In the latest episode of Money Metals' Midweek Memo, host Mike Maharrey uses an upcoming hurricane, Milton, as a backdrop to discuss flawed economic policies, particularly price gouging laws, and economic fallacies stemming from Keynesian thought.
As he prepares for the storm in Florida, Maharrey takes the opportunity to explain why certain popular economic policies hurt consumers in the long run, even if they seem beneficial on the surface.
Price Gouging Laws: Good Intentions, Bad Economics
Maharrey begins by discussing price gouging laws, which are commonly implemented in states like Florida during emergencies. These laws are intended to prevent businesses from raising prices excessively on essential goods like water, gas, and hotel rooms during a disaster.
However, Maharrey points out the fundamental flaws in these policies:
"It's supply and demand economics 101. Price gouging bans during storms are equally absurd from an economic standpoint."
He explains that these laws, while popular, lead to unintended consequences. For example, when prices are capped, people tend to hoard supplies, resulting in shortages. Allowing prices to rise, on the other hand, helps prevent panic buying and encourages suppliers from outside the affected area to bring in more goods.
Maharrey uses an umbrella analogy to illustrate his point:
"If umbrella prices were forced to remain low... you might go out and buy a bunch of umbrellas... But if prices are allowed to spike in response to demand, you would probably make do with just one or two umbrellas."
Maharrey also emphasizes the importance of viewing price gouging from an unemotional, economic perspective:
"Economics doesn’t care whether there’s a disaster or not... economic principles do what they do, and they don’t give two wits about your feelings on the matter."
The Broken Window Fallacy and Keynesian Economics
n the second half of the episode, Maharrey critiques the Keynesian idea that natural disasters can stimulate economic growth due to the increased spending on recovery efforts. He references the well-known broken window fallacy, first explained by economist Frédéric Bastiat, to debunk the idea that destruction can benefit the economy.
He sums up the fallacy with an analogy:
If a child throws a rock through a shop window, the shopkeeper must pay to repair it. Some might argue this boosts the economy by creating work for the glazier, but in reality, the shopkeeper’s money could have been spent on something more productive.
As Maharrey explains, "Destroying things does not make you better off... if that was true, then I’d go take a sledgehammer to my wife’s car."
He also mentions Paul Krugman’s infamous statement that a fake alien invasion would stimulate the economy:
"Krugman actually said... if we discovered space aliens were planning to attack and we needed a massive buildup... the slump would be over in 18 months."
Take Control of Your Financial Future with Sound Money
Maharrey concludes the podcast by advising listeners to protect their financial futures with sound money like gold and silver. With governments constantly manipulating the economy through inflationary policies, he believes holding precious metals is a way to safeguard wealth:
"You have to take control of your own life and do the best you can to minimize the impact of this stuff... one way you can do that is to hold on to real money—gold and silver."
"The government can’t print gold. It can’t print silver. It can’t create inflation with gold and silver."
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