Last year, Katrina revealed several problems with central planning and emergency management. Centrally planned emergency management aims tries to guarantee that all available resources are diverted to the emergency site. The problem is the same as with any government funded solution. Money. Depending on who is in power and a few thousand other variables, funding may or may not be substantial enough to handle emergencies.

A few years ago, a town in New York decided to cut the budget and not purchase snow insurance. Central planners felt there was little risk in that area for heavy snow fall. After a few years of savings, there was a very heavy snow season and little funds to clear roads. Central planners found out the hard way why snow insurance rates in there area were not lower.

I don’t mean to imply that central planners always fail. On the contrary, there are as many anecdotes where government has stepped up to the plate and hit a home run as there are anecdotes where they struck out. When funding is available, emergencies are often handled swiftly, competently and professionally.

Government funded project goes through feast and famine years. Budgets are adjusted for many reasons other than the need for their services. Politicians are in charge of the purse strings, not emergency management planners. But if central planning does not work, what are we to do?

What if half the potable water which was supposed to arrive at an emergency site does not show up? Once the shortage is discovered we order more water. If an disaster requires 100 key items, then we need to have a person or more likely a group of people handling supply fulfillment. These logistics people are responsible for making certain those key items are on site when needed.

Before an emergency erupts potential victims start to think about themselves. Otherwise generous people, start hoarding resources. They are planning for this emergency by either leaving the area or by stocking up on needed supplies. Store supplies of flashlights, food, water, batteries, fuel and similar products begin to dwindle.

What we need is a method to deliver the most needed resources to a disaster or emergency as fast as possible. We may need to move labor, food, toilet paper, water, emergency workers, firefighters or other resources. No two emergencies are the same. Each requires a slightly or substantially different solution and sometimes those solutions require constant reassessment. If possible, we need to supply the disaster area with assistance both before and after the disaster.

As luck would have it, we already have a system which can take care of all these things. It would also mobilize a force of workers which would greatly out number government paid workers and provide some of the best logistics experts in the world for much less money. It does not rely on funding by politicians. It is actually self funded.

There are some drawbacks. First, there is a reluctance to use this system because it is almost the exact opposite of central planning and no matter how much central planning fails, there are too many people who just cannot part with it. Second, there are a lot of well-meaning, but short sighted regulations which prevent this system from working.

This system already works to get products on store shelves. It already coordinates millions of people and can automatically direct them to pour resources into areas where disasters have happened or are expected. It is not just good at delivering goods. It can deliver workers and services. It can deliver doctors, nurses and firefighters. It does not need any oversight. In fact, any aid to nudge this system will make it less effective.

What is this system? Price. I’m a business owner and have had some past experience with retail. Suppose I live in some mythical country where there are no regulations on price. Prices can go up or down at the whim of the purchaser or the supplier. As a retailer I want to charge the most for my product that people are willing to pay and my customers want to pay the least they can pay and still acquire the product. The price of any product is ultimately whatever you and I agree it is.

Let’s look at water. A gallon of water normally costs about sixty cents. Without anti price gouging laws, water prices would skyrocket just before a major storm hit an area. Water prices would rise because demand would temporarily greatly exceed supply. The increased revenue for water allows water retailers to purchase more water increasing suppplies.

A rapid price rise signals everyone who watches retail water prices that there is a shortage or a demand or both in that area. In this way price takes the place of all those logistics experts. It also mobilizes some of the best logistics people who specialize in getting water to markets. Namely water distributors and suppliers. It tells water bottlers there is a need to produce more product and it informs trucking firms that there will be more water shipments heading to that area. It tells capital markets that there may be shortage of water bottlers. It signals inventors that there is still a need for potable before and after such emergencies.

When we control rapid price increases, like price gouging, we never replace all these signals which price accomplishes with anything that might be considered effective. In essence, we create a bigger problem. I know many readers are thinking that the rapid price increase is disadvantageous to poor people who will not be able to afford the higher prices.

Laws which prevent price gouging do not favor the poor. They only favor those who get to the store first. They create a shortage and hinder signals which fill the increased demand. Who gets to the store first? Those who are geographically located close by and those who have better access to resources. Who has such access? Not the poor.

Shortages are also created in other ways. Price gouging decreases resource hoarding. If the price of water rises rapidly enough, I may wish to sell some of my hoard in exchange for some other resource. Evey time some one dips into their hoard, supply goes up and prices are pressured down.

Economists often speak of unintended consequences. All price controls have a dangerous unintended consequence because politicians and policy makers are not aware of just how powerful price really is. They do not see or they ignore just what people do with price information.