"The prices Americans are paying for groceries and other essentials are at all-time highs. One of the reasons?" asked Sen. Elizabeth Warren (D–Mass.) on Wednesday via Twitter. "Giant corporations are price gouging & reaping record profits. We need to put a stop to corporate gouging that drives up prices for families."
It couldn't be that runaway inflation—which has reached astonishing 40-year highs in recent weeks—is, according to Federal Reserve of San Francisco economists, partly attributable to President Joe Biden's mid-pandemic economic stimulus plans, which pumped money into the bank accounts of Americans with seemingly little thought given to what could result. In Warren's view of the world, it's corporate, not government, malfeasance that's leading to pocketbook pain for everyday Americans.
Warren holds that such problems must be solved by the federal government in the form of a new bill that would limit the prices companies can charge consumers during times of "exceptional market shock." That includes times of war, public health emergency, or natural disaster—which would have encompassed all of the last two years, barring firms from raising their prices to adapt to difficult and fast-changing economic circumstances.
Warren's bill, introduced with Sen. Tammy Baldwin (D–Wis.) and Rep. Jan Schakowsky (D–Ill.), would empower the Federal Trade Commission (FTC) to investigate and penalize companies with "unconscionably excessive price increases," which is disturbingly defined nowhere in the legislation.
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
Companies will be "presumed to be in violation" if they use "the effects or circumstances related to the exceptional market shock as a pretext to increase prices." In other words, companies responding to inflation or supply chain woes caused by the pandemic could be presumed in violation and fined by the FTC, unless such price increases were due to costs outside the firm's control. Companies would also be required to disclose information about their pricing strategies in regulatory filings.
How large is an "unconscionable" price increase? The FTC would get to decide that based on the avg price over the last 120 days. Only allowable defense would be to show price increases were driven by "costs outside your control" 2/8 pic.twitter.com/QhbWhiP4FT
— Chris Conlon (@conlon_chris) May 12, 2022
The bill is unlikely to garner broad support and become law. So-called price gouging is a pet issue of Warren's, one shared by the likes of the White House, which has claimed, amid the ongoing nationwide baby formula shortage, that it will crack down on price gouging as supplies dwindle.
Prices contain useful information about how hotly demanded a product is. Consider what would happen if firms never charged higher prices for goods or services in high demand: They would run out of the good or no longer be able to offer the service at all, denying consumers the ability to get the good or service they need. Uber's surge pricing is inconvenient when you need to get somewhere, but it also conveys useful information about the scarcity of available drivers, allowing some would-be customers to shift to an alternative, better coordinating the remaining supply so drivers are provided to those who are either least price-sensitive or most in need, conveyed by their willingness to pay.
Moreover, it's not clear that Warren's bill is narrowly tailored to target "price gouging" as people classically understand it. It looks more like the federal government wading into the sticky territory of setting price controls over the long term, given how broadly the text defines "exceptional market shock." It is important, during prolonged periods of war or pandemic, for companies to be able to adjust their pricing strategies to respond to, say, higher prices and decreased supply of wheat, when one-quarter of the world's supply is cut off due to Russia's war in Ukraine and will remain cut off for an unknown length of time. (Ditto for pork, crabs, and a gazillion other products that have been affected by COVID-related supply chain disruptions over the last two years.) Empowering the FTC to hassle these companies for engaging in the exceedingly normal practice of altering their prices to respond to changing supply and demand is ludicrous, and yet another step on the road toward Venezuela.
Though Warren's bill is unlikely to pass, this pet issue won't be shelved anytime soon. We can at least hope she continues to adapt her silly price-gouging script to be seasonally appropriate:
Americans are paying record high prices for their Thanksgiving turkey while big poultry companies are paying billions in dividends, giving CEOs raises & earning huge profits. These companies are abusing their market power. I'm asking DOJ to investigate.https://t.co/G70KyaUd1Q
— Elizabeth Warren (@SenWarren) November 23, 2021