If this latest offering from the Democrats is any indication, we really may be doomed to repeat the mistakes of the 1970s.ДЄllison Schrager is a senior fellow at the Manhattan Institute, a contributing editor of City Journal, and author of An Economist Walks into a Brothel: And Other Unexpected Places to Understand Risk. Over time, supply expands in response to higher demand restrictions like these undermine that healthy process. TheyвЂ™ll find creative ways to get around supply problems. When prices and-yes-profits go up, firms have more of an incentive to supply goods.

But private enterprise is our best hope out of the current morass. It blames private enterprise for inflation in an attempt to deflect blame for overstimulating the economy, and to attract support to keep stimulating it. It is often smaller firms, which run on tighter margins and need to increase prices when costs rise, who bear the costs of policies like this.Д®ven if this is just a messaging bill, it sends a bad message. ThatвЂ™s a very low cut-off for a law that applies to the entire country-$100,000 in revenue does not even cover rent for a small Manhattan store. The bill is designed not to apply to firms that bring in less than $100,000 in gross revenue. WarrenвЂ™s proposal would therefore make pay bumps more expensive and less desirable for firms. And wage increases need to be paid for with higher prices, which, under this bill, would mean paperwork and legal fees. If firms canвЂ™t increase prices, theyвЂ™ll have less incentive to offer more products-which would worsen inflation-or to increase wages. But this really means that any price increase risks lots of regulatory interference. Under the proposal, firms would be permitted to appeal their fines to prove they are merely passing on higher input costs. When demand is high and supply is fixed, prices adjust.

Increasing prices when demand goes up might offend Senate Democrats, but itвЂ™s an important part of how markets work. Demand is hot because Americans have savings from the pandemic and the government, with respect to both fiscal and monetary policy, was too expansionary. Costs are higher because of higher energy prices and problems with supply chains. Right now, both things are happening, though itвЂ™s often hard to separate the two. Firms raise prices for two reasons: they face higher costs and must pass them on to the consumer, or they are seeing increased demand. The punishment would be the lesser of a $25,000 fine or 5 percent of revenues.

The proposal gives further life to price controls, one of the worst policy failures from the last period of high inflation, decades ago.ДЄccording to the bill, вЂњIt shall be unlawful for a person to sell or offer for sale a good or service at an unconscionably excessive price during an exceptional market shock, regardless of the personвЂ™s position in a supply chain or distribution network.вЂќ What is an вЂњunconscionably excessiveвЂќ price? Presumably Warren knows it when she sees it. Senate Democrats, led by Elizabeth Warren, just released a bill that would make price-gouging unlawful.

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