era. And yet the people who pioneered these breakthroughs were ... demonized and attacked. Baffling and bizarre. I'm merely grateful the attacks haven't stopped the research progress. They've merely slowed it.

Which raises the question, do motives matter? Or should we be thankful that, as Adam Smith suggests, by appealing to the self-interest of others, we obtain the necessities of life?

Here's an excerpt from Smith, the famous "baker butcher" quote, with a bit more context than is usually given:

When an animal wants to obtain something either of a man or of another animal, it has no other means of persuasion but to gain the favour of those whose service it requires. A puppy fawns upon its dam, and a spaniel endeavours by a thousand attractions to engage the attention of its master who is at dinner, when it wants to be fed by him. Man sometimes uses the same arts with his brethren, and when he has no other means of engaging them to act according to his inclinations, endeavours by every servile and fawning attention to obtain their good will. He has not time, however, to do this upon every occasion. In civilized society he stands at all times in need of the cooperation and assistance of great multitudes, while his whole life is scarce sufficient to gain the friendship of a few persons. In almost every other race of animals each individual, when it is grown up to maturity, is entirely*43 independent, and in its natural state has occasion for the assistance of no other living creature. But man has almost constant occasion for the help of his brethren, and it is in vain for him to expect it from their benevolence only. He will be more likely to prevail if he can interest their self-love in his favour, and show them that it is for their own advantage to do for him what he requires of them. Whoever offers to another a bargain of any kind, proposes to do this. Give me that which I want, and you shall have this which you want, is the meaning of every such offer; and it is in this manner that we obtain from one another the far greater part of those good offices which we stand in need of. It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages. Nobody but a beggar chuses to depend chiefly upon the benevolence of his fellow-citizens. Even a beggar does not depend upon it entirely. The charity of well-disposed people, indeed, supplies him with the whole fund of his subsistence. But though this principle ultimately provides him with all the necessaries of life which he has occasion for, it neither does nor can provide him with them as he has occasion for them. The greater part of his occasional wants are supplied in the same manner as those of other people, by treaty, by barter, and by purchase. With the money which one man gives him he purchases food. The old cloaths which another bestows upon him he exchanges for other old cloaths which suit him better, or for lodging, or for food, or for money, with which he can buy either food, cloaths, or lodging, as he has occasion.

Adam Smith, The Wealth of Nations, Book I, Chapter II.

(The entire Wealth of Nations, and lots more, can be found at the Library of Economics and Liberty.

Sometimes the intersection of economics and religion comes from a great phrase. Bruce Yandle came up with the "Bootleggers and Baptists" phrase to capture a key public choice insight. He and Stuart Buck later wrote an excellent law review article on it. Stuart has some new info on the topic over at The Buck Stops Here. And Bruce has a nice follow up on his original theory here.

In Denmark.

Interesting comment over at The Boring Made Dull.

Good column by a great economist here.

Found it as I was catching up from Internet withdrawal while in Montana via Volokh.

Pres. Bush has proposed an Urban Homesteading Act to aid victims of Hurricane Katrina. Federal land would be allocated by lottery to people who lost homes and property in the hurricane. There weren't a lot of details in the speech, here's the main discussion:

And to help lower-income citizens in the hurricane region build new and better lives, I also propose that Congress pass an Urban Homesteading Act. Under this approach, we will identify property in the region owned by the federal government, and provide building sites to low-income citizens free of charge, through a lottery. In return, they would pledge to build on the lot, with either a mortgage or help from a charitable organization like Habitat for Humanity. Home ownership is one of the great strengths of any community, and it must be a central part of our vision for the revival of this region.

Economic historians like Richard Stroup, our own PJ, and Terry Anderson (all from PERC) have done a great deal to sort out homesteading. Stroup refers to it as "buying misery with land" because the original homesteading acts granted land to people who occupied it before it was economically feasible to do so, resulting in the use of the land to "purchase" the misery of the homesteaders. Nonetheless, it did privatize 214 million acres of federal land.

Prof. Stroup notes that

It is difficult to give away value systematically, since nonprice competition for the value, unlike competition in exchange (bidding, for example), will tend to waste resources up to, or even past the point where the waste is equivalent in value to the rents sought.

Richard L. Stroup, Buying Misery with Federal Land, 57 PUBLIC CHOICE 69, 76 (1988).

The lottery proposed by President Bush as part of the Urban Homesteading Act isn't a great way to give away value, as it is unlikely that a lottery that precludes nonprice competition will be used. There is also no relationship between winning a lottery and making use of the land in a productive manner. Moreover, government giveaways tend to attract fraud.

(Of course, a good case can be made that simply giving away government land is a good idea because private owners are far more likely to make good use of it than leaving it as a vacant lot - which is where a lot of urban land owned by governments is. That's another issue, however.)

Governments, particularly local governments and state governments, have a lot of land (and could have more if they foreclosed on unpaid taxes in urban areas). Giving that land to people harmed by Katrina is a good idea.

At least in my home county (Lorain County, Ohio) the primary problem for the local Habitat for Humanity chapter is a lack of land to build on. If an Urban Homesteading Act got land into the hands of people qualified for Habitat homes and President Bush challenged the nation's houses of worship to take on Habitat projects, a lot of houses could get build quite quickly. But there is no reason to limit this to the directly affected areas - idle government land in urban areas around the country could go into a land bank available for Habitat-qualified families. Since Habitat is very good at picking people, that might be an adequate screening mechanism to avoid buying misery with urban homesteading.

Fr. Charles has been mobilized with his Maryland Defense Force unit and sent to Louisiana. It looks like he will be there for 7-10 days.

Before he left, he emailed me this article on Dirty Harry Christians.

Our thoughts and prayers are with him.