Four Democrats, including Sen. Elizabeth Warren (D-MA), have proposed the Price Gouging Prevention Act of 2024, which aims to weaponize the Federal Trade Commission (FTC) against raising prices. The bill is directly inspired by the “greedflation” myth that has been roundly debunked, but is repeatedly pursued in hopes that it sticks. The bill proposes granting a sweeping extension of power to the FTC under the guise of fighting “price gouging.” However, price gouging is never defined because the bill is limited to gasoline prices during “energy emergencies” and it is clear that the greedflation myth is its central concern.
The three major premises of the bill, as laid out in Senator Tammy Baldwin’s (D-WI) press release, are as follows: price gouging is legally “unfair and deceptive” under the FTC Act; companies with less than $100 million in yearly earnings are not presumed to be operating illegally; and the need to appropriate $1 billion to fund FTC enforcement.
The next question for a scrupulous citizen to naturally ask is, what exactly constitutes price gouging? The bill offers two criteria for when raising gasoline prices becomes price gouging. First, if the price is “unconscionably excessive” and second if it “indicates the seller is taking unfair advantage of the circumstances related to a domestic or an international crisis to increase prices unreasonably.” The “circumstances” referenced in the second criterion pertain to an energy emergency that the president can declare in times of resource shortages and supply chain disruptions.
The problem this bill is attempting to address is rooted in a fundamental misunderstanding about economics, as demonstrated by the second criterion about “taking unfair advantage of the circumstances.” According to the debunked greedflation narrative posited by people like Robert Reich, companies used hysteria as an excuse to raise prices unnecessarily during the COVID-19 pandemic. Reich’s evidence for this is that the market is overly concentrated and that companies increased their profit margins during this time by exploiting a captive customer base.
As outlined by the American Institute of Economic Research, the issue with this logic is that it relies on a selective theory of profit maximization. If firms were waiting for a big event to “excuse” raising prices, then their prices before the event must not have been maximized, which would make them both irrational and not greedy. If they are constantly maximizing profits, they don’t need to wait for a big event to increase prices. They should already be doing this.
What actually happened during the pandemic is that companies decreased output after demand dropped, but consumer savings increased due to government assistance. Then when restrictions were lifted, demand shot up. Unsurprisingly, business profit margins increased since profit is just the difference between production costs and the sale price. Production costs stayed the same while the demand spike increased the sale price for many consumer goods. Ironically, oil and gas companies, which Warren’s bill explicitly targets, had record losses during the pandemic. So, it’s unclear how this bill would have alleviated consumer woes if the industry it’s targeting was struggling to survive instead of raking in excessive profits as the bill suggests.
If the basis of the Price Gouging Prevention Act is essentially the economic equivalent of a conspiracy theory, then its prescription is inherently vague. As stated before, the bill aims to prevent companies from using disruptions to increase prices, but the pandemic proved this isn’t a problem. Furthermore, the bill allows companies to defend price increases from the standpoint that regional, national, and international conditions forced their hand. The challenge for enforcement is determining the difference between raising prices to “take advantage” of a situation and raising prices according to the conditions brought on by disruptions. To that, the FTC will largely be given authority to distinguish between just and unjust price increases, along with $1 billion from taxpayers to litigate companies suspected of price gouging.
Essentially, Elizabeth Warren and others proposed a bill, based on a debunked myth about inflation, that would purportedly ban companies from taking advantage of supply disruptions to raise prices, while theoretically not punishing companies for raising prices due to supply disruptions. This unsound bill would give the FTC undue and misplaced authority, as shown by a recent American Consumer Institute study.
Isaac Schick is with the American Consumer Institute, a nonprofit education and research organization. For more information about the Institute, visit www.TheAmericanConsumer.Org or follow us on X @ConsumerPal.