Harris' plan to end price gouging could create more problems than it solves

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CNN
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Under the Biden-Harris administration, grocery prices have risen by more than 20%, prompting many voters to spend more for their money at the supermarket.

On Friday, Vice President Kamala Harris said she had a solution: a federal ban on price gouging in 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 problem: Harris' proposal could create more problems than the ones it seeks to solve, some economists say.

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

When prices are high, in most cases the best policy response is to do nothing, Roberts, chair of the economics department at Weber State University, told CNN.

This would result in consumers who are put off by high beef prices, for example, buying another type of meat or protein instead. This helps keep beef on supermarket shelves for people who really want it and are willing to pay the higher prices.

And while Harris claims her proposal will “help the food industry become more competitive,” Roberts says it would do just the opposite. “It's more likely that the status quo will remain,” he says, because it would prevent new competition from entering the market and taking advantage of the higher profit margins – competition that could have helped lower prices in the long run.

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.”

Instead of pursuing a policy of combating price gouging, Roberts Harris recommended investigating what, if anything, prevents new parties from entering concentrated industries.

A campaign factsheet said Harris also wanted to “provide the federal government with more resources to identify and combat price-fixing and other anti-competitive practices in the food and grocery industries.”

Campaign staff declined to comment on criticism of Harris' proposed ban on price gouging and referred CNN to Harris' speech and the fact sheet distributed beforehand.

The extent of the price gouging has not yet been clarified. has contributed to inflation in recent years.

Research by the San Francisco Federal Reserve suggests that alleged corporate price gouging was not the main reason for the surge in inflation that began in 2021. At the same time, progressive-leaning think tanks have published research suggesting a more direct connection.

Until late last year, companies routinely said in their quarterly earnings calls with investors that customers continued to pay for goods even as companies raised prices. That's because demand remained high, fueled by higher wages and pandemic-related stimulus measures that padded savings accounts. Many economists argue that corporate profits were boosted by what you learned in Economics 101: supply and demand – not corporate greed (alone, anyway).

In any case, the inflation that Americans have struggled with in recent years is the product of a confluence of events that include the war in Ukraine, government spending, and pandemic-related disruptions throughout the economy. The unprecedented strain on supply chains at the height of the pandemic, for example, contributed significantly to the spike in inflation in early 2021.

And Harris' proposal also had its supporters.

Lindsay Owens, executive director of the progressive think tank Groundwork Collaborative, welcomed the plan. “I definitely don't think the anti-price gouging law is going to lead to shortages,” she told CNN, adding that it would give government agencies like the Federal Trade Commission more authority to “crack down on bad actors” who charge consumers higher prices.

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