Elizabeth Warren Encourages Resource Waste

(Don Boudreaux)

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Here’s a letter to the Wall Street Journal:

Editor:

You detail many problems with Elizabeth Warren’s economically illiterate effort to fight inflation with price controls (“The Senators from Venezuela,” May 17). Here’s one more: By penalizing price increases that firms cannot prove are the result of corresponding cost increases, Warren’s scheme would block the market’s ability to pass along to producers and consumers newly discovered information about forthcoming reductions in supply.

The moment, say, a hurricane begins to threaten to damage oil-refining capacity, economic efficiency requires that all gasoline – include that which is already in retailers’ tanks – be economized with even greater care than would be appropriate were there no hurricane. In other works, the moment the storm begins to threaten refining capacity, the gasoline in retailers’ tanks becomes more scarce and, hence, more valuable. Retailers should raise prices immediately in order to incite motorists to use gasoline more sparingly, and to incite producers to take out-of-the-ordinary steps to mitigate the anticipated supply reduction.

By preventing prices today from signaling tomorrow’s reduced supplies of goods and resources, Sen. Warren’s legislation would encourage wasteful consumption and discourage beneficial production.

Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030