From article Elizabeth Warren Forgets Demand Affects Prices Too. Ryan Bourne, Cato. May 16, 2022.
It seems as though failed economic policies are doomed to repeat themselves.
Fresh off the back of a House proposal for a new federal anti‐price gouging law targeting gas and energy, SENATOR ELIZABETH WARREN HAS INTRODUCED A MORE COMPREHENSIVE BILL TO BAN PRICE GOUGING DURING EMERGENCIES.
It is, to put it mildly, a mess.
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The Price Gouging Prevention Act would make it unlawful “to sell or offer for sale a good or service at an unconscionably excessive price during an exceptional market shock.”
Exceptional market shocks are defined to include natural disasters, power outages, strikes, civil disorder, war, or public health emergencies.
In other words, extraordinary situations must be met with ordinary product prices.
That is a RECIPE FOR A WHOLE HOST OF SHORTAGES OR MISALLOCATIONS OF GOODS when demand for products surge, or when production and distribution get severely disrupted.
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Warren’s bill does not even acknowledge a spike in demand can be a legitimate cause of rising product prices during emergencies.
It grants an affirmative defense to businesses accused of gouging only if they have revenues less than $100 million and can prove that price hikes arose due to them facing additional business costs.
But MARKET PRICES CAN OBVIOUSLY RISE BECAUSE MORE CONSUMERS SUDDENLY WANT CERTAIN GOODS AND ARE WILLING TO PAY MORE TO GET THEM.
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Anti‐price gouging laws can therefore prolong shortages by deterring price increases from reflecting the realities of the relative scarcity that the conditions of emergencies bring.
This ENCOURAGES OVERCONSUMPTION BY CONSUMERS AND PROVIDES BUSINESSES WITH LESS FINANCIAL INCENTIVE to get the supply of the goods to where it is needed.
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At the start of the pandemic, there was a surge in demand for hand sanitizer.
Online prices went through the roof, as large retailers, concerned about their reputations, kept prices low and saw weeks of empty shelves.
In states with anti‐price gouging laws, consumers spent more time searching for products.
ALLOWING PRICES TO ADEQUATELY REFLECT SUPPLY AND DEMAND IN THESE SITUATIONS ENCOURAGES A FASTER ADJUSTMENT.
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The price increasing raises the profitability of shifting facilities towards, or expanding production of, hand sanitizer, while encouraging those with large stocks to sell them.
On the demand‐side, the PRICE RISE DETERS SMALL‐SCALE CONSUMERS FROM HOARDING THE PRODUCT to the detriment of hospitals or those who value sanitizer so much perhaps because of health conditions that they are willing to pay a very high price.
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A Democratic cohort has blamed large firms with market power for the U.S.’s current inflation.
This half‐baked argument FAILS A LOGIC TEST: UNLESS THESE FIRMS SUDDENLY INCREASED THEIR MARKET POWER (COMPETITORS HAVE VANISHED), IT IS UNCLEAR WHY THEY WOULD BE ABLE TO CHARGE MUCH HIGHER PRICES NOW.
Some thinkers have therefore developed increasingly speculative theories, such as the idea higher inflation magically allows opportunistic firms to figure out how to collude to raise prices on consumers without communicating directly.
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If anything, the enforced SEC filings outlined in this bill would make this sort of collusion far easier.
Firms are being asked to disclose a description of the conditions under which they would modify pricing.
THESE PRICING DETAILS ARE PUBLICLY AVAILABLE DOCUMENTS THEIR COMPETITORS CAN READ TOO.
Not only then does this bill ignore how goods prices can rise in emergencies because of demand surges, but it risks facilitating exactly the oligopolistic collusive behavior its proponents erroneously blame for inflation.
(end of article)
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“Market prices can obviously rise because more consumers suddenly want certain goods and are willing to pay more to get them.”
Black marketeers can buy up highly demanded artificially low price goods and then because now harder to get can resell at higher prices than if there were no anti-price gouging laws.
Elizabeth Warren discredits (at least in the eyes of about half of us) everything she says and does by proposing this law.
Either she:
-1-doesn’t understand fundamental economics
-2-understands fundamental economics but thinks not adhering to is a net vote-getter
She’s not dumb so has to be -2-.
Politicians often get more votes by taking advantage of public ignorance of (or dislike of?) fundamental economics rather than trying to reduce the ignorance.
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