Food industry executives, economists, and policy experts have been punching holes in Kamala Harris’s economic plan.
As of July, grocery prices were 26% higher than at the end of 2019. The pain of spending that much and more for household essentials each week has robbed many households, especially poor and working-class families, of the quality of life they had come to enjoy just before the pandemic.
Massive Biden-Harris spending sprees fueled consumer demand for goods and services when suppliers and producers could hardly keep pace given snarled supply chains. It’s not a stretch to say that Vice President Kamala Harris and her boss, Joe Biden, deserve blame for touching off 40-year high inflation. Now, Harris, who refuses to take responsibility for inflation, claims to have a plan to bring it back down.
As I wrote yesterday, she released her plan to remake the U.S. economy in the mold of other socialist countries by introducing heavy-handed government intervention.
Price controls, excessive government spending, and other market manipulations will not reduce the prices of coffee, milk, and veggies.
At best, her plan will be ineffective. At worst, it would lead to fewer options for consumers, shortages, grocery store closures, and—in the most extreme case—runaway inflation and black markets for goods.
What is price-gouging?
Vice President Harris plans to continue the Biden-Harris campaign against price gouging, which they claim is driving inflation.
The term ‘price-gouging’ has come to mean different things to different people. Some people might consider it price gouging to charge more for a product or service than was previously charged. However, there are good reasons that producers or suppliers increase their pricing: increased input/source prices, increased transportation costs, increased packaging costs, increased labor costs, reduced availability of inputs or labor, disruptions in shipping, etc.
It’s time for an Economics 101 lesson.
Prices are a market signal. When the supply of goods increases, prices fall. When demand increases (and supply is the same or falls), prices will rise.
Extenuating circumstances such as natural disasters, pandemics, business shutdowns, or egregious behaviors can impact pricing in the short run, but prices return to previous levels or price increases level off to a new normal.
When the government intervenes in the market to set a limit on prices (i.e., price controls), it manipulates the market for goods and services. Price controls limit the production or supply of goods. Eventually, there aren’t enough goods to meet consumer demand, and prices rise.
There is no evidence that elevated prices are due to widespread price-gouging by companies. The San Francisco Federal Reserve confirmed earlier this year that even if there are a few examples of markups on prices, inflation has been widespread, not limited to a few bad apples or a handful of problem industries.
The food industry is pushing back, explaining that in 2023, profit margins in the grocery industry fell to 1.6%—the lowest level since it was 1% in 2019—even as their expenses increased.
The National Grocers Association noted that “The proposal calling for a ban on grocery price gouging is a solution in search of a problem.”
The grocers went on to explain how much inflationary pressure that they are under:
Our independent grocers, already operating on extremely thin margins, are hurting from the same inflationary pressure points as their customers. Labor, rent, swipe fees, utilities; you name it, the price has increased. But what’s really hurting our local, independent grocers, is the lack of fair competition with big box retailers, who leverage their influence in ways that your independent grocer down the street can’t, leading to increased prices for everyone else.
Economists agree Harris is wrong about price gouging.
Economists from the right and even the left have blasted the Harris plan.
In the Washington Post, Catherine Rampel’s headline says it all: “When your opponent calls you ‘communist,’ maybe don’t propose price controls?” She wrote:
It’s hard to exaggerate how bad this policy is. It is, in all but name, a sweeping set of government-enforced price controls across every industry, not only food. Supply and demand would no longer determine prices or profit levels. Far-off Washington bureaucrats would. The FTC would be able to tell, say, a Kroger in Ohio the acceptable price it can charge for milk.
At best, this would lead to shortages, black markets, and hoarding, among other distortions seen in previous times when countries tried to limit price growth by fiat. (There’s a reason narrower “price gouging” laws that exist in some U.S. states are rarely invoked.) At worst, it might accidentally raise prices.
Obama’s economic advisor Jason Furhman told the New York Times, “This is not sensible policy, and I think the biggest hope is that it ends up being a lot of rhetoric and no reality,” he said. “There’s no upside here, and there is some downside.”
Writing in The Atlantic, Josh Barro called her plan “Economically dumb but Politically smart.”
On the other side, Kevin Hassett, former chairman of the Council of Economic Advisers in the Trump administration, called Harris’s plan for price gouging “completely preposterous” on a press call:
The proposal is very unfortunate. It could cause an enormous amount of damage to the economy, and it reveals the desire for the government to take over the economy that I think really does suggest that Harris agrees that the era of believing that if it’s good for free enterprise, it’s good for America, that that era is over.
When economists on the left and right agree that something is bad policy, people should listen.