Kamala Harris is calling for a ban on price gouging to fight high food costs

It’s an attempt to tackle a clear Harris vulnerability head-on: Under the Biden-Harris administration, food prices have risen 21 percent, part of a surge in inflation that has raised overall costs by about 19 percent and angered many Americans. economy, even though unemployment has fallen to historic lows. Wages also rose sharply after the pandemic and have outpaced prices for more than a year. Still, polls show Americans continue to struggle with higher costs.

“We all know that prices went up during the pandemic when supply chains shut down and failed,” Harris said Friday in Raleigh, North Carolina. “But our supply chains have improved now and the prices are still too high.”

Will her proposals do much to lower prices? And what exactly is “price gouging”? The answers to these and other questions are below:

What is price gouging?

There is no strict definition that economists agree on, but it generally refers to the rise in prices that usually follows a disruption in supply, such as after a hurricane or other natural disaster. Consumer advocates charge that distortion occurs when retailers suddenly raise prices, especially on necessities, in such circumstances.

Is it already illegal?

Several states already restrict price gouging, but there is no ban at the federal level.

There are federal restrictions on related but different practices, such as price-fixing laws, which prevent companies from agreeing not to compete with each other and setting higher prices.

Will Harris’ proposal lower food prices?

Most economists would say no, although her plan could have an impact on future crises. First, it’s not clear how much price gouging is happening right now.

Food prices are still painfully high compared with four years ago, but rose just 1.1 percent in July from a year earlier, according to the latest inflation report. This is in line with pre-pandemic increases.

President Joe Biden said on Wednesday that inflation had been defeated after Wednesday’s inflation report showed it fell to 2.9 percent in July, the slowest increase in three years.

“There’s a bit of a dissonance between claiming victory on the inflation front in one breath and then arguing that there’s all this price gouging that’s causing consumers to face very high prices in another breath,” said Michael Strain , economist at the American Enterprise Institute.

In general, after an increase in inflation, it is very difficult to bring prices back to where they were. Sustained price declines usually only occur in steep and prolonged recessions. Instead, economists generally argue that the best approach is for wages to continue to rise enough so that Americans can afford the higher costs.

So why is Harris talking about this now?

Probably because inflation remains an extremely important issue from a political point of view. And many voters blame grocery stores, fast-food chains and food and packaged goods manufacturers for rising inflation over the past three years. Corporate profits increased in 2021 and 2022.

“They might look at opinion polls that show that the number one concern voters face is inflation, and that large numbers of voters blame corporations for inflation,” Strain said.

At the same time, even if prices aren’t rising as much as Harris noted, they remain high, even if supply chain irregularities have been ironed out.

Elizabeth Pancotti, a policy analyst at Roosevelt Forward, a progressive advocacy group, points to the wood pulp used in diapers. The price of wood pulp has halved from its post-pandemic peak, but diaper prices have not.

“So that just increases the (profit) margins for both manufacturers and retailers,” she said.

Did rising prices cause inflation?

Most economists would say no, that it was a simpler case of supply and demand. When the pandemic hit, meat processing plants were occasionally shut down after COVID-19 outbreaks, among other supply disruptions. Russia’s invasion of Ukraine has raised the price of wheat and other grains on global markets. Car prices rose because carmakers were unable to get all the semiconductors they needed to make cars from Taiwan, and many car factories closed temporarily.

At the same time, several rounds of stimulus checks have fattened Americans’ bank accounts, and after hanging on in the early stages of the pandemic, so-called “revenge spending” has taken over. The combination of stronger demand and reduced supply has been a recipe for higher prices.

However, some economists have argued that major food and consumer goods companies have taken advantage of pandemic-era disruptions. Consumers saw empty store shelves and heard numerous stories of disrupted supply chains and, at least temporarily, felt they had no choice but to accept the higher prices.

Economist Isabella Weber of the University of Massachusetts, Amherst, called it “seller’s inflation.” Others have referred to it as “greed”.

“What many corporations have done is to exploit consumers’ willingness” to accept the disruption caused by the pandemic, Pancotti said.

Is banning price gouging the same as instituting price controls?

During the last peak of inflation in the 1970s, both Democratic and Republican presidential administrations sometimes imposed price controls that specifically limited what businesses could charge for goods and services. They were widely blamed for creating shortages and long gas lines.

Some economists say Harris’ proposal would have a similar impact.

“It’s a heavy-handed socialist policy that I don’t think any economist supports,” said Kevin Hassett, a former top Trump White House economic adviser.

But Pancotti disagreed. She argued that it was closer to a consumer protection measure. Under Harris’ proposal, the government would not specify prices, but the Federal Trade Commission could investigate price increases.

“The proposal is really about protecting consumers from unscrupulous corporate actors who are simply trying to defraud the consumer because they know they can,” she said.