President Biden and Massachusetts Sen. Elizabeth Warren recently criticized “shrinkflation.” The details are secondary to the larger question of who decides how to respond to changing economic conditions, businesses, and government officials.

Since President Biden has largely repeated Sen. Warren's points, I will consider Sen. Warren's comments here. For those who haven't heard of the term, shrinkflation refers to shrinking the size of a package as its price increases. This phenomenon has attracted attention as the inflation rate in 2022 reached its highest level in 40 years.

Sen. Warren accused companies of being duplicitous in reducing package sizes. “From Doritos to Oreos to toilet paper, giant corporations are giving away less while charging the same or even more. We won't be fooled. Companies increase their profits with these tricks. It's time to crack down on shrinkflation and corporate greed.'' The timing of the senator's accusations is as curious as inflation has fallen from 9% in 2022 to 3.1% in January. Some critics had it. And the Biden administration is taking credit for keeping inflation in check.

Economists refer to the market setting prices, but this actually refers to the general forces that affect businesses. Market “elves” do not change prices even at night when the shopkeeper is asleep. Consumers may feel at the mercy of stores that seem able to set prices arbitrarily high. However, all sales in the market are voluntary. Customers can always buy something else. Companies are well aware of this and will be hesitant to raise prices.

If the price of raw materials increases significantly, producers will eventually have to raise prices to avoid losses. Consider a seller of prepared breakfasts when the price of eggs has recently increased. Suppose that due to the increase in the price of eggs, the overall cost of a 20-ounce package that previously sold for him $10 has increased by 20%. It could increase the price to $12, reduce the package size to 18 ounces and increase the price to $11, and potentially reduce the package size to 16 ounces while keeping the package size at $10.

Which is the best option? This is best answered by the company's marketing department. They know best about customer preferences. Free market economists like me prioritize the opinions of people with superior knowledge.

Economics teaches us about the trade-offs companies make. Many consumers are creatures of habit, but large price increases can encourage loyal customers to try alternatives. The company may not be able to win back these customers. Reducing package size to avoid “sticker inventory” can prevent customers from comparison shopping.

But Sen. Warren believes she knows better, even though she likely has no more information than I do about the costs and benefits of changing the size of a bag of Doritos. This is not a criticism of her. She's a U.S. senator, and she has to focus on dozens of important policy issues. But Sen. Warren will impose judgment on her companies.

Maybe the senator has a bigger staff than I imagine and is putting together a lot of details. The second factor, the profit motive, suggests that firms defer judgment here.

Companies have more information about their operations and are incentivized to use this information to remain profitable. Many companies go bankrupt, so just because money is at stake doesn't mean you'll make the right decision. But Sen. Warren and her staff will not benefit or suffer financial consequences if their “advice” about package sizes results in avoidable losses.

Economists emphasize that information and incentives are what produce good decisions in the face of scarcity. This refers to the limits that nature imposes on our ability to satisfy our wants and desires. Limited information and inadequate incentives are a recipe for wasteful decisions and low living standards.

As economist Thomas Sowell has said, the most important economic question is who decides. While Sen. Warren claims to protect consumers, she is trying to take decision-making control away from American companies. The senator and his staff have neither the information nor the incentive to make wise packaging choices for Doritos and Oreos. Her suggestion that she take control of consumer packaging should be met with a well-deserved laugh.

Daniel Sutter is the Charles G. Koch Professor of Economics at Troy University's Manuel H. Johnson Center for Political Economy and host of the TrojanVision Conversation. The opinions expressed in this column are those of the author and do not necessarily reflect the views of Troy University.