Coase Colored Glasses

From Cafe Hayek:
Profits vs. Love
Russell Roberts

In the aftermath of Katrina, some are condemning the mercenary motive that prompted some to help. From the Washington Post (sr):

The last winds of Hurricane Katrina were whipping the loblolly pines of southern Mississippi when Greg Newman showed up before 5 a.m. to open the Home Depot store he runs here. He found six customers huddled at the door in pitch darkness, wanting generators, and that afternoon, the line grew to 600.

He hit the phones to reel in truckloads of the precious machines. The store itself came to life on generator power, and soon the cash registers were ringing. By evening, Newman's customers had their lights and refrigerators working. "Nobody went home without a generator that night," he said.

In the days since Katrina hit, his store's sales volume has quintupled.

It's an unsettling but inescapable fact about natural disasters on the scale of Hurricane Katrina: Even before the tears stop flowing, the money starts churning.

Why is it unsettling? I think because we would prefer a world where people got up before 5 am out of love rather than self-interest, out of compassion and love rather than greed and profit. But isn't it both? Didn't Greg Newman feel good about doing his job that day, knowing he was helping people in a more dramatic way than usual? Do you think that when he was making those calls rounding up generators he was thinking, Boy, my boss is going to be really happy. I'm going to get a good raise this year? Maybe. But I'm sure it wasn't all he was thinking. I bet he was glad to be helping people in distress.

A few years back I wrote about the power of these two motives, altruism and self-interest when they work together. I was writing about people who drive down to Florida after a hurricane hoping to sell lumber at a profit. Both the saints and the mercenaries go:

Here's the key insight of economics—some of those folks who go down with a song in their heart because they know they're helping others would have stayed home if the price of lumber hadn't soared. It's hard to get in your car and disrupt your life and give up your lumber. The monetary incentive makes it easier. The higher price doesn't just induce the hard-hearted to go. It induces the altruist as well.

But if people are altruistic, won't they go without the monetary incentive? Sure, some will. Just not as many. You might be tempted to say that without the monetary incentive, only the saints will go. But even this misses the point. Some saints will stay home because they have saintly things to do at home. The monetary incentive applies to them as well. Even saints can do more good in the world when they have more resources than when they have less.