BY CHRISTOPHER RUGABER
WASHINGTON (AP) — With inflation and high food prices still angering many voters, Vice President Kamala Harris on Friday proposed a ban on “price gouging” by food delivery companies and grocery stores, part of a broader agenda to reduce the cost of housing, medicine and food.
It’s an attempt to directly address an obvious Harris vulnerability: Under the Biden-Harris administration, food prices have risen 21 percent, part of a spike in inflation that has raised overall costs by about 19 percent and scared many Americans away from the economy even as unemployment has fallen to historic lows. Wages have also risen sharply since the pandemic, outpacing prices for more than a year. Still, polls show Americans continue to grapple with higher costs.
“We all know that prices went up during the pandemic when supply chains were shut down and failed,” Harris said Friday in Raleigh, North Carolina. “But our supply chains have since improved and prices are still too high.”
Will their proposals do much to bring prices down? And what is “price gouging” anyway? The answers to these and other questions can be found below:
What is price gouging?
There is no strict definition that economists can agree on, but in general the term refers to price spikes that typically follow a supply disruption, such as after a hurricane or other natural disaster. Consumer advocates accuse retailers of profiteering when they drastically increase their prices, especially on essential goods, under such circumstances.
Is it already illegal?
Price gouging is already prohibited in several states, but there is no ban at the federal level.
Federal restrictions apply to related but different business practices. For example, companies cannot agree to compete with each other and set higher prices by engaging in price fixing.
Will Harris’ proposal lower food prices?
Most economists would say no, although their plan could have an impact on future crises. For one thing, it is unclear how extensive the price gouging currently is.
Food prices are still painfully high compared to four years ago, but according to the latest inflation report, they rose just 1.1 percent year-on-year in July, in line with pre-pandemic price increases.
President Joe Biden declared on Wednesday that inflation had been defeated after Wednesday’s inflation report showed it fell to 2.9% in July, the smallest increase in three years.
“There is a certain contradiction between claiming that you have won a victory on the inflation front in one breath and arguing that there is all this price gouging that is leading to consumers being faced with really high prices,” says Michael Strain, an economist at the American Enterprise Institute.
In general, once inflation has risen, it is very difficult to get prices back to their previous levels. Permanent price declines usually only occur in deep, drawn-out recessions. Instead, economists generally argue that the better approach is to raise wages enough so that Americans can afford the higher costs.
So why is Harris talking about it now?
Probably because inflation remains a very important issue politically. And many voters blame grocery stores, fast-food chains, and food and convenience food manufacturers for the rise in inflation over the past three years. Corporate profits soared in 2021 and 2022.
“It could be that they are looking at opinion polls that show that voters’ biggest concern is inflation and that a large number of voters blame corporations for inflation,” Strain said.
At the same time, as Harris noted, prices have not risen quite as much, but are still high, even if the supply chain problems have been resolved.
Elizabeth Pancotti, a policy analyst at Roosevelt Forward, a progressive advocacy group, points to the pulp used in diapers. The price of pulp has fallen by half since its post-pandemic peak, but diaper prices have not.
“So this increases the (profit) margins for both manufacturers and retailers,” she said.
Did price gouging cause inflation?
Most economists would say no, saying it’s more of a supply and demand issue. When the pandemic hit, meat processing plants occasionally had to shut down after COVID-19 outbreaks and other supply shortages. Russia’s invasion of Ukraine caused the cost of wheat and other grains to rise on world markets. Auto prices rose as automakers couldn’t source all the semiconductors they needed for auto production from Taiwan, and many auto factories had to temporarily close.
At the same time, several stimulus packages filled Americans’ bank accounts, and after holding back in the early stages of the pandemic, so-called “revenge spending” took over. The combination of stronger demand and reduced supply was a recipe for rising prices.
Still, some economists argue that major food and consumer goods companies took advantage of disruptions during the pandemic. Consumers saw empty shelves in stores and heard numerous stories about disrupted supply chains and felt, at least temporarily, that they had no choice but to accept the higher prices.
Economist Isabella Weber of the University of Massachusetts in Amherst spoke of “seller inflation.” Others called it “greed inflation.”
“Many companies have taken advantage of consumers’ willingness” to accept disruptions caused by the pandemic, Pancotti said.
Is banning price gouging the same as introducing price controls?
During the last wave of inflation in the 1970s, both Democratic and Republican presidencies temporarily imposed price controls that specifically limited the prices businesses could charge for goods and services. They were widely blamed for creating shortages and long lines at the gas station.
Some economists say Harris’ proposal would have similar effects.
“It’s a rigorous socialist policy that I don’t think any economist would support,” said Kevin Hassett, a former top economic adviser in the Trump White House.
But Pancotti disagreed. She argued that it was more of a consumer protection measure. Under Harris’ proposal, the government would not set prices, but the Federal Trade Commission could investigate price spikes.
“The proposal is really about protecting consumers from unscrupulous companies that try to rip them off because they know they can,” she said.
