The Senators From Venezuela

Warren’s ‘anti-gouging’ bill would make today’s shortages look quaint

WSJ editorial.

"As night follows day, the economic problems caused by government are invariably followed by government solutions that would make everything worse. For a classic of the genre, consider the bill introduced by Democratic Senators to fight inflation by attacking price “gouging.”

Massachusetts Senator Elizabeth Warren and seven Democratic colleagues in the Senate and six in the House want to punish companies that raise prices more than they like. The result would be price controls by another name, and they would produce what price controls always do—supply shortages. If you like today’s baby formula mess, pass this bill. 

The legislation unveiled last week would grant sweeping new powers to the Federal Trade Commission. It bans companies with $100 million or more in revenue from selling goods or services “at an unconscionably excessive price” during a market shock. The public employees in their Beltway offices would define what is “unconscionably excessive,” and they could then slap offenders with a penalty of up to 5% of annual revenue. Not profits, mind you, but revenue.

The scheme is the latest attempt by Democrats to blame inflation on business. In a statement on the bill, Sen. Warren denounced “corporations taking advantage of the current crisis to prey on consumers,” and listed grocery stores, car-rental firms and drug companies as nefarious price gougers. She wants you to forget that federal spending contributed to soaring prices, as well as to the labor shortages across the economy.

The bill puts the burden of proof on companies, letting them avoid the penalty only if they can show that their price increases are the result of business costs beyond their control. Producer prices have outpaced inflation in the past year, and unpredictable component shortages are popping up across the supply chain.

But the current FTC, run by Warren acolyte Lina Khan, has already declared its intention to punish business for various alleged offenses. Regulators ordered to search for “widespread” gouging—as Sen. Warren puts it—are likely to find it, even if the price increases have sound business explanations.

The economic consequences would go far beyond fines on specific companies. The vaguely worded bill would force all large companies to think twice before raising prices to keep up with costs.

Consider Kroger, which Sen. Warren called out by name. Grocery store margins are notoriously narrow even when inflation is under control. If the retail giant fears the FTC will fine it for raising prices to keep up with costs, expect some economic consequences. Store shelves would thin out as Kroger decides not to stock items that politicians are targeting for scrutiny. Or perhaps you’ll wait longer in the checkout line as the chain cuts back on labor costs.

The Democratic proposal is in one sense hard to take seriously because price controls are so obviously dumb. President Nixon froze beef prices during the inflation run of 1973, and ranchers responded exactly as you’d guess: by withholding supply. Nixon also tried wage and price controls across the entire economy. This produced so many distortions that Nixon had to repeal the controls, and prices soared again.

More recently, price controls were the crown jewel of a Venezuelan economic plan that made basic goods disappear while doing little to curb overall inflation. Even that country’s socialist dictator, Nicolás Maduro, was obliged to loosen the price controls.

But Ms. Warren’s bad ideas have a way of influencing President Biden’s policies. Think student loan forgiveness. The danger is that the idea of price controls spreads beyond the Senate’s Venezuelan caucus and into the Treasury and White House. It’s the definition of economic insanity, which means in this Administration it is all too possible."