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What’s Wrong With Warren’s Radical Price Control Bill

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Sen. Elizabeth Warren (D-MA) introduced a radical price control bill in Congress which would introduce a federal ban on “excessive price increases” during “all abnormal market disruptions” giving the FTC and state general attorneys the power to sue corporations for what they consider to be “excessive price increases.” Warren, who supported a bill that has played an undisputed role in increasing inflation, has said this bill is aimed as a response to corporations “using inflation as a cover to expand their profits.”

The bill comes at a time when the United States is facing record-high levels of inflation. The latest BLS report showed that Americans have experienced an 8.3% general rise in prices over the last 12 months, the report also showed an astonishing increase in energy prices, with gas prices rising 43.6% in the last year.

Warren was not the only Democratic lawmaker who supported the bill, and her proposal was cosponsored by a flurry of progressive members of Congress from both houses. Senators Bernie Sanders (I-VT), Ed Markey (D-MA), and Dianne Feinstein (D-CA), were accompanied by Progressive Reps. like Ro Khanna (D-CA), and Senate candidate Rep. Val Demings (D-FL).  

Senator Elizabeth Warren (D-MA) introduced a price control bill in Congress (EFE)

Warren’s radical price control bill expands the power of the federal government

The Warren price control bill comes after months of the progressive Democrats trying to blame inflation, not out-of-control government spending, on corporations increasing their prices. The legislation would make it illegal for a person or corporation owning more than $100,000 in gross revenue to “sell or offer for sale a good or service at an unconscionable excessive price during an exceptional market shock,” targeting companies or individuals that have been found to have “unfair leverage” or to have used the market shock as a “pretext to increase prices.”

The bill specifically criminalizes companies for selling a good or service at an “excessive price” compared to the average price sold by either the same person or competing firms over the last 120 days. It makes no exceptions based on the position in the supply chain or distribution network in which a company is located.

The only available defense for a company that is being accused of price gouging is to show with “clear and convincing evidence” that the spike was caused due to factors that are “not within the control of the person” and that are directly related to the final price of the good provided. Curiously, there is no provision that would allow corporations to raise prices under the rationale of providing a wage rise to its employees, as that would not fall outside the control of the corporation or person.

If a company or person is found to have increased prices excessively the bill sets out penalties ranging from $25,000 to 5% of the offender’s last year’s revenues per violation.

Not only do companies need to be extremely careful about rising prices amid an environment of economic chaos, but private companies will also have to provide ample and detailed explanations to the Security Exchange Commission (SEC) for the increase in prices of their own goods and services.

The bill would give ample powers to the FTC to sanction firms that have increased their prices (EFE)

The price control bill assigns an immense amount of power to the FTC, which is composed of five Senate-confirmed bureaucrats serving seven-year terms, to police and enforce the nationwide ban on “excessive price increases” during times of emergency. According to the bill, the FTC will have the power to determine when the country is going through an “exceptional market shock” that is causing disruptions in the economy. After listing a large set of reasons why the FTC can declare the “market shock,” the law goes even further and sets out an open-ended rationale for the FTC to declare the emergency and impose the price controls.  

Not only does the FTC have the power to effectively unilaterally declare the price control, but it also allows it to determine what constitutes a market and an excessive price increase, giving them the power to impose price control in wide sectors of the economy. The bill allows the FTC, and the state AGs to take potential violators to the district courts, where they can pursue punishment against those they consider to have raised prices too much.  

The Warren Price control bill has critics —and history— against it

Critics have argued against the Warren bill, economist Chris Conlon posted a lengthy Twitter thread criticizing the bill, saying that the provisions in it would only disincentivize companies from raising wages, and it sets up very vague terms for which a company can be fined.

Others have argued that the bill would not even tackle inflation. In remarks to El American, PhD in economics candidate at Columbia University, Daniel DiMartino said that “Warren’s bill would empower the federal and state governments to sue any business they think overcharges for products or services. If implemented, it would lead to widespread shortages of everyday products as businesses couldn’t raise prices when demand increases, and some would resort to selling ‘overpriced’ products in the black market.”

History appears to be on the side of critics, as price controls have repeatedly failed at curbing inflation. In 2007 Zimbabwe imposed price controls, causing economic mayhem as a result, Venezuela did the same and ended up having hyperinflation and shortages, and even the United States tried a general price freeze in the 1970s to no avail.  

Daniel is a Political Science and Economics student from the University of South Florida. He worked as a congressional intern to Rep. Gus Bilirakis (FL-12) from January to May 2020. He also is the head of international analysis at Politiks // Daniel es un estudiante de Cs Políticas y Economía en la Universidad del Sur de la Florida. Trabajo como pasante legislativo para el Representate Gus Bilirakis (FL-12) desde enero hasta mayo del 2020. Daniel también es el jefe de análisis internacional de Politiks.

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