Demagogue Elizabeth Warren Flunks Econ 101:

Last week, Massachusetts Senator Elizabeth Warren appeared on CNBC to defend Vice President Harris’ recent proposal to implement price controls. What followed was a predictable progressive screed full of economic fallacies and finger-pointing. Here we’ll take apart two of her claims. In the first, she engages in question-begging about the effects of price gouging laws. In the second, we’ll explore how she obfuscates the relationship between inflation and prices in order to shift blame for inflation from Washington D.C. to private companies. 

Warren reveals her ignorance when she asks host Joe Kernen, “Where have you been for the last 30 years as three dozen states have price gouging laws and they have used them effectively?” 

The senator would benefit from brushing up on her economics, since here she commits the common error of focusing exclusively on the visible effects of price gouging laws. When she says “used them effectively,” she means that there were individual consumers who benefitted by paying lower prices for goods when, had said laws not been enacted, they would’ve had to pay higher prices. This is certainly true.

But what Warren fails to note are the unseen, subtle effects of such regulation, which ultimately harm the consumers she purports to defend. In the absence of price gouging laws, consumers would indeed have paid higher prices for certain goods, but they also would have benefitted from the 1) greater availability of essential products, which is guaranteed by higher prices that discourage hoarding and induce substitution towards alternative products, and 2) a greater total supply of temporarily scarce goods, which is brought about by entrepreneurs who anticipate higher demand and bring more product to market for an increased premium. High prices are better than empty shelves, at least for consumers who don’t beat the crowd to the store.

Warren continues and explains her theory on recent inflation: “As a result of [COVID], there were corporations that said, ‘Woah, now that we have inflation, now that prices are up overall, this is a great opportunity for us to raise prices, not just in passing along costs, but to go way, way, way above that.’”

As a matter of fact, grocery store profit margins have declined since the pandemic, and as economist Dr. Bob Murphy points out, grocery stores achieved only 3% profit margins at their peak during COVID, which is much lower than political rhetoric would lead you to believe. 

But lying about corporate profits is not Warren’s gravest error. In a classic progressive move, Warren redefines inflation to suit her political agenda. Although inflation originally meant an increase in the supply of money or credit, it is widely used today to refer to an increase in specific price indices, such as the Consumer Price Index. In her explanation, Warren puts the proverbial cart before the horse. Inflation is not something that induces businesses to raise prices. Rather businesses raising prices is what is measured by the inflation rate. 

Her theory is as nonsensical as the following statement: “A homeowner looked at her thermostat and said, ‘Oh golly, now that my thermostat reads 55 degrees, this is a great time to crank my air conditioning up!’” Such an explanation 1) confuses the chronological relationship between price increases and measuring inflation and 2) fails to address the reason prices rose in the first place. 

Warren presumably would argue increases in greed are responsible, but, to borrow a quip from the aforementioned Dr. Murphy, this explanation is akin to blaming all plane crashes on the existence of gravity. Of course greed (or better yet, self-interest, a less loaded term) and gravity play a role in price increases and plane crashes, but to focus solely on these factors is to overlook why all prices don’t continuously increase and all airplanes don’t fall out of the sky. 

What Warren conveniently wants listeners to overlook is the rapid increase in the money supply she supported during the pandemic. She, like all demagogues, wants to scapegoat legitimate businesses to gain more power. Don’t let her.