You can learn so much about human nature, the workings of society and the functioning of markets
by looking at the aftermath of a natural disaster.
It's a fascinating laboratory for observing how it is that society functions under the worst conditions.
If you've ever been through a natural disaster and paid attention to how the preparation and cleanup takes place,
you know precisely what I'm referring to.
The splendid, creative power of human energy to cooperate to overcome the most astonishing barriers.
Such settings can teach us so much about politics and economics.
If society can function in these radically abnormal settings, if markets can work well,
we discover much about the power of the same forces and institutions to manage under normal conditions.
Florida, as Mr. Cother knows personally, has been through four hurricanes this year, and
the damage has been overwhelming. And contrary to what you read in various newspapers, this
destruction is not a good thing for the Florida economy.
For people who have read Bastiat's story of the boy with the rock, as told by Henry
Hazlitt in his book, Economics in One Lesson, we marvel at how people still haven't learned
In the midst of destruction, someone will always raise a voice to defend the view that
destruction has a wonderful upside, that rebuilding will stimulate rebuilding.
My favorite example this season comes from USA Today.
The headline read, economic growth from hurricanes could outweigh costs.
Story read as follows, economists, tallowing the numbers, expect the hurricanes will be
The inevitable quotation from a naive economist who pretends to have highly specialized if
counter-intuitive knowledge, quote, It's a perverse thing, said Steve Cochran of Economy.com,
but from an economic point of view, it's a plus.
Tell you what, let's not put Mr. Cochran in charge of national economic policy. We might
find man-made disasters hitting all of our communities in order to help us. Maybe instead
of sending all those bombs overseas, we ought to drop them right here at home to spur a
massive rebuilding boom. It's a perverse thing he might say, but it's for our own good. If
you understand why people believe that, you can understand why there exists something
We call it Keynesian economics, which postulates that everyone can be made better off by letting
the government rob people and give money to bureaucracies to spend.
You can also understand how it is that some people cheer on inflation and taxation as
productive devices.
You can see why so many are still under the impression that war is an economic stimulus
and that Iraq will somehow be better off with billions in reconstruction spending rather
In short, if you can understand why some people celebrate a hurricane's productive power,
then you can understand how it is that people think that Leviathan, as we know it today,
is an institution to celebrate and adore, and why we should build on its marvelous successes
like social security, public schooling, the war on drugs and the war on terror.
These same people should also celebrate other institutions, such as crime waves, for their
productive power. After all, when people have things looted from them, they must go out
and buy more things, which stimulates production and so on. Conversely, if we are to realize
that hurricanes are, after all, not a good thing for Florida or anywhere else, we have
taken the first step towards seeing what is wrong with all forms of what Mises called
Destructivism. This is the ideology that sees some merit in undoing, demolishing, reversing,
or hobbling the march of human enterprise. Who would favor such an ideology? Many of
the same people who think hurricanes and wars are good for us. At first, destructivism
seemed perverse and easy to refute. In fact, destructivism has a hold on the public mind.
It was unleashed especially in the 20th century and continues to play a huge role in public affairs today.
It is the ideology that celebrates confiscatory taxation, punishing regulation, aggressive war, and the daily acts of public administration that destroy wealth.
Natural disasters are something human society has to cope with and the market has found brilliant ways of doing so.
Government, on the other hand, is a man-made disaster that is sustained only by the ideological
ignorance of the population that somehow believes that because destruction is officially sponsored
by the law and the legislators or otherwise endorsed by the democratic process, that it
yields great good or forestalls great evil.
In the same way that society has learned to deal with natural disasters, and this is part
of the miracle of human creativity I will address, we've also learned how to deal with
Let us begin with the time before the natural disaster to see how the market handles these
settings. Long before the storm appears in the high seas, the market institution of insurance
has assessed the risk and offered to bear that risk for a price. Homeowners with a mortgage
are required to insure their houses, and insurance companies must make assessment of the risk
Associated with the Location and the Likelihood of Disaster.
If the risk is high, the premiums are high too, and so most people will not build a self-disciplined
information aid in the price and he responds accordingly.
Of course, the presence of government-provided insurance foils this market system and ends
up creating hazards, which is exactly what Federal Flood Insurance created in 1968 does.
And I just might mention there was only one opponent of Federal Flood Insurance in Washington,
Even though his own district has many people who benefit from it and it's one of the aspects
of the heroism of Ron Paul that during his whole career he's the only one in Washington
to oppose federal flood insurance.
Federal flood insurance, however, as Ron points out, subverts the market process, encourages
irrational decision making.
This is the only reason that people in large numbers build in floodplains and on islands
that are ripe targets for hurricanes.
Nonetheless, the operation of the private insurance market does the bulk of the work to guide rational building patterns.
When the news appears that a hurricane is coming, the first reaction of the population is a stock-up on provisions.
And who is there to provide but private enterprise? Indeed, we take it for granted.
It is not government or bureaucracies that make available many days in advance these items as dry goods, canned goods, batteries, flashlights, water, generators and all the rest.
The free market. And yes, these firms make money in the process by providing a service
people want. So plentiful were bottled water and canned tuna and batteries in Auburn the
week before Ivan that panic buying subsided very rapidly. It dawned on people that a dozen
stores were going to have plenty available for everyone. Order came about because consumer
expectations fell in line with resource supply. People were calm, not because government told
When the hurricane actually hit, government offices were closed immediately, but Wal-Mart
and Lowe's and Kroger were made open throughout, with vast quantities of provisions on hand.
When it became clear the hurricane had passed, restaurants opened within minutes, tree-cutting
The main concern of everyone is electricity. Service provided not by private enterprise, but by a monopoly under the supervision of government.
For some reason, everyone knows power goes out in a storm. The provider knows it, the consumers know it, so does the press. Everyone lives with it.
No one questions it. The wind blows, the rains come, the lights go out.
and we wait until regulators deign to turn us back on.
Imagine such a service provided by private enterprise.
Surely the first order of business would be to create an energy flow
that managed to stay on during an emergency.
Entrepreneurs and capitalists would overcome this problem
chiefly because the consumer is king.
With electricity, however, we all just accept the fact
that it goes down in a storm and we must wait for the bureaucracy
When private enterprise fails, we don't hesitate to complain, demand and even sue. But when
government fails at its most essential duty of keeping the lights on, most people don't
even bother to complain. I should add that this is a very serious matter involving, as
it did in Florida recently, matters of life and death.
Electricity is a common example of what used to be considered a public good, one that private
Private enterprise, it was said, could not provide or for which competition was wasteful.
Of course, we now know this claim to be ridiculous.
Just look at what private enterprise has done with cell and wireless technology and that
the main barrier to reliable energy provision are the government monopolies that keep private
enterprise out.
Nonetheless, private enterprise has done its best to get around the restrictions.
Large stores like Home Depot are fully prepared with enough private generators to power their
and Home Generators are ever more common.
As a side note, it is certainly true that the post office will do everything possible
to deliver your mail in a storm, or at least we've developed a general expectation that
the service will not be dramatically worse in a storm than it is while the sun is shining.
Perhaps that's not saying much, but I'm sure you're all relieved to know that no matter
what the weather, the government can get to you to deliver a message.
You will notice that natural disasters tend to be far less deadly in wealthy capitalist
countries than in poor socialist ones. The press invariably attributes this to building
codes. Nothing strikes me as more absurd than the assumption that only government cares
if your own house can withstand an earthquake or a tornado or a hurricane. The people who
live there, the banks, the insurers, the builders, none of them have any interest in solid construction,
And so the regulators have to be involved. That's the theory anyway, and of course it's
ridiculous. Moving on on the parade of fall, let me say
a few words about price gouging. Nowadays, every state and most towns have a strict rule
against raising prices to too great an extent during an emergency. This shuts down an important
rationing mechanism when it is needed most, and also prevents the market economy from
Signaling Consumers concerning dramatic shifts in the relative value of available resources
and services.
Now in saying this, I have no doubt that there are inscrupulous people out there waiting
to exploit a human emergency to make vast sums of money.
And yet, this is a far better option than what is the actual choice.
Not cheap for service, but no service at all.
I assume that everyone would prefer the option of a high price, whether or not you buy, to
to no good or service at all. A temporarily high price also serves the function of signaling
other entrepreneurs and capitalists about market disequilibria. It permits a faster
market clearing. There are few things as disgusting as persecutions of price gouging cases. The
owner of a gas station, believing he might be able to sell gas for $5 a gallon for however
brief a period, will risk life and limb to get to his shop to open it for travelers.
This is his passion and his vocation. Take him to jail for engaging in voluntary exchange
and you have violated human right. Tell that same person that he is not permitted to sell
at a higher price and there will be no gas available. That is our choice, what some people
call gouging or no goods and services. Government, as we know from the case of electricity, prefers
the latter. Another way in which government prevents people from responding rationally
into a Crisis is through mandatory evacuation orders,
premised on the idea that government officials know
what is better for you than you know yourself.
In the aftermath of these orders,
the newspapers were always shocked to see
that some people might have taken advantage
of the evacuation, stayed behind,
and helped themselves to the property of others.
I suppose nobody in government had really thought
about the message that a mandatory and forced evacuation
sends to criminals.
Something along the line of come and get it.
A regulation that Murray Rothbard found to be particularly egregious is one which prevents
people from returning to their homes after an actual disaster. It's particularly cruel
because immediately following the storm is when the real wonders of human cooperation
come into play. Every resident, from the smallest renter to the owner of the largest landed
estate, examines the space outside his or her door and assesses what needs to be done.
There is no expectation that someone else should be responsible for it. The locus of control and responsibility is clearly defined. Mother Nature acted, but it is property owners who must respond. And so they do, starting with what is theirs. But it does not stop there. We also help our neighbors. Anyone with a chainsaw gets busy, starting again with his own property and extending services out to his neighbors.
Heroic efforts take place all across the community, the town, the county, the state. Private enterprise
is there too, with building materials, tree cutting services, plumbers and repair services
of all sorts. If it is something you need or want, it is available. One by one, hour
by hour, the damaged area is cleaned up, at least that part of it that is privately owned.
If you have gone through this in the past, it is truly a marvel to behold the power and
In my own observation, it seems to take less than a day to do more than half the cleanup.
What we observe in these cases is not just the free market at work, but the whole workings
of human society, people cooperating commercially and charitably towards their mutual betterment.
What we see in this case is something that nearly all the social science literature claims
cannot happen.
The economists doubt that wages and prices can respond quickly enough to re-equilibrate
supply and demand according to new conditions.
Not only do we see this happening in real life, we actually observe private enterprise
attempting to anticipate the change that is coming and being prepared before it happens.
And keep in mind that this is true during times of emergency and crisis, not just normal
times.
Contrary to the claims of social democrats from time immemorial, the markets are fine
We see this in American cities with areas so violent that most people would try desperately to avoid even driving through them, but the merchant class sees a chance for providing a service and so risks life and limb.
All over the world, whether risks are high and the barriers seemingly insurmountable,
we see private enterprise providing and serving others.
This is true of the smallest peasant money-changer to the largest multinational corporation.
Commerce does what others are unwilling to do, and yet it hardly is ever given credit.
But maybe we should not single out commerce as a special case within society.
It is the conviction of the liberal intellectual tradition dating back to at least the Middle
Ages.
Society contains within itself the capacity for internal self-management. This is in contrast
to the claims of the sociology literature, which posits that human society is riddled
with conflict between groups, races, ages, ethnicities, abilities. The sociologists have
sliced and diced the human population to such an extent that it would seem impossible for
anyone to get along at all, and certainly not in times of emergency. But a natural disaster
Let's return to the scene of the hurricane. Within a week after a natural disaster, we
We find that most places have restored normalcy and order and even beauty. All that is left
involves plantings and more fundamental building projects of various sorts, but the settings
have been fully prepared. This is the great surprise that greets us in the aftermath of
the storm. People love to brag and talk about all the horrors created by natural disasters,
but the truly marvelous and newsworthy thing is not the disaster, but the wonderful manner
in which it is repaired by voluntary human effort. The public parks, the school grounds,
the land claimed by the state is usually cleaned up in far longer time. But these days this
is for a reason that goes beyond the usual bureaucratic incompetence. Every community
seeks disaster assistance, money that usually ends up in the hands of local government where
officials pass it out to their friends. The newspapers cooperate in this creation of phony
Disasters in the hope of getting big bucks from the likes of the Federal Emergency Management
Agency.
The morning after Ivan, our local paper, headlined a massive type devastation.
He showed a man carrying some sticks across his lawn, an awning from a burger joint flipped
up due to wind, and a tree that it tipped over on someone's porch.
It's not exactly the kind of devastation that would take hundreds of millions of taxpayer
dollars to fix.
But everyone knows that after a storm, all official institutions have to play up damage
as much as possible in order to gain the attention of federal authorities.
The whole enterprise of disaster aid has become one of the great rackets of modern government.
Today we have the disgusting spectacle of senators and presidents coming to visit weather-injured
places as if they have within their capacity the ability to size up damage and make provisions
for making it all correct.
We are supposed to believe that they know more about the proper course of action than
insurance adjusters and property owners.
If we had honest politicians there, I would say, of course, I'm sorry about what happened
in Florida, but my presence there would only distract from the essential work being done
by owners and their insurers. I don't know anything about the topic, and even if I did,
I would not want to steal from some to give to others to realize my political priorities.
I'm reminded of the classic story of how Congressman Davy Crockett was denounced by a constituent
for Having Voted to Pay for the Rebuilding of Georgetown After a Fire.
These days I suppose we would be grateful for such a modest response by Congress. Glad
the entire apparatus of the Federal Leviathan had not begun a global war on arson and arrested
anyone with matches. Like dictators and shrews, politicians always come to the scene of a
natural disaster carrying a wad of cash. William Anderson, another one of our students
Documents of this scam really took off during the Clinton presidency.
These days, government sits through every natural disaster with bated breath, hoping
for a chance to do what it does best, grab power and hand out other people's money to
friends of the state.
As for the actual rebuilding, it is done by private enterprise in a timely and efficient
manner.
It is the social means, to use Oppenheimer's phrase, that rebuilds and restores, not the
state.
I have taken you through all this in order to illustrate a larger point about how private enterprise and the social means respond to every manner of exogenous shock that attempts to derail the path of progress.
The biggest barrier of all, something far more costly than all the natural disasters combined and even such great criminal acts as occurred on 9-11, is government itself.
It daily interferes with the path of progress through its taxes, regulations, distortions such as subsidies and price controls and its wars and trade barriers.
It is helpful to think of the way free enterprise responds to government. It's the way society responds to a natural disaster.
Yes, some people get rich off government. But taken as a whole, it is a disastrous cost on society.
Government is not productive. It is not creative. It does not bring blessings. Government spending
drains resources from society, taking those from those in whose hands it has the highest
value and putting it into the hands of people who serve the state. Regulation for stalls
choice. Taxation loots from people the reward of work and productive endeavor. Most destructive
of all is war, and yet it is war that people are likely to credit as bringing prosperity.
But as Mises says, quote, war prosperity is like the prosperity that an earthquake or
a plague brings. The earthquake means good business for construction workers, and cholera
improves the business of physicians, pharmacists and undertakers. But no one for that reason
is yet sought to celebrate earthquakes and cholera as stimulators of the productive forces
in the General Interest."
Of course, he wrote that in 1919, today I'm sure we would have no problem finding people
who would say such preposterous things.
Austrians are unique in having great clarity about the damage caused by government, and
yet sometimes even Austrians have a tendency to underestimate the power of free enterprise,
to overcome obstacles, to serve the world and bring prosperity to the multitudes.
I doubt that even the most ardent fan of free markets would have imagined that red China
could be transformed in such a short period of time, that Eastern Europe would undergo
a total upheaval towards prosperity in a mere ten years, that New York should so quickly
bounce back after 9-11 that the recovery from the dot-com bust would be so rapid.
Alone among schools of economics, Austrians understand the danger of credit expansion
of all sorts, of how even small interventions can cause terrible dislocations, how the downside
To explain and articulate the downside is our comparative advantage. This is one reason the Austrians tend to be better at anticipating the bust than seeing the boom. To explain the fact of ongoing destruction is not the same as having perfect predictive power concerning the creative response by producers and entrepreneurs. Austrians have our fair share of gloom and doomers among financial economists, and they've been right more times than we realize.
Gordon has a new study out that examines what economists were saying during the height of
the dot-com boom.
He found that Austrians were just about the only ones who saw that it had to come to an
end, and many called the timing exactly right.
This was at a time when everyone else saw nothing but endless price increases in securities
for the future.
Being able to see the downside should not make us blind to observing the astonishing
ways in which private enterprise is able to adjust itself so well in the presence of government
intervention.
Despite living with the largest governments ever created in the history of mankind, the
free market has been able to work around them to be a source, for example, of the second
greatest technological revolution of the last 500 years, namely that which has taken place
between the invention of the microchip and the commercialization of wireless technology.
We live today with technology that would have been unimaginable even five years ago.
Let me give you an example of this.
It is within the power of any of us in this room to have it delivered to a family member,
Living anywhere in this country just about any CD, book, clothing or food item that
they may desire by express to their door by noon tomorrow merely by clicking on a few
buttons on any one of the laptops located in this room and to track that package on
its way to delivery through live websites.
All this takes place within the framework of the market matrix.
If you take a trip to your local wireless dealer or office supply store and have a look
The technology is there these days. You observe an amazing array of astonishing gizmos that have been created, perfected, marketed and employed outside the radar screen of government.
There was a time when something like the Food and Drug Administration or the Consumer Product Safety Commission could claim to keep up with all the products we use.
But today the consumer markets are moving so fast and with such power that government can't possibly keep up.
When it gets involved in an antitrust suit involving technology, we can only marvel at
the unbelievable ignorance with which government regulators and judges approach these topics.
Truly, government is living decades behind the rest of the world on its belief that the
old-fashioned methods of coercion and propaganda can competently deal with the digital world
of wireless and instant everything.
Communication technology is the most obvious example.
Government once aspired to control all the command posts in society, among which was
the technology that permitted people to talk to each other and pass on information.
Government still attempts this with its ridiculous post office, public utility monopolies, but
the private sector has moved way beyond this.
We have email, cell phones, instant messaging, Google, and amazing technologies that combine
all of these to produce alternative communications infrastructure that lives and thrives outside
Hillary Clinton complained famously that the web lacked much-needed gatekeepers.
Well, that was years ago. The would-be gatekeepers are still nowhere to be seen, and we are none the worse off.
We should never forget, in the midst of all our warnings about government power, that government is deeply incompetent, that government is laughably incompetent.
Consider the attempts by the World Trade Organization to presume to manage global trade. The WTO
was created in 1995 as a follow-up to the failed attempt in 1948 to create a Keynesian-style
command center for the management of the world economy. Today, the WTO serves a little more
than a dispute resolution panel, a service that would otherwise be provided by the market.
The idea that it serves as some sort of planning board for the world economy is also laughable,
Not because the WTO would not relish that role, but because it would be impossible for it to do so.
The WTO came about in 1995, about the period when world trade began blossoming as it had not in a hundred years.
China was solidly on the path towards its present renaissance. East Asia was becoming a hugely viable market.
Latin America was entering into a new path of integration, most importantly of all Eastern Europe and Russia have opened up.
The economy is definitely global now, and there's no going back.
The division of labor has vastly increased, and all of the world's population is involved
in the great task of creating and producing to meet human needs.
Where does this leave government?
Doing what it has always done, looting people, starting wars, generally being a pain in the
neck.
It continues to grow like a tumor on the world, but private enterprises consistently outrun
and the ability of government to chase it and tackle it.
It is the market, the very institution based on human liberty that we are so dedicated
to defending, that is our main weapon against the state.
I'm not arguing that technology can somehow make government irrelevant.
I'm sorry to report that many governments in the world retain weapons of mass destruction.
The biggest government of all has the most weapons, and this government in question is
the only one that has ever actually employed a nuclear weapon against civilians.
Instead of naming that government, let's call it Government X.
Government X has decided that it should be the world's only superpower, that it should
stand in judgment over all countries in the world. It has decided that it alone is the
right model of culture and politics, and that it is a snap to make carbon copies of itself
in far-flung places through a few well-placed bombs.
At least this was the view of the regime in charge of government X only a year and a half
ago. It reflected a kind of hubris and even insanity. Had that regime been successful
in its wars against two other governments, let's call them Y and Z, we might have caused
to be greatly pessimistic about the future as government X marched through the entire
alphabet of countries and changed their regimes to become copies of the high-tax social democratic
Military History has few failures as colossal as the wars of government X against government
Y and Z. While we are right and we must feel great sadness for the terrible source of life
on all sides, we should not regret that the empire was denied success. These wars are
nothing but government interventions gone terribly wrong, unnatural disasters visited
on the populations of all the countries involved. And yet we overcome. World trade proceeds
at pace. Production continues, not because of the order brought to the world by government,
but in spite of the disorder brought to the world by government. The market has not only
taken on the burden of confronting nature itself, which erects so many obstacles to
the well-being of the human population, but government as well, which is the largest obstacle
One reason natural disasters alarm it is that there seems very little that we can do to
alter their course. Anti-hurricane intellectuals can do very little about changing the course
of Ivan or Jean. However, intellectuals can alter the course of unnatural disasters such
as government. Governments themselves are the products of ideas, mostly bad ones, and they
They can be curbed and dismantled by other ideas.
As lovers of liberty, it is essential that we constantly warn about the dangers presented
by the State.
But it is also our job to constantly say, in as many ways as we can, that it does not
have to be this way.
The State is not the foundation of society.
It is not the source of our security.
It does not bring about prosperity.
It does not protect us.
and instead stands outside of society and lives off its proceeds and does so for its
own benefit and not that of society. To understand this and impart this message to the current
generation of students who benefit so enormously from the blessings wrought by the market is
surely a task worthy of all our efforts. This afternoon I've spoken at length about crisis
and destruction in the response. I've done so because of something I've noted from the
The events of 9-11 have shaped the current generation of students. These students do
not remember the ideological wars that we older folks grew up with which pitted communism
against capitalism. Today the essential question is whether government or the market is the
essential source of our security and justice. To those students who have accepted the claims
of the State. The justice comes through war. The state must abolish all that came before
in the name of providing future protection. To these students, the state is the heroic
institution of our time. It has become for them, tragically, the source of social salvation.
On the other hand, the event also raised up a new generation of very thoughtful, analytically
rigorous students who have seen through the propaganda. They have seen how the state so
and how this response has made us less safe and wrought vast destruction.
That dreadful day forced a choice on an entire generation to follow the path of power wherever
it leads or to rethink all the assumptions that dominate the intellectual climate of
our time.
For those of us in the Misesian tradition of thought are very fond of intellectual combat
and delineating the differences between our way of thinking and that of our adversaries,
whether they are on the right or the left or somewhere in between.
At the very core of the difference is one of views of the viability of human cooperation
apart from state intervention.
If you can understand how a small community can recover from a hurricane without the aid
of government, or if you can understand how a magnificently productive global economy
Society can grow and thrive and provide for billions without the aid of a global state.
Then you understand a very critical point, and it is this, society and all its works
can thrive without central management by a coercive apparatus. If people have liberty,
property and law, they have the basis of what it takes to make a civilization. Anything
that compromises those institutions is a force for de-civilization. After a natural disaster
Let us open our doors and look without flinching at the terrible mess the state has made of
our world.
To those who say this is beautiful and productive, let us explain why it is not so.
Let us point to wars and poverty, mass disease and starvation, and explain their cause.
Let us stand up to those who would celebrate destruction and show that it is unnecessary
and terribly tragic.
And let us not despair when we see a world torn asunder by the state, but rather see
the evidence of invention and creativity which surrounds us and look for every opportunity
for rebuilding.