For example, a invoice Introduced Thursday by Democratic Senators Elizabeth Warren (Mass.) and Tammy Baldwin (Wes.) and Representative Jan Schakowsky (D-Illinois) bans “price gouging,” which he defines as “unreasonably excessive” pricing.
What would be considered an “unreasonably excessive” price, you ask? To be determined later, but it would certainly be illegal.
The problem with this novel is that it is just a pejorative filler. Yes, prices rise because companies raise prices. OK. This is the economic equivalent of saying “it’s raining because water is falling from the sky”. we will, Why?
Why companies, which have always been “greedy” (or, as one might say, “profit maximization”) are able to raise prices right Now? What has changed between early 2020, when corporate profits And economic inflation It was declining, and today, when both scales go up “unreasonably”?
The answer is important because it defines what policymakers can or should do about it.
Here’s how economists explain the recent rise in inflation: Demand is strong, thanks to the savings imposed by the pandemic as well as expansionary government policies (stimulus payments, lower interest rates, etc.). Meanwhile, supply remains restricted by the disruptions associated with the coronavirus and labor shortages Other unfortunate shocks. Firms cannot increase production fast enough to buy all the things that consumers want to buy, whether those “things” are oil, furniture, or eggs.
Consumers still want to buy all of these things, even though Americans in general have an unusually large amount of cash in hand. So they are willing to pay more. This raises prices.
Concrete example: In 2019, the auto dealer who raised prices by 10 percent may have lost customers and watched inventory sit. Today, this merchant can raise prices by 20 percent and still have trouble keeping anything in stock. That’s because cars are still hard to come by, and customers are willing and able to pay a premium for whatever is available.
The solution to a broader price increase, then, is to increase supply (eg, get more workers in the workforce, remove trade barriers, encourage oil exploration); and/or curb demand (eg, raise interest rates).
“Supply and demand” is not the lens of choice for inflation greedy. They say inflation is driven by the Manichaean conflict between the big companies and their innocent victims, the customers.
Corporations somehow conspire to increase inflation, this reasoning believes, because they can use it as “an excuse“for”exploited. “No matter that major business groups already exist extremist About economic inflationsince unexpected price growth can make it difficult for them to plan (and increase the possibility of a recession).
So what is the supposed evidence that companies are pro-inflationary? greedy – Including President Biden – Complains that CEOs brag about corporate earnings calls about how much money they make. This may sound like a smoke gun if you’ve never listened to an earnings call, as executives usually brag about how great a dividend they would be or how much they would be.
Proponents of greedy inflation argue that something fishy is afoot because companies are not “giving up” on their high costs; Their profit margins are also expanding. But that is exactly what you would expect when impulsive customers buy more things And willing to pay whatever is necessary to get what they want. the prices And High profits.
I’ve been reprimanded before, including by top White House aides, for making a fuss about Democratic demagoguery on the issue. So what if Biden and Democratic lawmakers wanted to stand up to corporate greed? Who cares whether Biden asks or not? Another unjustified investigation in whether”illegal“Behavior is raising gas prices? This kind of anti-corporate populist rhetoric Polls we willThey say. It does not hurt. It’s just cheap talk, so Democrats can show they’re doing something about inflation.
But such so-called cheap talk has become very expensive.
At best, this approach did nothing to curb inflation. Even worse Distracted Democrats than taking action can help, because this narrative of “greed swells” has persuaded both policymakers and the public to misdiagnose the causes of the problem.
Worst of all, it encourages Democrats to pursue policies that could be effectively harmful. These include a proposal Tax on ‘unexpected’ oil profitswhich is likely to be scale down Oil production exactly when we want to increase production. Or a jubilee of collective student debt that could happen push consumer demand So it’s higher.
It might be a good idea to throw red meat at the populist, anti-corporate left. Righteous anger over evil deeds earns a lot of retweets. But it also hampered Democrats’ efforts to control inflation – and in doing so sabotaged their re-election prospects.