Jeanna Smialek:
So what is the key question here? And the answer is: we don’t know yet. We don’t know exactly what that policy will look like.
And I think the devil is really in the details. We don’t know how they plan to prevent price gouging or how they even define price gouging at this point. What we do know is that profits in the food sector increased quite a bit in the post-pandemic period of 2020.
In 2021, grocery store profits jumped and stayed up for a while. That was pretty much in line with what we saw across the economy. We actually saw a lot of companies making a lot more profit because they were charging higher prices. When costs started to rise, they charged more to cover those costs, and they even charged a little more than was necessary to cover costs during that period.
And there are a lot of people, a lot of economists, especially on the progressive side of the aisle, who have called things like this an example of price gouging. This was an example of what happens when you have an insufficiently competitive market, and they say we need to see a government response to this.
And that’s what we’re potentially seeing here. On the other hand, there are economists who say that this economy basically worked as you would expect. There were shortages of certain things. There were shortages of eggs. There were shortages of many grain products during this period. And as a result, businesses charged more because things were scarce and they could charge more.
And that led to higher production and then prices went down. And so some economists say, this is economics for beginners. This is just the way things work. If you introduce some kind of price mechanism or in some way prevent the economy from functioning as it would on its own, the supply may not be available.
And at the same time, progressive economists are celebrating it. So it’s a very, very controversial debate without a lot of detail.
