Everybody Hates Prices

The Wendy's Baconator is a beast of a burger. Introduced in 2007 as part of a back-to-basics rebranding of the perpetual fast-food underdog, the Baconator consists of a half-pound of beef, multiple slices of gooey American cheese, and six pieces of bacon, plus condiments. It contains 57 grams of protein and just shy of a thousand calories—about half the daily recommended intake for an average person, and more than twice the average caloric intake of the estimated 800 million people globally who are perpetually undernourished.

How much would you pay for a miracle food like the Baconator? How much should you pay? Sen. Elizabeth Warren (D–Mass.) has some ideas.

In February, Wendy's CEO Kirk Tanner announced the burger chain would invest $20 million in digital menus. These virtual menu screens would allow the company to experiment with dynamic pricing—which is to say, pricing that changes regularly based on circumstances.

Tanner's announcement led to news stories saying the company planned to test out "surge pricing," a strategy most commonly associated with ride-sharing companies whose prices rise with demand. Try hailing an Uber at rush hour, or after a big game in a downtown area, and you'll pay more than you would for the same ride on a quiet weekday afternoon. Wendy's, the stories suggested, might be planning to charge more for its meals during lunch and dinner rush hours.

Warren wasn't having it.

On X, she wrote that the move meant "you could pay more for your lunch, even if the cost to Wendy's stays exactly the same." That would not be acceptable. "It's price gouging plain and simple," she wrote, "and American families have had enough."

One is tempted to respond, "Senator, this is a Wendy's."

Wendy's eventually clarified there were no plans to introduce surge pricing in their dining rooms. But as is so often—and so unfortunately—the case, Elizabeth Warren had a plan. Two years earlier, she'd introduced a bill, the Price Gouging Prevention Act of 2022, that would have given the federal government sweeping power over the price of food and other goods.

Characterized by its supporters as a sensible federal expansion of existing price gouging laws, necessary to combat rapidly rising inflation, the bill text declared it "unlawful for a person to sell or offer for sale a good or service at an unconscionably excessive price during an exceptional market shock." To prevent this sort of extreme pricing, the bill would have empowered the Federal Trade Commission to block, investigate, and fine any company, in any part of a supply chain, from retail sellers to wholesale producers, who participated in a scheme to charge an "unconscionably excessive price."

What sort of price hike would count as "unconscionably excessive"? The bill didn't define the term, leaving that to federal bureaucrats to decide. But given Warren's outrage at Wendy's supposed surge pricing, one suspects that variably priced Baconators in the years after a pandemic might have qualified.

I will grant that the carnivorously bloated Baconator itself might be unconscionably excessive as a foodstuff. But Warren's online complaints and history of legislative threats hinted at something far worse: a proposal for what amounted to federal price controls.

Warren's price gouging law was introduced in 2022, as postpandemic inflation brought surging prices for groceries, gasoline, automobiles, housing, and the computer chips necessary for everything from AI to video game consoles. The Wendy's fracas came two years later, as the rate of inflation cooled but, thanks to stubbornly elevated prices, food costs remained a top issue for voters.

What all of it revealed was something that economists, historians, and inflation experts know all too well: People hate prices. They hate rising prices. They hate persistently high prices. They hate complicated prices. They hate resort fees and bag-check charges and delivery costs and service fees. At times they even hate falling prices, like on homes they already own. They even hate flat, dependable, unlimited-use subscription prices when they have too many of them.

It's not too hard to understand why people hate prices. Prices, left to do their work, are signals—about value, about rarity, about cost in time and resources, about sentimentality, about desirability, about the labyrinthine machinations of global supply and demand.

Prices, in other words, deliver information. And in many cases, the information they deliver is that you can't have everything you want.

Politicians like Warren, meanwhile, are in the business of falsely promising that actually you can. Failing that, they are in the business of masking, manipulating, capping, controlling, and otherwise distorting prices in hopes of hiding the information that prices convey. Price controls and their ilk are a politician's way of lying to you about what something is worth.

It's not just Elizabeth Warren. As inflation surged, politicians from both parties, including presidential nominees Donald Trump and Kamala Harris, sought to cap or control prices for food, credit, medical care, labor, and more. Activists have concocted narratives about intensifying corporate greed, and academics have pushed sweeping price controls in response.

In other words, price controls have returned to the center of American political discourse. But there is no reason to think they have suddenly become valuable tools of public policy. On the contrary, price controls are just as dangerous and destructive as ever—and just as appealing to clueless politicians.

A Nation of Price Controls

Despite certain pretenses to being a country with free markets, if you look around at the American economy you'll see signs of price controls all over.

Take alcohol: More than a dozen states are "control states" that centrally plan distribution and fix prices. Price controls on liquor keep prices down, but they also create shortages, since there's no incentive to make more product available when demand increases. That means rare, sought-after bottles are often snapped up by flippers to be resold on the secondary market. It has also led to a series of scandals, in Virginia and Oregon, in which state employees were caught manipulating supply chains in order to snag or sell valuable bottles of rare liquor.

In health care, price controls and price restrictions are the norm. Medicare, the federal health financing program for seniors, is the largest payer in the sector nationally, and its complex payment schedule provides an anchor for payers of all sorts, distorting prices even in nominally private transactions. Many of those transactions are facilitated via employer-sponsored health insurance, which is exempt from taxation. Most employees who obtain health insurance through work only pay a fraction of the total cost, masking the true cost of care. The tax carve-out for employee benefits such as health coverage, meanwhile, was an outgrowth of World War II–era wage and price controls that has persisted for decades since.

The result is a system in which prices are opaque, meaning that real price signals—information about supply, demand, scalability, flexibility, and so forth—are almost entirely absent. American health care is incredibly expensive, eating up ever-larger portions of paychecks, employer costs, and the federal budget. Price controls intended to make lifesaving care more affordable have instead made medicine expensive and frustrating to access. By masking and distorting price signals, they have contributed to health care's ever-growing grip on American fiscal policy.

Not all price controls are price caps. Some are price floors, which can have equally distorting effects on supply and demand.

Consider minimum wage laws, which specify a minimum price for labor. In theory, minimum wage laws guarantee a fair price for unskilled labor, helping powerless workers avoid exploitation by cruel paymasters. In practice, minimum wage requirements drive up prices for consumers, and they can make it harder for the least skilled workers to find work by raising the price of low-skilled labor beyond what employers can afford to pay.

There may be no realm of price controls that has been more obviously counterproductive than rent regulations, which have contributed to shortages and high housing costs across the country. Their toll is clearest in New York City, where about a million apartments are subject to some form of rent stabilization or, less often, rent control. Rent control's defenders say it's vital for ensuring there is sufficient affordable housing in what is otherwise a very high-cost city. Yet study after study—not to mention just about everyone who has ever moved to the city—has found that rent regulations intended to restrict price increases make housing in the city less available and, thus, less affordable. New York's housing market is among the most regulated in the country, and one of the most expensive.

Yet in 2024, President Joe Biden proposed what amounted to a nationwide system of rent caps, pushing Congress to pass a law instituting a cap of 5 percent on rent increases by corporate landlords, who would risk losing certain tax breaks if they failed to stay under the cap. The first line of a White House fact sheet declared that Biden was "taking action to make renting more affordable for millions of Americans." The history of rent regulations suggests that Biden's plan would do no such thing. But the allure of price controls persists.

Price controls are an appealing lie: They are premised on the notion that officials can stop cost increases by fiat from on high. Every price regulation is a claim that prices can be controlled by politics.

Politicians keep making this claim because voters tend to like it. In 1971, after years of high inflation, especially in the food and energy sectors, President Richard Nixon shocked the world by "ordering a freeze on all prices and wages throughout the United States for a period of 90 days."

Nixon's gambit was, by virtually every measure, an abject failure, presaging a decade of high inflation and shortages of basic goods, especially gasoline, with long lines at the pump becoming a fixture for many Americans. But voters reelected him, and then he imposed wage and price controls again after winning a second term. Polls showed three-quarters of the country approved of his initial plan. Americans were tired of prices and the unpleasant information they provided. Nixon won their favor by promising to shield them from the economic reality that prices described.

The War on Prices

The best case for price controls goes something like this: They worked. Once. And if smartly designed and targeted, they could work again.

In August 2022, as Americans reeled from the highest rate of inflation in more than a generation, historian Meg Jacobs and economist Isabella Weber argued in The Washington Post that "Congress can stabilize prices and reduce inflationary pressures through selective price caps combined with investments to increase the resilience of our economy."

Jacobs and Weber acknowledge that price controls have "a bad reputation politically and a record of mixed success," which, if nothing else, is a funny way to describe a vast system of government-enforced rationing. But they claim price controls worked during World War II, when President Franklin D. Roosevelt capped wages and prices across the economy, intent on keeping the nation's industrial output focused on the war effort. Goods like meat and fuel were distributed via ration cards, which, they say, "ensured a fair supply at controlled prices." Jacobs and Weber argue these measures were justified because inflation fell, the poor experienced a better standard of living, and inflation spiked after price controls were lifted.

That might sound like a strong case for price controls. It's not.

In an essay in the 2024 book The War on Prices, Cato Institute economist Ryan Bourne mounts an extended critique of World War II's price controls, arguing that Jacobs and Weber's data paint an incomplete picture of the economy.

Citing work by economists Milton Friedman and Anna Schwartz, he points out that "price increases took indirect and concealed forms not recorded in the indexes." Letters from the era, for example, show that basic foodstuffs were often replaced with lesser goods—say, cereal mixed in with coffee, or dried grass sold as tea, or meat swapped with lower-quality cuts—or with smaller portions for the same price.

Because price increases were suppressed, in other words, quantity and quality went down, acting as hidden price hikes. As Bourne writes, the negative effects of price controls are noted in U.S. government reports from the era, with a 1943 U.S. Bureau of Labor Statistics document stating, "We believe that consumers' goods and services, in the aggregate, have since 1939 suffered some loss of quality that is not reflected in reported prices." The inflation surge that took place after the controls were lifted merely reflected the real underlying price increases that had occurred under the restrictions. Price controls temporarily masked price increases; they did not alter the economics of supply and demand.

But price control policies are never really about economics. They are about politics.

Price regulations are manifestations of the lie that politics can somehow supersede or redirect a vast economy's fundamentals by fiat. Indeed, Jacobs and Weber argue that the key to effective price controls "lies in politics: a strong alliance and a broad-based social commitment are crucial for the effective implementation of selective controls as a way to tamp down inflation."

The desire to suppress prices has persisted in American politics through the Biden era and the 2024 presidential campaign. On the right, former President Donald Trump blasted credit card issuers and threatened to cap interest rates at 10 percent, which, if implemented, would radically reduce the availability of credit.

On the left, Democrats in Congress and progressive intellectuals argued that rapidly rising prices were a product of corporate greed. This idea was self-evidently silly: Why would corporate greed have, all of a sudden, caused prices to spike? The truth was more prosaic: Pandemic supply chain disruptions and a multitrillion-dollar influx of government cash into the economy had crimped supply and boosted demand.

Meanwhile, during her campaign for president, Kamala Harris proposed a price gouging ban in response to high grocery prices. The minimally sketched out plan was vague enough to result in multiple interpretations, with some suggesting it could amount to a sprawling system of federal price controls, and others insisting it would be more like the little-used state bans on price gouging during emergencies.

The point of Harris' proposal wasn't really to articulate a clear mechanism for government management of prices: It was, as always, to promise that politics could suppress the irksome information that prices provided.

The Price of Everything

At heart, prices are about value. Value changes from moment to moment, depending on context and circumstances.

Consider the market for American whiskey. Until sometime in the early 2010s, bottles of W.L. Weller 12 Year bourbon and its brand-mate Weller Antique typically cost somewhere in the range of $30 to $50. You could find bottles all over the country, and markups were essentially unheard of.

But in the early 2010s, bourbon collecting began to take off, with sought-after bottles fetching enormous prices. No bourbon was in greater demand than Pappy Van Winkle, a line of limited releases that was sometimes described as the best bourbon in the world. It was certainly the most expensive, with hard-to-find bottles fetching thousands, and sometimes tens of thousands, of dollars at auction.

As Pappy shot up in price, bourbon fans discovered it was made from essentially the same underlying product—with the same grain mix, the same distillation process, and the same aging location—as Weller's offerings. Pappy was selected from the best of the barrels that produced Weller; Weller, then, was just Pappy that didn't make the cut. A recipe circulated online showing how a bourbon enthusiast could make "poor man's Pappy"—an approximation of the much more expensive product—by combining two expressions of Weller.

Suddenly those easy-to-find, inexpensive bottles of Weller became much harder to find, and much more expensive, pushing well into the three-figure range. Nothing had changed about the product, the cost to make or distribute it, or the available supply. But circumstances had changed. Demand had increased based on new information. The perceived value of any given bottle had increased. This is the information that prices reveal.

Which brings us back to the Baconator. How much should a Baconator cost? The answer is: It depends.

It depends on where in the country you are; how hungry you are; and how much you like Wendy's, and hamburgers, and bacon. Despite Wendy's assurances that it won't institute surge pricing with higher prices during times of peak demand, it might even depend on the time of day. After all, there's more demand around lunch and dinner. The Baconator doesn't change then, but the context and circumstances do.

That can happen with hamburgers. Around the time Sen. Warren was flipping out about Wendy's menus, another story was unfolding elsewhere in the world of fast food.

During summer 2024, Wendy's biggest rival, McDonald's, announced it had missed its second-quarter revenue estimates. Inflation had eaten into customer budgets, and people were pulling back on spending. From 2019 to 2024, McDonald's prices increased by about 40 percent. At the same time, McDonald's CEO Chris Kempczinski said, "Eating at home has become more affordable."

So McDonald's changed tactics. It introduced a limited-time meal deal special, consisting of a burger or chicken sandwich, four chicken nuggets, french fries, and a drink—for $5.

The meal deal was a hit, and McDonald's execs eventually announced plans to extend it through the end of 2024. Business had picked up, and McDonald's customers had cheaper options.

Did McDonald's suddenly become less greedy? Far from it. Prices delivered useful information, and the fast food managers acted on it, to everyone's advantage.

Pricing shifts produced changes in consumer behavior—a signal that fast food costs too much. In response, the market leader created a new product, a new bundle, designed to send its own message. Prices, and the reactions to them, constituted a kind of discussion between McDonald's and its potential consumers, a negotiation of acceptable terms. In the end, everyone was better off.

This is why it's foolish to hate prices, and why they provide so much value—not only to businesses, but to consumers. Prices don't just provide the information that you can't have everything you want. They help you understand how to get what you want. Prices help people prioritize, manage, and allocate scarce resources, at home and in the boardroom. They are tools for making better decisions.

Despite Elizabeth Warren's protestations, there's no single right price for a hamburger. Nor is there a single correct price for housing, or health care, or eggs, or gasoline, or checked bags, or neighboring airline seats. Prices are just an information delivery system, the messenger that politicians keep wanting to shoot.