Would a ban on price gouging curb inflation?

Vice President Kamala Harris' proposal to ban “price gouging” to combat the runaway inflation of recent years is likely to be well received by voters, but has sparked criticism from some economists.

“My plan will include new penalties for opportunistic companies that exploit crises and break the rules,” Harris said Friday as she laid out details of her economic policy agenda less than three months before the presidential election.

Harris said a recent federal report showed inflation fell below 3% for the first time since March 2021.

“Our supply chains have now improved, but prices are still too high,” Harris said. “Many of the major food companies are reporting their highest profits in two decades. And while many grocery chains are passing on those savings, others still aren't.”

She continued: “I know most businesses are creating jobs, contributing to our economy and playing by the rules. But some are not, and that's just not right. And when that's the case, we need to take action.”

No details have been announced on how the ban will work, but the plan could be similar to price gouging bans currently in place in 37 states that prohibit sudden price increases on scarce goods.

The debate about the causes of inflation in recent years is still unresolved. While the Federal Reserve in San Francisco could not find a strong connection between price gouging and inflation, progressive think tanks argue that there may be a direct connection.

Biden administration economists have found that while corporate behavior has played a role in driving up food prices in recent years, other factors have played a much larger role.

Lindsay Owens, executive director of the progressive advocacy group Groundwork Collaborative, echoed the Harris campaign's criticism of the broken grocery market in a statement Friday.

“Price gouging, price fixing and just plain profiteering are rife in the food and grocery retail sector,” Owens said. “The government can do more to reduce concentration in the food and grocery retail sector and stop the fraud that costs families a lot of money.”

However, some economists rejected the idea that corporate power was a major cause of inflation, arguing that limiting price increases could lead to shortages of goods.

Gavin Roberts, chair of the economics department at Weber State University, studied anti-price gouging laws enacted during the pandemic and found that such measures often prompted consumers to buy more than they normally would, exacerbating shortages.

When prices are high, the best strategy is often to do nothing, Roberts told CNN. He explained that consumers put off by high prices for products like beef may switch to other types of protein, helping to maintain stocks for those willing to pay more. The higher prices often encourage new competition, which drives prices down in the long run, he argues.

Jason Furman, a senior economist in the Obama administration, shared Roberts' view that anti-price gouging laws could inadvertently harm consumers. “It's not a sound 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 are no benefits to this, and there are some downsides.”

Prices have fallen sharply as shocks from pandemic-era supply chain problems and the war in Ukraine fade. In July, food prices rose just 1.1%, in line with pre-pandemic increases. However, food prices are still 21% higher than when President Joe Biden took office.

A poll of about 1,600 American adults conducted by the Economist/YouGov from August 11 to 13 found that inflation and prices are the “most important issue” among 15 topics, followed by jobs and the economy, immigration and health care.