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Anti-price gouging policy: Another interventionist delusion (Part 2)

Building upon the critical examination of the greedflation suggestion presented in Part 1, the flaws of anti-price gouging legislation come into sharper focus. Here, we delve deeper into the inherent problems associated with implementing price controls, particularly during times of exceptional market shocks. By scrutinizing the empirical evidence and theoretical underpinnings, we uncover the unintended consequences and potential harm wrought by policies aimed at curbing price gouging.

The presumption that anti-price gouging laws protect consumers deserves to be challenged as we explore their detrimental effects on market dynamics and public welfare. From exacerbating scarcity to contributing to adverse health outcomes, the repercussions of anti-price gouging legislation extend far beyond their intended scope. As we dissect the flaws of the Price Gouging Prevention Act of 2024, it becomes evident that alternative approaches emphasizing market competition and efficiency may offer more effective solutions to addressing concerns surrounding inflation and market distortions.

If, despite the dismantling of the greedflation hypothesis in Part 1, individuals remain undeterred by this new bill, let us now unveil the flaws inherent in anti-price gouging legislation. This proposed legislation would deem any price increase during exceptional market shocks as a presumptive violation, granting policymakers arbitrary power to halt what they perceive as grossly excessive price hikes.

Basic economics teaches us that policymakers arbitrarily restricting prices to align with their moral and political vision, rather than considering real market conditions, will result in serious trade-offs. For instance, during an exceptional market shock where demand surges, such as in the aftermath of a natural disaster or a sudden supply disruption, prices naturally rise to signal scarcity and encourage producers to increase supply. However, if legislation prevents these price adjustments, producers will not have adequate incentives to ramp up production, leading to shortages of essential goods and services. This could exacerbate the crisis and harm consumers further.

The empirical literature on the topic only serves to further vindicate conventional economic wisdom. Chakraborti and Roberts (2020), for example, compared online search efforts in states that enacted anti-price gouging legislation with states that did not. They found that states that enacted such legislation had significantly more search efforts. The authors concluded that online search efforts likely increased due to shortages, suggesting that anti-price gouging legislation may exacerbate scarcity.

Another study by the same authors suggested that anti-price gouging legislation caused shortage-induced search efforts resulting in more social contact in commercial spaces. This increased social contact led to more people contracting Covid-19 and sometimes dying as a result. This demonstrates the serious implications of certain policy prescriptions and highlights the unintended consequences that may arise from well-intentioned legislation.

The harmful effects of anti-price gouging legislation do not stop there. Sooin Kim et al (2023) found that anti-price gouging legislation slowed the speed at which new houses in Virginia were built following a hurricane. In light of these findings, it becomes increasingly apparent that the potential consequences of anti-price gouging legislation extend beyond shortages, highlighting the need for a comprehensive examination of its effects on both market dynamics and public welfare.

While the Price Gouging Prevention Act of 2024 purports to protect consumers and curb corporate price gouging, its potential flaws and unintended consequences warrant careful consideration. Granting policymakers arbitrary power during exceptional market shocks risks exacerbating shortages and hampering market efficiency.

Moreover, empirical evidence suggests that anti-price gouging legislation may inadvertently worsen scarcity and contribute to adverse public health outcomes. The reliance on flawed economic reasoning and misinterpretation of data further undermines the rationale for such legislation. Instead, policymakers should explore alternative approaches focused on fostering competition and free markets to achieve efficient market outcomes without the adverse effects associated with price controls.


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