Americans hate high prices, and Kamala Harris says she plans to combat them by banning price gouging in food and groceries.
But, depending on what form it takes, economists could hate her plan.
Vice President Harris, who will formally accept her party’s nomination at the Democratic National Convention in Chicago this week, has laid the blame for high food prices at the feet of businesses.
Surveys conducted by Harvard University economist Stefanie Stantcheva show that many people—Democrats in particular—believe that corporate greed is to blame for inflation.
The food industry has pushed back hard on that belief, arguing that the rise in prices has to do with the extraordinary economic reordering caused by the pandemic, which snarled supply chains, pumped government money into the economy and spiked demand.
GOP candidate Donald Trump, who has frequently complained about high food costs, especially the price of bacon, last week described her plan as “Communist price control.”
Harris’s team has offered few details so far.
But here is what economists say about price gouging, what it is, and whether it is ideal—or even possible—to try to curb it.
While food inflation has eased some recently, prices remain much higher than they were before the pandemic.
As of July, consumer prices for food at home were 26% higher than they were at the end of 2019, whereas the prices for goods excluding food and energy items were up just 14%.
Food prices hit hard psychologically too—people take frequent trips to the grocery store, and can skimp only so much on what they eat.
Ernie Tedeschi, formerly on the staff at President Biden’s Council of Economic Advisers, now director of economics at the Budget Lab at Yale University, points out that margins at food and beverage retailers have remained elevated relative to before the pandemic, while margins at other retailers, such as clothing and general merchandise stores, haven’t.
That could, he cautions, be a reflection of consumer choice—customers might have changed their preferences to items that are more profitable, such as private-label brands.
Regardless, “economists need to be curious about this and figure out what is going on,” Tedeschi said.
Rules against price-gouging can in effect become price controls. Standard economic theory shows that imposing a price ceiling on a product can discourage sellers, reducing the amount of a product that gets sold, leading to shortages.
Rent-control policies are an example of a price ceiling that has become a staple of introductory economics textbooks, and as a group, most economists think rent control is a bad idea.
“It can be very hard to create any price control that is not gameable,” said Michael Sinkinson, an economist at Northwestern University’s Kellogg School of Management who was also on Biden’s Council of Economic Advisers. “How do you set a price control? What is the right benchmark?”
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3moDon’t tell the Trump voters. They’ll say it’s twice as much as last year