Kamala Harris' plan to “gouge prices” in grocery stores is fraught with problems, experts say

Vice President Kamala Harris is taking a bold – and controversial – step to combat rising food prices: she is introducing a federal bill that would ban “price gouging” to protect American consumers from what she calls “corporate greed.”

The proposal, part of a broader economic program being unveiled Friday, is an attempt by the Harris campaign to address the one issue that voters say remains at the top of their list of concerns: the cost of living.

“Vice President Harris recognizes the significant difference between fair prices and the inflated prices Americans have experienced in the food and grocery industry. These prices are disproportionate to the cost of doing business,” the campaign said in a statement ahead of Harris' economic policy speech on Friday in Raleigh, North Carolina.

But imposing price controls as a means of curbing inflation – which has now fallen below 3 percent, close to the Fed's target – carries risks, even though food prices remain 21 percent higher than they were three years ago.

The campaign claims that many large grocery chains have kept their prices high despite stable production costs, resulting in the highest profits in 20 years. It fails to take into account that grocery stores typically have razor-thin profit margins, typically between 1 and 3 percent, far below those of other retail sectors.

Former President Donald Trump criticized the proposal in a speech at his golf club in Bedminster on Thursday, comparing it to “Maduro-style price controls” that have crippled the Venezuelan economy.

In theory, a ban on price gouging would prevent food and grocery companies from raising their prices excessively over a period of time. But as Harris tightens this policy even further, economists working with Newsweek argue that such measures are unlikely to address the root causes of price increases and could even backfire.

“The idea of ​​a political solution to an economic non-problem is flawed. There is little evidence that corporate greed or price gouging are to blame for high food or housing prices,” said Scott Lincicome, vice president for general economics and trade at the libertarian Cato Institute in Washington DC.

The Harris campaign argues that the measure would create “clear rules of the road” to ensure that large corporations cannot exploit consumers to make excessive profits on food and groceries. Like the Biden administration, Harris' campaign has focused on the meat industry, accusing it of raising prices above actual costs.

“Rising meat prices have contributed significantly to Americans' higher grocery bills, even as meat processing companies posted record profits following the pandemic,” the campaign statement said.

Lincicome pointed out that food prices have remained relatively stable since January 2023. This suggests that the rise in inflation during the pandemic was not only due to corporate pricing behavior, but also to other factors such as constraints in supply chains and the labor market.

“Yes, consumers are seeing higher prices, but that doesn't necessarily mean someone is ripping them off,” adds Glynn Tonsor, an agricultural economist at Kansas State University.

“The costs of raising animals, processing them into meat and transporting the meat to the consumer are higher than before,” he said.

Luis Cabral, an economics professor at New York University, also expressed doubts about the effectiveness of a nationwide ban on price gouging. Many states already have corresponding laws. “It is not clear to me what a nationwide ban would achieve,” he said.

Cabral warned of the unintended consequences of such a policy, comparing it to spike-pricing models such as those implemented by Uber during periods of high demand. He said that while price controls could prevent sudden price spikes, they could also lead to shortages or reduced supply.

“If you short-circuit these price signals, you get negative market reactions,” he said, suggesting that the problem of food prices could be better addressed through measures targeting market concentration and possible collusion in the food industry.

“Preventing price increases sounds good, but what do investors and farmers do when they cannot guarantee a return on investment or cover their costs? They cut back on their investments, leading to lower supply and even higher prices or outright shortages,” added Cato's Lincicome.

Still, Harris' proposal is doing well in the polls – it resonates with many voters concerned about high grocery bills. Her campaign team argues that without government intervention, large grocery chains could exploit consumers with unjustified price increases.

“A loaf of bread costs 50% more today than it did before the pandemic, and ground beef has increased in price by nearly 50%,” Harris said Friday. “Meanwhile, many major food companies are making their highest profits in two decades, and while some grocery chains are passing on their savings, others still aren't.”

Despite the poll results, the issue also carries political risks. Columnist Catherine Rampbell writes in the WashingtonPost On Friday, he said it was “hard to overstate how bad Kamala Harris' price-gouging proposal is.”

“If your opponent claims you are a communist, perhaps you should not start with an economic agenda that could (aptly) be called government price controls,” she wrote.

Lincicome downplayed the significance of Harris' proposal, arguing it was more about politics than economics. “Food and housing prices have moderated but are still high compared to 2020, which is a political burden for the Biden administration and Vice President Harris,” he said.

“But the likelihood of these measures coming into force is minimal. It is bad policy aimed at a non-problem and driven by political motives.”

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