Harris Seeks to Ban Price Gouging–What Would It Mean?

Jars of Rao's sauces are displayed along a grocery store's shelves in New York City on Aug. 07, 2023. Spencer Platt/Getty Images

Last month, Vice President Kamala Harris announced that if elected in November she would approve “the first-ever federal ban on price gouging on food.”

The Democrat presidential nominee’s public policy measure builds on the current administration’s March announcement to form a joint Department of Justice and Federal Trade Commission “strike force” to target companies that engage in price-gouging practices.

Since January 2021, food price inflation has surged nearly 22 percent.

While the growth rate in supermarket prices has slowed, a May 2024 Purdue University Consumer Food Insights survey concluded that 80 percent of consumers say food prices have risen over the past 12 months.

“Consumers are feeling the cumulative effect of the high inflation we’ve experienced,” said the report’s lead author, Joseph Balagtas, a professor of agricultural economics at Purdue.

Will the vice president’s plans work? Reaction among market analysts, policy experts, and organizations to Harris’s idea has been mixed.

What Economists Are Saying

The chief debate is whether her anti-price-gouging proposal is another category of price controls—government minimum or maximum limits on prices for goods and services.

Business groups were quick to express their frustration with the proposal. The U.S. Chamber of Commerce, America’s largest business organization, thinks whatever the policy is called will exacerbate price inflation.

“We have seen these types of proposals for government control over prices before and there is a reason they are not put into practice. Namely, they make the problem worse,” the group said in an Aug. 16 statement.

Former Labor Secretary Robert Reich, who served under President Bill Clinton, however, says the vice president’s plan does not advocate price controls.

“She’s advocating for federal laws to stop price gouging and make markets competitive,” he wrote in an Aug. 26 post on social media platform X.

“Prices are already being controlled in America by big corporations that have gobbled up markets and don’t have to compete.”

Lindsay Owens, an economist at Groundwork Collaborative, stated that the government can intervene to combat what she says is “price gouging, price fixing, and just plain profiteering” in the food and grocery industry.

“There is still more the government can do to reduce food and grocery concentration and stop the cheating that is costing families dearly,” Owens said in an Aug. 16 statement.

Democratic presidential candidate, Vice President Kamala Harris, speaks on her policy platform in Raleigh, N. C., on Aug. 16, 2024. Grant Baldwin/Getty Images

Some pundits also note that government control over prices is not a new thing, pointing out that some 40 states already have anti-price-gouging laws in place. They typically involve restricting price increases above a pre-determined threshold or banning what officials view as egregious price hikes.

The government, be it state attorneys general or local district attorneys, will take action if a company is found in violation of the law.

Joel Griffith, a research fellow at the Heritage Foundation, stated in a recent report that Harris’s idea “would more likely function as a price freeze or command pricing.”

Command pricing would involve the government determining the price to sell a good or a service. However, there are varying degrees of command pricing, such as mandating companies set prices at certain levels, ordering industries to produce more of something without sufficient demand, or setting quotas.

A price freeze would involve a temporary ban on price increases for a product, comparable to what former President Richard Nixon employed in the 1970s.

Griffith said current state laws that prohibit “dramatic price increases during emergencies” shouldn’t alleviate concerns about Harris’s proposal.

“Of course, even these state laws may result in the unintended consequence of shortages—but these temporary interventions in the market are rarely activated,” he said.

Vance Ginn, the chief economist at the Pelican Institute for Public Policy, recently told NTD News that the price gouging argument is a “political term, not an economic term.”

“What really comes in the marketplace is where consumers want to buy something at a certain price and producers want to provide it at a certain price,” Ginn said. “What we should be looking at is deregulation and finding ways to get the government out of the way instead of putting more government in place, like price controls, which haven’t worked throughout history.”

People shop at a home improvement store in New York City, on Aug. 14, 2024. Spencer Platt/Getty Images

A common question is: Are corporations price gouging?

Supermarkets generally have extremely low profit margins in the 1 to 3 percent range. In the last quarter, Kroger and Albertsons, two of the largest U.S. grocery store chains, reported net profit margins of around 2 percent. By comparison, businesses like Apple and Nvidia report net profits of 25 percent and 55 percent, respectively.

Economists at the Federal Reserve Bank of San Francisco say supposed corporate greed has not been to blame for price pressures.

“As such, rising markups have not been a main driver of the recent surge and subsequent decline in inflation during the current recovery,” they wrote in a May 2024 paper.

The producer price index (PPI)—a gauge of prices paid by businesses for goods and services—has outpaced the consumer price index over the last few years. Since January 2021, the CPI has risen more than 20 percent, and the PPI has surged 26 percent.

A Brief History of Price Controls

Price controls have a long history, dating back 4,000 years to the ancient Babylonian legal text known as the Code of Hammurabi.

Many empires have tested these economic prescriptions, from Roman Emperor Diocletian to the Soviet-controlled economies in Eastern Europe.

The United States has been no exception.

Over the past century, the U.S. government has imposed broad price controls in various schemes targeting different goods and services.

In 1906, Congress passed the Hepburn Act, and President Theodore Roosevelt signed it. The act allowed the federal government to establish maximum freight rates for railroads.

Congress later passed the Lever Food Control Act of 1917, which became law in August of that year. The bill granted President Woodrow Wilson to regulate the price, transportation, production, and distribution of food and beverages, fuel, and feeds for the remainder of World War I.

President Franklin Delano Roosevelt (FDR) took a different approach to price controls, signing various pieces of price-fixing legislation before World War II that established price minimums. Some of these New Deal-era laws effectively prohibited companies, be it in agriculture or brand merchandise, from offering consumers discounts.

Conversely, by 1942, as the U.S. economy was grappling with a bout of inflation, Roosevelt dipped into an arsenal of government interventionist tools in the Emergency Price Control Act of 1942. The “Seven-Point Economic Stabilization Program” consisted of price controls, tax hikes, rationing, and less consumer credit.

In August 1971, President Richard Nixon, facing an annual inflation rate above 4 percent, fired off the so-called “Nixon Shock,” a series of economic measures that featured 90-day price and wage freezes.

The New Economic Policy, Nixon stated, was designed “to create a new prosperity without war.”

Nixon opposed price controls in the months before the announcement, calling these efforts “a scheme to socialize America.”

“The difficulty with wage-price controls and a wage board, as you well know, is that the [expletive] things will not work,” the former president stated, revealed in the Nixon tapes.

“They didn’t work even at the end of World War II. They will never work in peacetime.”

Vice-President and presidential candidate Richard Nixon (C) and his wife Pat (C bottom) wave to the crowd who gathered to see them leave the Commodore Hotel in New York City, on Sept. 28, 1960. AFP via Getty Images

Nixon was also interested in Keynesian economic principles—government intervention in the economy through public policy pursuits aimed at achieving maximum employment and price stability—and was quoted by the American Broadcasting Company as saying he was “now a Keynesian in economics.”

“I knew I had opened myself to the charge that I had either betrayed my own principles or concealed my real intentions,” he wrote in his memoirs.

Several years later, President Jimmy Carter extended this anti-inflation initiative, which, according to various economic observers, was a continuation of his predecessors’ price and wage controls.

The difference? Voluntary compliance.

In an October 1978 televised address, Carter called inflation “a long-time threat” and outlined various approaches his administration had taken, which included a “voluntary” set of pricing guidelines that encouraged “every business, every union, every professional group, every individual” to adhere to them for a period of time.

“Because this is not a mandatory control plan, I cannot stop an irresponsible corporation from raising its prices or a selfish group of employees from using its power to demand excessive wages,” Carter stated.

“But then if that happens, the government will respond, using the tools of government authority and public opinion.”

There has been debate as to whether the current administration has been experimenting with price controls relating to the prescription drug industry.

As part of the Inflation Reduction Act enacted 2022, the federal government imposes a 95 percent excise tax on drugmakers if they do not heed the federal government’s price demands.

The White House championed meetings with drugmakers to negotiate the prices of ten drugs and implement the so-called Maximum Fair Price (MFP).

The Economics of Price Controls

Over the past 40 years, presidents on both sides of the aisle have been apprehensive about employing this economic instrument to tackle high prices.

According to a chorus of economists—past and present—the reason might be simple: It is hard for the government to make this inflation-fighting—or, partially in FDR’s case, deflation-fighting—scheme work.

“Price controls have had a very long but not very successful history,” said Christopher Neely, an economist at the Federal Reserve Bank of St. Louis, in a March 2022 paper.

“Although economists accept that there are certain limited circumstances in which price controls can improve outcomes, economic theory and analysis of history show that broad price controls would be costly and of limited effectiveness.”

A January 2022 Chicago Booth survey found that most economists did not think instituting 1970s-style price controls would have vanquished the post-pandemic inflation crisis.

Peach picking season at Penning’s Farm, which includes an orchard, farm to table food, and market, in Warwick, N.Y., on Aug. 4, 2024. Benny Zhang/The Epoch Times

The late conservative economist Milton Friedman said “Price and wage controls are counterproductive for this purpose,” in his popular book, “Money Mischief.”

“Recently, as it has become clear that such controls are not a cure, they have been urged as a device for mitigating the side effects of a cure,” Friedman wrote.

Economist Hugh Rockoff wrote in a paper titled “Price Controls” that the appeal of this tool “is easy to divine,” explaining that “controls hold out the promise of protecting groups of consumers who are particularly hardpressed to meet price increases.”

While many economists have understood the necessity to impose temporary price controls in times of crises—natural disasters or war—the economic literature asserts that price controls distort market signals, causing supply disruptions, and misallocating investment.

“Anyone who studies the history of economics knows that price controls have never worked for more than a very short (days maybe a week or two) period,” Rod Skyles, author of the blog The Unconventional Economist, told The Epoch Times. “Price controls skew markets, create shortages, and always lead to a thriving black market.”

“Anytime government attempts to allocate goods or services over a wide range, it fails, and it fails spectacularly,” he said.

In his 1950 seminal work, “The Middle of the Road Leads to Socialism,” eminent economist Ludwig von Mises highlighted the myriad troubles with this policy, purporting that price controls beget price controls.

He used milk as an example of how price controls are not feasible in a market economy, saying that the government would need to impose price controls on not only the end product itself but all the inputs necessary to produce a carton of milk, be it labor or raw materials.

“The government is forced to go further and further, fixing step by step the prices of all consumers’ goods and of all factors of production,” Mises wrote.

Despite the plethora of unsuccessful results throughout history, many countries have continued to institute price controls, most recently Argentina (pre-President Javier Milei), Cuba, and Venezuela.

Skyles said the issue is that the government doesn’t have the same incentive as the private marketplace to make sound pricing decisions.

“Price controls don’t work because the government does not have the correct, up-to-date information to make such decisions, and there is no accountability when they are wrong,” he said.