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. But those who have to drive to work and have no other option will pay the higher price. With prices that high, people who could bike to work but prefer to drive might still bike to save money. When we’re experiencing serious fuel shortages - like we are right now - gas prices might rise as high as $4. 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. “When resources are scarce and demand is outstripping supply, companies naturally raise prices. Well, high prices, even-no, especially -during times of crisis, actually serve several important economic functions. We also need to understand why economists so resoundingly rejected this proposal and why banning “price gouging” runs afoul of basic economic principles. Of course, appealing to expertise alone is not much of an argument.
In my personal favorite, University of Chicago economist Austan Goolsbee, who previously served under President Obama, simply responded, “How are we back on this again?” Why is Banning High Prices Such an Economically Foolish Idea? “Totally impractical!” responded Stanford’s Robert Hall. “What is unconscionable? Why only companies above $1 ?” “This just seems unenforceable at every level,” said MIT economist David Autor. The specific feedback individual economists offered was also illuminating. As anyone who has spent time around economists can tell you, they’re a fickle bunch with a wide range of ideological influences, so this kind of consensus on an issue is quite unusual. Weighted for confidence, an astounding 84 percent disagreed with the notion that such a plan would be good for the economy. (Notice the language is very similar to Warren’s proposal). IGM Chicago recently surveyed a group of top economists, including many from the Ivy League, and asked them whether “it would serve the US economy well to make it unlawful for companies with revenues over $1 billion to offer goods or services for sale at an ‘unconscionably excessive price’ during an exceptional market shock.” Warren’s legislation offers no satisfying answers to these simple questions, which may be why an overwhelming majority of prominent economists just rejected a very similar concept out of hand. What’s an “unconscionable excessive” price increase? What constitutes an “abnormal market disruption?” And how could federal bureaucrats huddled in an office in Washington, DC possibly make these determinations for all the different industries in America and the literal millions of factors that influence market prices? My Price Gouging Prevention Act would give the more power to go after price-gougers so we can lower costs for families. And they get away with it because our markets lack competition. In response, she proposed an anti-“price-gouging” law that would outlaw “unconscionably excessive price increases” at large companies “during all abnormal market disruptions.”Ĭorporations are bragging about jacking up prices. (As I explain here, this isn’t the case). Warren is one of the many progressive politicians who has pushed the bogus narrative that “corporate greed” is to blame for our ongoing surge in inflation. But her plans are often not very well thought through, and the Massachusetts Senator’s latest “price-gouging” initiative is a similarly bad idea. Senator Elizabeth Warren made a name for herself in 2020 as the progressive Democrat who “has a plan” for everything.