The economic program that Vice President Kamala Harris unveiled last week includes a proposal to limit price increases on staples like groceries. After the spike in inflation that drove up prices during the pandemic, Harris promised to “advance the first-ever federal ban on price gouging on food and grocery items,” as well as introduce federal standards to define “excess profits” and step up antitrust efforts in an industry that is becoming increasingly concentrated.
The reaction to Harris’ proposal, which was extremely light on details, was swift and fierce, with both conservative and liberal critics vociferously condemning it. The New York Post denounced “CAMUNISM,” while Donald Trump predicted on social media that “Soviet-style price controls” would ruin the economy. Meanwhile, Washington Post columnist Catherine Rampell accused Harris of spouting “economic nonsense” and warned the Democratic candidate that she was only helping her opponents: “If your opponent claims you’re a ‘communist,’ maybe you shouldn’t start with an economic agenda that could (accurately) be called federal price controls,” Rampell wrote.
The Harris team and a handful of less excited economists think the critics are getting it all wrong. As Jeff Stein of the Washington Post reports, Harris allies, including Illinois Governor JB Pritzker, have pointed out that many states already have laws in place to limit price increases on essential goods in the event of a disaster.
In addition, there are laws that empower the president to restrict price gouging on certain goods that are in short supply during emergency situations. Former President Donald Trump himself used this power to crack down on price gouging on medical goods during the pandemic, which began while he was in the White House.
A typical “centre-left agenda”? Economist and New York Times columnist Paul Krugman defended Harris’ economic program, saying it was far from radical, even as critics insist. “The usual suspects say Harris has turned out to be a far-leftist,” he wrote. “Even some moderate economic commentators are hyperventilating and saying she’s basically calling for price controls, which is odd, because she hasn’t said anything like that.”
Krugman argues that Harris is calling for a law that would prohibit gouging on food under certain circumstances, not a Soviet-style price-fixing authority. Although Harris has only provided a rough draft, making the whole debate more difficult than it would otherwise be, Krugman says a bill introduced this year by Democratic Senator Elizabeth Warren offers a possible template. The “surprisingly mild” law would prohibit gouging on food during emergencies and is similar to laws that exist in several states. “For example, Texas (yes, Texas) prohibits many businesses from charging ‘exorbitant or excessive prices’ for things like food and fuel during disasters,” Krugman writes.
Emily Peck of Axios points out that 38 states, including California and New York, have passed similar laws. The laws only come into effect in emergency situations, where price increases are limited to about 10%, and usually apply only to large retailers like supermarket chains. “If banning price gouging is communist, then the U.S. became Marxist a long time ago,” Peck says.
Peck also notes that economists and their supporters in the media typically hate these kinds of laws because they affect the price signals of markets. “Yet most Americans intuitively understand the logic behind them, and Harris is trying to appeal to voters – not academics or newspaper columnists,” Peck says.
Would a ban on price gouging now apply? The debate raises the question of whether Harris’ plan would make a difference in food prices today. After all, the pandemic is over, so a law regulating price increases during an emergency would likely have no effect. It could be that, as some critics suggest, Harris’ proposal is more about signaling to voters that she is on their side than about actually lowering prices here and now.
Still, high food prices remain a problem for many Americans. They are now more than 20 percent higher than before the pandemic. Economist Ernie Tedeschi, a former member of President Joe Biden’s economic advisory council, told the Wall Street Journal that profit margins in grocery stores have increased during the pandemic and remained high.
Are higher margins in grocery retail a sign of ongoing price gouging? The higher margins could reflect new consumer demand for more profitable goods, Tedeschi told the Journal. At the same time, “economists need to be curious and find out what’s going on.”
The conclusion: Until we know the details of Harris’ proposal, it’s impossible to say whether her plan will help lower food prices in the future or whether it will only be used during future emergencies. But there’s little reason to believe that Harris is planning a Soviet-style supermarket revolution, despite what her critics like to imagine.
