How Democrats Cause Price Gouging

Every demagogue needs a scapegoat to blame for people's suffering. This need is particularly urgent for the Biden-Harris administration, because the massive inflation of recent years and the still excessive inflation of today can safely be attributed to their shameless waste of money.

People are particularly angry about high food prices, which have risen by 22% in the three and a half years of President Joe Biden – the same increase as in the last 10 years combined.

The obvious scapegoat for Democratic demagogues is corporate greed in the food sector. “Americans are facing astronomically high food prices caused by excessive price gouging by grocery and supermarket giants,” said Senator Elizabeth Warren (D-Mass.) and Representative Jim McGovern (D-Mass.) in a statement blaming inflation on “corporate greed.”

Warren, who knows better, has been drumming up support for this for some time. Now Vice President Kamala Harris, who perhaps knows better, is doing the same as Warren. In a speech to her party convention in Raleigh, North Carolina, Harris blamed high food prices on “opportunistic companies that exploit crises and break the rules.”

“A loaf of bread costs 50% more today than it did before the pandemic,” Harris said. “Ground beef has gone up by almost 50%. 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.”

Greed is a perpetual human condition. By Warren and Harris' logic, greed has gotten even worse under Biden. That's not plausible. More plausible is that the bipartisan COVID spending spree of 2020 and the Democratic spending spree of 2021 pumped trillions into the economy when there were fewer goods and services available. More dollars chasing fewer things is the formula for inflation.

Harris floated the idea of ​​a nationwide ban on price gouging. She soon abandoned that idea and instead advocated the use of antitrust law to prevent consolidation and anti-competitive behavior. “I believe competition is the lifeblood of our economy,” she said in Raleigh, “and more competition means lower prices for you and your families.”

But here's the irony in Harris' call for “more competition”: The Democratic Party's agenda over the past two decades has aggressively promoted consolidation and reduced competition in many industries, including food. Sometimes this push for consolidation has been deliberate and explicit, but sometimes it has been accidental.

More regulation and more subsidies, higher tax rates and more complex tax law: this is the ideal framework to eliminate smaller competitors, protect the big players, force consolidation and erect barriers to market entry.

A larger gap

In 2009 and 2010, Democrats in the White House and Congress pushed forward their financial reform plans, which they portrayed as a broadside against the big banks. The big banks did not agree with this.

“We will be among the biggest beneficiaries of the reform,” Goldman Sachs CEO Lloyd Blankfein predicted in 2010.

Five years later, Blankfein said the law had had the desired effect. “Stronger regulatory and technological requirements have raised the barriers to entry higher than at any time in modern history,” Blankfein told shareholders in 2015. “It's an expensive business if you don't have the market share. Think of the numerous exits our competitors have announced as they reassessed their competitive position and relative returns.”

Jamie Dimon, CEO of JP Morgan, stated that Dodd-Frank helped create a wider “moat” around firms like Goldman and JPM. Dimon reportedly pointed out that while margins may decrease, market share may increase due to a “wider moat” created by regulation. “In Dimon’s eyes, higher capital requirements, Volcker and [over-the-counter] Reforms in the derivatives market make the market more expensive in the longer term and tend to make it more difficult for smaller players to enter the market, effectively widening JPM's 'moat.'”

In fact, Dodd-Frank led to consolidation in the banking sector, protecting the big players from competition.

The share of regional banks in the sector has shrunk in the years following the financial crisis and the Dodd-Frank Act, researchers at Harvard's Kennedy School of Government found. “There are economies of scale in regulation,” said one of the authors.

The Democrats' other landmark Obama-era law, the Affordable Care Act, was also explicitly pro-consolidation. The law's subsidies, special taxes and regulations have led to massive consolidation among providers.

The authors of Obamacare made it clear that their vision of the future of health care was one of vertical integration: doctors would be bought up by hospitals, and so on. They also preached horizontal consolidation: “Doctors are organizing themselves into ever larger groups.” Consolidation has led to higher profits for hospitals, higher prices for patients, and lower quality, according to the recent study on the “corporatization of independent hospitals.”

Peter Orszag, Obama's budget director, is clear that consolidation is an explicit policy goal of the Biden administration. Why? Because they believe that big companies are simply better companies. Orszag has championed the idea that “industry concentration just reflects the superior productivity of superstar companies.”

“Size brings real benefits to the economy,” he says. The largest companies, the “superstar companies,” have “high productivity and pay high wages.”

Food inflation

This desire for consolidation was reflected in the Democrats’ food policy.

The Democrats' top food safety official for three decades is a consultant in ever-changing positions named Michael Taylor. Taylor led the Food Safety Inspection Service in developing a new regulatory protocol for meat and poultry called Hazard Analysis and Critical Control Points (HACCP).

A study by a Department of Agriculture researcher found that the regulation cost the largest beef producers 1.7 cents per pound, while it cost the smallest producers 7.8 cents per pound. For pork and chicken, the numbers were different, but the pattern was the same: The costs of the smaller producers were about one-fifth of those of the larger producers.

The regulation “favors large facilities over small ones,” the USDA researcher concluded.

During the Obama era, Democrats introduced two food safety bills in response to salmonella and E. coli outbreaks. Small producers like the Farm-to-Consumer Legal Defense Fund viewed these bills as a death sentence, while the giants – Kraft Foods, General Mills and Kellogg – all supported the measures. That's because tighter regulation leads to market consolidation: it protects the big by killing the small.

The same dynamic is also evident in retail. Large grocery chains are much better at dealing with regulations and mandates than mom-and-pop stores. Walmart and Costco have advocated for raising the minimum wage and employer mandates in healthcare over the years.

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In all of these cases, Democrats' policies reduce competition. Less competition means more room for price increases.

If Harris wanted to tackle food prices, she would first have to reverse her party's legislative agenda of the past twenty years.