From Wilson Mixon at Division of Labour,
According to a report on NPR, "in a major disaster the government can spend $10-15 per gallon of water." (Link leads to a summary and an audio; LexisNexis has the transcript.)
Couldn't much of this water could be delivered at a fraction of this cost if price gougers were given free rein? Of course, the NPR report is hawking a gee-whiz technical fix, administered by FEMA, not a sensible market response.
It's worth it to listen to the audio. This is a really interesting idea. Basically, they've come up with a way to take water out of the air using a desiccant. An example of this would be those little packets of "silica gel" you find in various product packaging. The technological innovation described in the audio uses the same principle to generate around 1200 gallons of water per day for around 20 cents per gallon. (These numbers are mentioned in the audio.) The 20 cents per gallon is apparently the marginal cost for the fuel to run the machine. The machine itself costs $300,000. That is a lot of overhead. By my calculations, if the machine lasts 10 years and you run it 25 full days per year it will add about a dollar per gallon to the average cost of the water produced.
Even so, it is likely that the average cost from such a machine, if it is as successful as the report makes it sound, would be less than the $10-15 that the government sometimes pays to bring water to a disaster area. So it might be an improvement from the status quo. But what about Mixon's suggestion that letting "price gougers" take care of the problem by bringing water from outside the area and selling it at a higher price? Let us not forget that part of the reason that the prices the "gougers" charge are so high is that the government does a pretty effective job of discouraging them. If the government got out of the way, there would be more "gougers" and the price would be lower. The price differential should approach the transport cost. In such an environment, it may be the case that machines like the one in the NPR report would be considered too costly to implement. It would be interesting to do the detailed cost/benefit analysis on that one.
The fact that the government has taken such a stance to prevent "price gouging" actually helps to justify the purchase of the machine by the government and explains the incentive for private firms to look for this type of solution. All of this just goes to show that private individuals will try to capture the rents associated with various market interventions. One type of activity is praised and the other is vilified. Yet it is not immediately clear which activity yields greater benefits to society.
The NPR report also mentions that the military is interested in this technology. Now that actually makes sense. This could be a revolutionary way to provide water on the battlefield. Wouldn't it make sense to have National Guard units purchase these machines for deployment either in battle or in times of national disaster? Putting the machines in the hands of the National Guard would seem to have a much better cost/benefit calculus than putting them in the hands of FEMA. If allowing markets to work freely is asking too much, can we at least ask that the machines go where they will be used most efficiently?
After disasters major corporations like Wal Mart, Home Depot, etc.., usually do a very good job of resuppling the damaged area with the suplies they need without a significant increase in prices.
Do you have any evidence that a bunch of "price gougers" in pick-up trucks would ever generate a significant increase in the supply of basics like gasoline, electricity, food, medicine and water. Or, is this just another example of assuming a can-opener.