Upset about inflation? Don’t worry. sen. Elizabeth Warren (D-MA)”has a plan for that† There’s just one problem: It’s terrible.
Warren has repeatedly blamed Big Business and “corporate greed” for the surge in inflation that’s hitting families hard right now. Her proposed solution, along with a number of other top Democrats, is the so-called Price Gouging Prevention Act of 2022† Warren and her allies claim that this bill would “lower costs for families” by going after the “price-gougers” who are supposedly exploiting the current crisis to rake in massive profits.
We need to stop the kind of price gouging we’ve seen from Big Oil and other corporate bad actors during this global health crisis, and help Americans afford groceries and transportation. I’m glad to join @SenWarren in offering the Price Gouging Prevention Act of 2022.
— Sheldon Whitehouse (@SenWhitehouse) May 16, 2022
Corporations are bragging about jacking up prices. And they get away with it because our markets lack competition. My Price Gouging Prevention Act would give the @FTC more power to go after price-gougers so we can lower costs for families.https://t.co/b5YHNOj02I
— Elizabeth Warren (@SenWarren) May 15, 2022
The first glaring problem with this plan is that it will do absolutely nothing to address inflation because “corporate greed” isn’t causing it.
This left-wing narrative has never made any sense. Sure, corporations are “greedy” in the sense that they are profit-seeking, but no more so this year than five years ago or 15 years ago, and we didn’t have such high inflation then. What’s more, some industries have seen much higher price hikes than others. Are we supposed to believe that some companies are randomly more “greedy” than others?
You don’t have to take my word for it that this inflation narrative is hogwash. a recent survey of top economists from across the political spectrum found that, weighted for confidence, 80% rejected this explanation out of hand.
What’s more, the Price Gouging Prevention Act of 2022 is dangerously vague. It empowers unelected bureaucrats to “target dominant companies that have exploited the pandemic to boost profits” and flushes the federal bureaucrats’ budget with an extra $1 billion in taxpayer dollars for good measure to finance this nebulous campaign against companies that run afoul of these very subjective criteria. Warren’s bill goes on to outlaw “unconscionably excessive price increases.”
But what on Earth does that mean? Who gets to decide what level of price increases are “unconscionably excessive”? And how can detached bureaucrats huddled in Washington possibly understand the millions of factors in every different industry that affect price levels and then decide whether it’s the “correct” price or not?
They can’t. At least, not with any competence.
Hey the anti-price-gouging bill that Warren has been teasing for weeks is finally out.
How is “price-gouging” defined? Why, it’s just pricing that is “unconscionably excessive.”
What does that mean? TBD, but it will definitely be illegal!https://t.co/ehQS61iDSZ pic.twitter.com/M5CsYZBsrU
— Catherine Rampell (@crampell) May 12, 2022
So, Warren’s plan won’t do anything to address the actual issue of inflation. But the senator’s legislation is actually worse than useless — it could potentially make our economic problems and supply chain issues much worse.
why? Well, it disrupts the market mechanisms that keep our shelves stocked and naturally rational resources.
When resources are scarce and demand is outstripping supply, companies naturally raise prices. This encourages those who don’t truly need the resource or have an easy alternative not to buy it all up, reserving the resources for those who need them the most.
Think of gas prices, for example. When we’re experiencing serious fuel shortages — like we are right now — gas prices might rise as high as $4. With prices that high, people who could bike to work but prefer to drive might still bike to save money. But those who have to drive to work and have no other option will pay the higher price. This is an imperfect mechanism, to be sure, but it’s still one that mostly ensures the scarce fuel ends up with those who need it most.
Yet if “anti-price-gouging” laws keep the price set at $2 because $4 is deemed “unconscionably excessive,” gas stations will quickly run out of it. Who gets it versus who doesn’t will simply be a matter of chance.
What’s more, high prices during periods of high demand for a product are the force that attracts more businesses to come in and provide more of the good or service, which eventually alleviates the shortage and lowers the price again over time. But if the price is kept capped low, there’s no market force naturally bringing in more investment to boost the supply to keep up with increased demand.
So, under Warren’s legislation, we would see more shortages and rationale. This isn’t just economic theory. It’s reality. Peer-reviewed research has shown that during the pandemic, states with similar “anti-price-gouging” laws saw more shortages of COVID-19-related goods such as hand sanitizer than states without them.
Elizabeth Warren wants to apply that economically illiterate approach to our national economy. It’s a disastrous idea, and even for her own sake, the senator better hope that her legislation never passes. If it does, the public will suffer — and Warren will have a lot to answer for.