October 24, 2007

The Economy of Grace

As many of you know, there have been about 12 fires in Southern California over the past few days.  The San Diego area was hit really hard, and almost a million people have been evacuated from their homes.  As a compassionate gesture, several San Diego area hotels have offered discount rates to evacuees.  That’s great, right?  According to an economics professor, it’s horrific. Mark Steckbeck, economics professor at Hillsdale College, laments the fact that hotels offered discounted rates to fire evacuees in San Diego on this post of his blog, The Liberal Order.  According to Steckbeck, who doesn’t sound very liberal despite his blog title, the hotels made a bad thing worse by not charging full market rates or more for the rooms because higher prices would have insured that only the most desperate used the hotel rooms while others would have opted for shelters or family homes. Steckbeck says “It was a nice gesture on the part of the hotels, but I’d rather see compassion administered through the invisible hand of market prices.” Technically he is correct regarding the economics, but he is completely wrong concerning compassion.  Market prices are passive.  They do what they do, like a machine.  Compassion, on the other hand, is active.  It cannot be administered by the invisible hand of market prices.  It cannot be administered by any passive force.  Compassion means to suffer with, and market economics don’t suffer.  They don’t feel.  They cannot administer justice or mercy.  They just are.  Compassion is the realm of people. So how does human compassion reconcile itself with market forces?  This IS the market. The owners get to charge what they want, and the owners decided to be compassionate. That’s the great thing about the economy and the market. If one is fortunate enough to make one’s riches and own something, one is able to be merciful at will. As for the people who may have been willing to pay more for a room, it doesn’t matter.  When almost a million people need to be evacuated, the rooms would have filled up anyway and the compassionate gesture of reducing prices didn’t do any harm at all.  What did happen, and what will happen, is that when the fires are over, those who still have homes will return to them and those who need the hotels for longer than a few days because they no longer have homes, will have locked in reduced rates while they look for other semi-permanent housing. The hotels are still more expensive than rent, so some people will rent apartments until the insurance company, FEMA or whoever comes through with money to either buy elsewhere or rebuild. Either way, the hotels in the area were only half booked before this happened and now they are all full, so the hotel owners were able to be compassionate while still making a profit.  Isn’t that the best sort of economics?