Harris’ plan to stop price gouging could create more problems than it solves

New York (CNN) — Food prices have surged by more than 20% under the Biden-Harris administration, leaving many voters eager to stretch their dollars further at the grocery store.

On Friday, Vice President Kamala Harris said she has a solution: a federal ban on price gouging across the food industry.

“My plan will include new penalties for opportunistic companies that exploit crises and break the rules,” Harris said at a campaign event.

There’s just one issue: Harris’ proposal could create more problems than the one it’s trying to solve, some economists say.

Gavin Roberts studied anti-price gouging laws some states passed during the pandemic. One of the biggest effects he observed, especially at grocery stores, was that these laws motivated people “to go buy goods more than they would if prices had risen.”

When prices are high, in most cases, the best policy action in response is actually taking no action, Roberts, the chair of Weber State University’s economics department, told CNN.

That would cause consumers who are deterred by, say, high prices of beef, to instead purchase another type of meat or protein. That helps keep beef on the grocery store shelves for people who want it enough to pay the higher prices.

And while Harris claims her proposal “will help the food industry become more competitive,” Roberts said it would do just the opposite. “It’s more likely to maintain that status quo,” he said because it would keep new competition from moving in to take advantage of the bigger profit margins — competition that could have helped lower prices in the long run.

Jason Furman, a top economist in the Obama administration, shared Roberts’ view that anti-price gouging laws could inadvertently harm consumers. “This is not sensible policy, and I think the biggest hope is that it ends up being a lot of rhetoric and no reality,” he told the New York Times. “There’s no upside here, and there is some downside.”

Instead of pursuing anti-price gouging policies, Roberts recommended that Harris investigate what, if anything, is stopping new parties from entering concentrated industries.

To his point, a campaign fact sheet said that Harris also plans to make more resources available for “the federal government to identify and take on price-fixing and other anti-competitive practices in the food and grocery industries.”

Campaign staff declined to comment on critiques of Harris’ proposed price-gouging ban, pointing CNN to Harris’ speech and the fact sheet shared ahead of it.

What’s behind price increases the past few years

The jury is still out on the extent to which price gouging has contributed to inflation over the last few years.

Research from the San Francisco Federal Reserve suggests alleged corporate price gouging was not a primary catalyst for the inflation surge that began in 2021, while progressive-leaning think tanks have published research that suggests there’s a more direct link.

Until late last year, companies routinely said on their quarterly earnings calls with investors that customers continued to pay for goods even as businesses hiked prices. That’s because demand stayed high, fueled by bigger paychecks and pandemic stimulus that padded savings accounts. So many economists contend corporate profits were juiced by that thing you learned in Econ 101: supply and demand – not corporate greed (alone, anyway).

In any event, the inflation Americans have had to contend with over the past few years is the product of a confluence of events that include the war in Ukraine, government spending and pandemic-related disruptions across the economy. The unprecedented stress on supply chains in the thick of the pandemic, for example, contributed significantly to inflation’s rise in early 2021.

And the Harris proposal had its supporters, as well.

Lindsay Owens, executive director of Groundwork Collaborative, a progressive think tank, applauded the plan. “I definitely don’t think that the price gouging statute will result in shortages,” she told CNN, adding that it would give government agencies like the Federal Trade Commission more authority to “crack down on bad actors” charging consumers higher prices.

“It’s good to see this aggressive approach,” she said.

The-CNN-Wire
™ & © 2024 Cable News Network, Inc., a Warner Bros. Discovery Company. All rights reserved.