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US economy less bad than it seems?

Posted by erweinstein on January 10, 2008

Weekly claims for unemployment benefits have fallen dramatically. Some analysts believe that this does not provide useful information, as the holiday season distorts the number of unemployment applicants. However, the jobless claim figures have historically tracked overall unemployment very well, despite the seasonal sampling problems. Developments in employment/unemployment numbers are being followed closely, as total US unemployment rose to the (historically low but recently high) rate of 5% after last month.

Also, Federal Reserve Chairman Ben Bernanke announced earlier today that he is ready to further reduce the target interest rate to support the economy as it works through the recent disruptions in the housing and credit markets.

By the way, I think the answer to the title questions is “yes”. In my mind, there is a better than 50% chance that the United States will not experience a recession in 2008, and will at worst experience a mild recession some time over the next 3 years. I won’t go so far as to predict “no recession”, especially because I’m not sure how the economy will actually respond to the Fed’s new stimulus. (Recall that Tyler Cowen once wrote, “All propositions about real interest rates are wrong”.)

Posted in Economics | 1 Comment »

Remark of [this past] Week

Posted by erweinstein on January 7, 2008

Let’s say that the government subsidized the price of bananas, you bought so many bananas, put them on your roof, and then the roof collapsed. Is that government failure or market failure?

Tyler Cowen, George Mason Economics professor, discussing the “housing bubble” and “subprime mortgage crisis” on his blockbuster blog Marginal Revolution.

Posted in Economics, Politics, Random Thoughts | Comments Off on Remark of [this past] Week

McCain on farm subsidies

Posted by erweinstein on December 9, 2007

John McCain confirmed today that he still holds the position that made many (including myself) pay close attention in the Republican Presidential Primary eight years ago: opposition to US federal farm subsidies.

During an interview on Fox News Sunday, Chris Wallace asked about McCain’s low poll numbers in Iowa. Senator McCain admitted difficulties in that state, explaining his poor appeal,

I don’t support ethanol subsidies. I don’t support farm subsidies; I think they should be phased out.”

It’s good to know that McCain hasn’t abandoned one of his signature issues despite its unpopularity. It’s even better that one of the major candidates (other than long-shot Ron Paul) accepts the basic economic fact that farm subsidies enrich agribusiness and other non-poor farmers, harm citizens through higher taxes and higher food prices, and cripple farmers in poor countries who would could earn a living by selling agricultural products for the US market if they could compete fairly.

Here is more from that same interview, mainly about McCain’s response to an attack mailing by Mitt Romney:

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Remark of the Week

Posted by erweinstein on December 2, 2007

People strike back at what they perceive to be injustices. Having a lot of money is not an injustice. To repeat an idea from my review: people hated the Robber Barons because they were robbers and barons, not because they were rich. The labor movement was strong when it was perceived that firms were making superprofits that could be more equitably shared with the workers. Gender inequality and racial discrimination are opposed because they are unfair, not because they lead to an unequal division of wealth.

–Professor Emeritus of Economics at the University of Massachusetts Herbert Gintis, regarding his (negative) review of Paul Krugman’s The Conscience of a Liberal, and his view that American “liberals” are unproductively obsessed with the concept of economic inequality.

Unfamiliar observers should note that Gintis is about as far to the “left” politically as it is possible to be in the US without being a full-fledged Marxist (he would probably consider himself a Marxian-inspired heterodox economist). He is however, an insightful and fair-minded thinker who has repeatedly demonstrated that he doesn’t care about developing good rhetorical points for political debates, but rather about studying social problems such as poverty and poor schooling so that these problems can actually be ameliorated.

Posted in Economics, Politics, Random Thoughts | 2 Comments »

All About Strikes

Posted by erweinstein on December 1, 2007

While the Hollywood writers strike and the Broadway tech and stagehand strike paralyze the US entertainment industry, the news writers of CBS have voted to strike after working for 2.5 years without a contract. The Hollywood writers have resumed negotiations with the media companies, but no progress has been made and insiders are not optimistic.

Public-sector and pension reforms initiated by new French President Nicolas Sarkozy have provoked a large transit workers strike in France, which students and civil servants of various types joined last week.

Here are some thoughts from The Economist‘s Free Exchange Blog about strikes and negotiation.

While you’re waiting for your favorite TV shows or plays to resume (or if you’re stuck in traffic in Paris and have an iPhone or laptop), please enjoy this video of Billy Joel and his band performing the song “Allentown” in 1998 (before he started to lose his voice).

Posted in Economics, Politics | 1 Comment »

Mankiw is on a roll

Posted by erweinstein on November 9, 2007

This New York Times op-ed about US health care reform, combined with his response to comments on his blog, confirms that Harvard economist Greg Mankiw is one of today’s most incisive economic policy thinkers.

Political junkies may remember Mankiw as the economic adviser to President George W. Bush who made some politically incorrect (but economically justified) statements about outsourcing. Economics and public policy junkies may remember him for his contributions to modern growth theory and his cameos in the recent popular-scientific-history book Knowledge and the Wealth of Nations. A year-old ranking calculated that “Mankiw, Romer, & Weil” (as the paper linked above is known) is the 65th most-cited peer-reviewed article in contemporary economics.

Now if only I could figure out why he agreed to be an economics adviser to Mitt Romney…

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Gary Becker to receive Presidential Medal of Freedom

Posted by erweinstein on October 31, 2007

Gary S. Becker will be awarded the Presidential Medal of Freedom, the highest civilian award of the United States, on November 5. Becker is a Professor of Economics at the University of Chicago, the 1992 winner of the Nobel Memorial Prize in Economic Sciences, and the unofficial leader of the modern-day “Chicago School” approach to economics.

On the somewhat ominous date of the 5th of November, George W. Bush will award the Medal of Freedom to Becker, retired Republican Congressional leader Henry Hyde, Cuban dissident Oscar Elias Biscet, Human Genome Project director Francis Collins, C-SPAN founder Brian Lamb, President of Liberia Ellen Johnson Sirleaf, civil rights leader Benjamin Hooks, and To Kill a Mockingbird author Harper Lee.

Becker is one of the most-cited living economists, and he teaches the (in)famous University of Chicago graduate Price Theory class, (which he took over upon the retirement of his Ph.D. adviser and colleague Milton Friedman). Over his prolific career, Becker was responsible (virtually singlehandedly) for creating four new subfields of his discipline: the economics of discrimination, the economics of human capital, the economics of marriage and families, and the economics of crime. It is often said that more dissertation topics have been inspired by Becker’s footnotes than from the main text of any other economist, barring the founders such as Marshall, Keynes, and Samuelson.

Becker currently teaches graduate economics courses at the University of Chicago, while working part-time as a Senior Fellow for the Hoover Institution at Stanford. He also writes weekly point-counterpoint essays with law professor and US 7th Circuit Appellate Judge Richard Posner, posted on the Becker-Posner Blog.

UPDATE: Here is Becker receiving the medal from President Bush (photo by Eric Draper from


Posted in Economics, Politics | 1 Comment »

Economics Nobel Prize 2007: Another Win for Chicago!

Posted by erweinstein on October 15, 2007

Congratulations to Leonid Hurwicz, Eric S. Maskin, and Roger B. Myerson, this year’s recipients of The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel. The three men share the prize for their development of mechanism design theory.

Myerson is the Glen A. Lloyd Distinguished Service Professor and Director of Graduate Studies at the University of Chicago Department of Economics. He is one of the most cited theoretical microeconomists of his generation, and it is impossible to research the subfields of game theory, auction theory, social choice, or mechanism design without tripping over what seems like scores of important articles and results written by Myerson.

The University of Chicago community is very happy for Professor Myerson, and will probably hold a celebration honoring him in the near future. Myerson becomes the sixth and youngest (at 56 years old) Economics Nobel winner on the faculty of the University of Chicago, joining James Heckman, Robert Lucas, Robert Fogel, Gary Becker, and Ronald Coase.

Thanks to the marvels of modern technology, a video containing the prize announcement and an explanation is available here.

UPDATE: A reception in Myerson’s honor was held on Wednesday, October 24.

Posted in Economics | Comments Off on Economics Nobel Prize 2007: Another Win for Chicago!

iPhone Demand Curves Slope Down

Posted by erweinstein on September 12, 2007

Least surprising headline of the week: “iPhone price drop leads to sales boost“.

Here is Steven Levitt’s discussion of Apple and iPhone pricing.

Professor Levitt’s analysis seems to suggest that there are non-trivial and possibly large “reputation” costs for a company changing the pricing, features, or extras on an existing product line. Obviously if the company fails to account for the sales effect of a reputation change, an apparently profit-maximizing pricing or production decision might not be optimal. I think the biggest difficulty would be finding a reasonable way to measure the reputation effects on sales (and disentangle them from other changes in demand and quantity demanded). Some field studies of how firms actually make these estimates might be useful as a starting point. I don’t think that the theoretical problems with this type of pricing behavior are quite as intractable as Levitt implies, although the empirical work might prove tricky. My overconfidence suggest that I should probably stop blogging and get to work…

Posted in Economics | Comments Off on iPhone Demand Curves Slope Down

The Trilemma of Healthcare Economics

Posted by erweinstein on August 9, 2007

In this excellent post, Arnold Kling links to David Leonhardt’s New York Times column about preventative medicine and healthcare cost savings. Leonhardt quotes MIT healthcare economist Jonathan Gruber, who questions whether preventative care can create net savings in healthcare expenditures (as Hilary Clinton has implied). Kling also discusses what Michael Cannon calls “Kling’s Iron Trilemma” of health care spending. Kling explains,

We want:

–what I call insulation, where consumers enjoy the peace of mind of having their medical services paid for by a third party;

–unrestricted access, where consumers and doctors can choose medical procedures without bureaucratic interference or government budget limits;

–less stress over rising health care costs.

The trilemma is that we can have at most two out of three. Much of the “reality-based community” (an Orwellian label if there ever was one) denies that the trilemma exists. Gruber does not deny its existence, but he prefers restricting access to reducing insulation. I prefer the latter.

For reference, Kling received his Ph.D. in Economics from MIT and serves as an adjunct professor at George Mason University. He writes the blog EconLog (jointly with Bryan Caplan), and his most recent book, Crisis of Abundance, is about US healthcare reform.

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Lasers in the Jungle Watch

Posted by erweinstein on August 3, 2007

The so-called “$100 PC”, designed for citizens of developing nations, has been the object of a several-year product design struggle by technology firms and economic development specialists. The One Laptop Per Child campaign, which aims to accomplish this goal using a cheap, 2 Watt AMD subnotebook, now has some competiton. Lenovo announced today that they will sell a new PC aimed at rural Chinese customers, for as low as $199. Dell had earlier announced a low-cost PC for around $223.

(This post will hopefully be the first in a continuing series about the arrival of technology in the developing world, particularly in clever or unique ways. “Lasers in the Jungle” is a line from Paul Simon’s song “The Boy in the Bubble” on the album Graceland–the 1986 Grammy Album of the Year. The song juxtaposes the the arrival of Western technologies with the banality of daily life in an unnamed, poverty-stricken African dictatorship.)

Posted in Economics, Technology | 1 Comment »

Austan Goolsbee vs. Michael Moore

Posted by erweinstein on July 7, 2007

Austan Goolsbee, University of Chicago economics and business professor and the chief economic adviser to Barack Obama, critiques Michael Moore’s new movie Sicko.

(Link from the incomparable Tyler Cowen at Marginal Revolution.)

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A small step forward for free trade

Posted by erweinstein on April 30, 2007

US and EU agree to a “single market”

This is a meeting of minds between United States and European officials with much potential for improving the lives of ordinary citizens (e.g., more airline competition brings cheaper fares). Admittedly, the gains from removing commercial restrictions and harmonizing regulations would be far greater if developing nations were included as well. Perhaps closer cooperation on these issues will improve the chances of US and EU agricultural policy reform, which would resurrect world trade negotiations.

Posted in Economics, Politics | Comments Off on A small step forward for free trade

Kling on Politics, Economics, and Religion

Posted by erweinstein on February 6, 2007

In this interesting essay, Arnold Kling argues that those who favor greater personal and economic freedom (who are called or call themselves “libertarians”) will find more and truer allies among conservatives than among liberals in the United States.

Kling’s thesis seems correct given the current political atmosphere, if not necessarily for the exact reasons he offers. He identifies his two main arguments:

1) The Republican base is more naturally favorable toward limited government than is the Democratic base.

The demographic component of this argument—that public-sector employees and union members, for example, will oppose libertarian economic policies instinctively, and the Democratic Party depends heavily on voters like these—accords with common sense. But the psychological/motivational component is more troublesome. Kling says,

While I imagine that there must be some single moms who lean libertarian, in general single mothers are more likely to look to government as a substitute for the missing father.

It’s probably true that more single mothers favor more state intervention in the economy rather than less, regardless of which party they officially support. But we need not turn to psychoanalysis to explain this. It could be that single mothers support non-libertarian economic policies solely because these policies offer them more public services, a larger “social safety net”, and fewer work requirements for welfare. (I am not implying that welfare is a concern for all or most single mothers, just discussing possible motivations.) Kling may be right about a single mothers, but there’s too much we don’t know about the psychology, sociology, and economics (people respond to incentives!) of political opinion- and identity-formation. People’s actual motivations and the causes thereof are quite complex, and it is ambitious to explain an entire social group in one sentence. Can we easily psychoanalyze the politics of, say, Hollywood actors? While we can certainly make generalizations, how do we express in one factually-correct and nontrivial statement the observed continuum from progressive Democrats like Sean Penn to popular Republican politicians like Reagan and Schwarzenegger?

Kling’s second main point has even more depth:

2) I find it a challenge trying to persuade religious conservatives to loosen the relationship between their religious beliefs and their political agenda. However, I find it even more of a challenge to deal with the Left, where their political agenda is their religion.

There is much empirical validity to this, and Kling is impressively pithy. However, he ignores another side of the conflict between religion and libertarianism that is, in my experience, more relevant. A plurality (or more) of mainline Protestants and an overwhelming majority of American Jews believe (or act as if they believe) that their religion requires voting Democrat. This is indeed a problem for non-Democrats, especially those who are both “libertarian-leaning” and religious, but it is not necessarily intractable. Are American liberals somehow less amenable to reason than American conservatives when libertarian issues are at hand? If not, then it is important to explain to these religious Democrat voters that the hallmarks of classical liberalism—local decision making, emphasis on results rather than intentions, using the power of competitive markets to improve human prosperity, and striving for both personal/social and economic/transactional freedom—can help the poor and make society better for all. (A rising tide lifts all boats.) After a fashion, I suspect that it may be easier to persuade religious liberals to accept market-based policy solutions (cf. the Clinton presidency) than to persuade religious conservatives to stop expanding Leviathan in the name of promoting their moral values (cf. the Bush 43 presidency and the US Congress from 2003 to 2007). But even if intelligent and non-blinkered leftists could be more easily persuaded to tolerate libertarian policies in particular instances than their counterparts on the right, I agree with Kling that the current Democratic Party and its supporters are less conducive overall to reducing government and expanding both types of freedom than the current Republican Party. The difference may be depressingly small, but when one compares the Democrat and Republican presidential front-runners, it is noticeable.

My favorite quote from the article:

On social issues, I differ from the National Review partisans in that I am not a social conservative politically. I favor keeping government out of issues of sexual conduct. Nonetheless, in terms of behavior I am quite conservative.

Well said, Dr. Kling. I agree and sympathize.

Posted in Economics, Politics, Religion | 1 Comment »

Tim Hartford in Chicago Tomorrow

Posted by erweinstein on February 1, 2007

Tim Hartford, former economist at Royal Dutch/Shell, current Financial Times economics columnist, and author of The Undercover Economist, is touring North America. He will be in Chicago tomorrow, in D.C. on Monday, and in Toronto on Tuesday. See the tour schedule for times and venues.

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Happy Milton Friedman Day!

Posted by erweinstein on January 29, 2007

From Terry Savage at the Chicago Sun-Times:

Today has been declared Milton Friedman Day, and he will be honored today at the University of Chicago Rockefeller Chapel at 2 p.m., a ceremony that will be open to the public, and is co-sponsored by the University of Chicago and the Chicago Mercantile Exchange.

If you want to know more about his formidable influence, you can watch his biography, “The Power of Choice” on PBS tonight.

For more info, see

Here is a special feature from the website of The Economist.

Economist Arnold Kling has a commemorative essay here.

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In Memoriam: Milton Friedman

Posted by erweinstein on November 19, 2006

Milton Friedman, internationally-renowned advocate for personal and economic freedom, Nobel Laureate in Economic Sciences in 1976, and Professor Emeritus of Economics at the University of Chicago died in the morning of Thursday, November 16.

Thursday was a sombre day for many of us here at the University of Chicago. The University flags were lowered to half-mast, and professors in the Department of Economics and the Graduate School of Business were frequently recognizable by their downcast stares and more formal comportment and attire. Kevin Murphy (winner of the John Bates Clark Medal in 1997 as well as a MacArthur “genius grant” last year) who famously wears a baseball cap and sneakers every day, changed to a black cap and nicer shoes. According to his students, Gary Becker (Nobel Laureate 1992) who was a doctoral student of Friedman’s, was particularly distraught. Becker reflects on Friedman’s intellectual contributions here on his blog.

A panel discussion to commemorate Friedman’s achievements, featuring Becker, Robert Lucas, Sam Peltzman, and Eugene Fama, was held in the afternoon of Friday, November 17. Video of the discussion is now available.

Here are news stories about Friedman’s death from Reuters, The Economist, and the Chicago Maroon.

Economists Austan Goolsbee, Brad DeLong, Thomas Sowell, and Greg Mankiw have written excellent essays about Friedman. Milton’s son David Friedman wrote this poem on his father’s death.

Milton Friedman’s substantial contributions to economics and economic policy are adequately covered by the above links. It is illustrative that his developments in the areas of consumer theory, statistics, and monetary theory and history are widely used and taught today, with some updates to account for more data and more sophisticated mathematical techniques. However, I believe it worthwhile to highlight Friedman’s thoughts on the nature of classical liberalism. Before I even picked up his book Capitalism and Freedom, I realized that my views on politics and society were closer to Friedman’s than to any other contemporary public intellectual. The following passage from that book demonstrates Friedman’s deep understanding of classical liberalism and his dedication to human freedom:

As it developed in the late eighteenth and early nineteenth centuries, the intellectual movement that went under the name liberalism emphasized freedom as the ultimate goal and the individual as the ultimate entity in the society. It supported laissez faire at home as a means of reducing the role of the state in economic affairs and thereby enlarging the role of the individual; it supported free trade abroad as a means of linking the nations together peacefully and democratically. In political matters, it supported the development of representative government and of parliamentary institutions, reduction in the arbitrary power of the state, and protection of the civil freedoms of individuals.

Beginning in the late nineteenth century, and especially after 1930 in the United States, the term liberalism came to be associated with a very different emphasis, particularly in economic policy. It came to be associated with a readiness to rely primarily on the state rather than on private voluntary arrangements to achieve objectives regarded as desirable. The catchwords became welfare and equality rather than freedom. The nineteenth century liberal regarded an extension of freedom as the most effective way to promote welfare and equality; the twentieth century liberal regards welfare and equality as either prerequisites of or alternatives to freedom. In the name of welfare and equality, the twentieth-century liberal has come to favor a revival of the very policies of state intervention and paternalism against which classical liberalism fought. In the very act of turning the clock back to seventeenth-century mercantalism, he is fond of castigating true liberals as reactionary!

The change in the meaning attached to the term liberalism is more striking in economic matters than in political. The twentieth-century liberal, like the nineteenth-century liberal, favors parliamentary institutions, representative government, civil rights, and so on. Yet even in political matters, there is a notable difference. Jealous of liberty, and hence fearful of centralized power, whether in governmental or private hands, the nineteenth-century liberal favored political decentralization. Committed to action and confident of the beneficence of power so long as it is in the hands of a government ostensibly controlled by the electorate, the twentieth-century liberal favors centralized government. He will resolve any doubt about where power should be located in favor of the state instead of the city, of the federal government instead of the state, and of a world organization instead of a national government.

Because of the corruption of the term liberalism, the views that formerly went under that name are now often labeled conservatism. But this is not a satisfactory alternative. The nineteenth-century liberal was a radical, both in the etymological sense of going to the root of the matter, and in the political sense of favoring major changes in social institutions. So too must be his modern heir. We do not wish to conserve the state interventions that have interfered so greatly with our freedom, though, of course, we do wish to conserve those that have promoted it. Moreover, in practice, the term conservatism has come to cover so wide a range of views, and views so incompatible with one another, that we shall no doubt see the growth of hyphenated designations, such as libertarian-conservative and aristocratic-conservative.

Partly because of my reluctance to surrender the term to proponents of measures that would destroy liberty, partly because I cannot find a better alternative, I shall resolve these difficulties by using the world liberalism in its original sense—as the doctrines pertaining to a free man.

Written almost forty-five years ago, these words have yet to be equaled as a constructive and comparative explanation of classical liberalism (although Hayek’s “Why I Am Not a Conservative”, the postscript to The Constitution of Liberty, is also quite insightful—Hayek focuses more on the contrasts between classical liberals and conservatives, but his prose is more difficult by today’s standards).

The death of Milton Friedman diminishes the community of economists, political thinkers, and classical liberals. We may take some comfort from the fact that his work will undeniably live on.

UPDATE: A memorial service for Milton Friedman was held in Rockefeller Chapel at the University of Chicago on Monday, January 29.

Posted in Economics, Politics | 1 Comment »

J.S. Mill Bicentennial

Posted by erweinstein on May 20, 2006

Today, May 20, marks the 200th anniversary of the birth of John Stuart Mill. I’m sure that I don’t need to extol the greatness of Mill to this audience, but we should all take the opportunity to learn more about the philosophical inspiration for Mankind Minus One [the now-defunct group blog to which I previously contributed].

In honor of the occasion, Catallarchy has a series of essays on Mill. Roger Scruton, willfully disregarding the history of economic and political thought, attacks Mill in this op-ed, as he believes that Mill’s defense of minority rights and opposition to senseless traditions paved the way for the greatest excess of the sham “liberalism” of the Twentieth Century. Andrew Sullivan offers a terse and insightful response here. Finally, at the Library of Economics and Liberty, Professors David M. Levy and Sandra J. Peart have written essays discussing the leading role of Mill and other classical economists in the British antislavery and anti-racism movements.

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Ben Bernanke nominated to replace Greenspan

Posted by erweinstein on October 24, 2005

President Bush has nominated Ben Bernanke to replace Alan Greenspan as the Chairman of the Federal Reserve Board of Governors. Bernanke is the Chairman of the White House’s Council of Economic Advisers and a former member of the Fed Board of Governors. He is considered to be one of America’s foremost monetary theorists, surpassed only by Greenspan and Greenspan’s predecessor Paul Volcker.

After the farce that is the Harriet Miers nomination, Americans of all political stripes should be breathing a collective sigh of relief. While his personal party affiliation is Republican (as was Greenspan’s before his nomination to the Fed), Bernanke is an academic economist, not a political operator, and it is highly unlikely that he would risk the nation’s economic stability for short-term political gain. Bernanke also has stronger credentials in matters of monetary policy than the others rumored to be on the president’s list to succeed Greenspan. For example, R. Glenn Hubbard, a Columbia professor and former Council of Economic Advisers Chairman, is an expert in the field of corporate finance, but he is less distinguished in monetary matters than Bernanke. If confirmed, Bernanke is likely to broadly continue Greenspan’s policy choices. Two important differences, which can be inferred from his time as a Fed governor, are that Bernanke possesses a greater understanding of the symbolic (i.e., media) importance of the Fed Chairman, and that he has a desire to increase the amount of debate and dissent during Fed meetings. As many people consider the Fed Chairman to be the second most powerful person in the US government, the ability to avoid media frenzy and the willingness to address criticism are qualities that should serve Bernanke very well.


UPDATE: This post, at its original home of, was cited by the Blogpulse Newswire.

Posted in Economics, Politics | 1 Comment »

Hurricane “Price Gouging”

Posted by erweinstein on September 4, 2005

I have heard references on both CNN and Fox News to the “price gouging” that occurred before and after the disaster of Hurricane Katrina. The Office of the Attorney General of Florida has issued notices reminding citizens that price gouging is illegal and that suspicions of price gouging should be reported via the state hotline.

However prevalent it may be, the common understanding of “price gouging” is inaccurate because it ignores the principles of economics. “Price gouging”, is an emotionally charged term for a process that, unless it involves fraud, is essential to the national well-being. Two articles written in response to last years devastating Florida hurricanes, one by journalist David M. Brown and the other by world-renowned economist Thomas Sowell, explain the popular misconception.

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