A new idea that has failed for thousands of years

In her first economic policy speech as the 2024 Democratic presidential candidate, Kamala Harris rightly criticized Donald Trump for advocating high tariffs, saying her Republican opponent wants to impose “a de facto national sales tax on everyday products and basic necessities that we import from other countries.” In the same speech, however, Harris presented a half-baked idea that is equally questionable from an economic perspective: she promised to crack down on the “price gouging” of the food industry.

This proposal is so misguided that it has drawn undisguised skepticism from mainstream news outlets such as CNN, Associated Press, The New York TimesAnd The Washington Postalong with criticism from Democratic economists. It became apparent that Harris is joining Trump in promoting populist recipes that would harm consumers under the pretext of making life difficult for the supposed economic villains.

“If your opponent claims you are a communist,” post Columnist Catherine Rampell suggested, “Perhaps one should not start with an economic agenda that could (accurately) be called government price controls.” Harvard economist Jason Furman, chairman of President Barack Obama's Council of Economic Advisors, was equally scathing.

“This is not sensible policy and I think the greatest hope is that in the end it is just a lot of rhetoric and no reality,” Furman told the Just. “There are no advantages here, but some disadvantages.”

This downside arises from any attempt to override market signals by dictating prices. High prices distribute goods to consumers who benefit most, encourage producers to expand their supply, and stimulate competition, which helps to lower prices.

Without these signals, hoarding and shortages will occur. This is not a far-fetched theory; it reflects bitter experience since ancient times with interventions such as the one proposed by Harris.

Consider what happened when President Richard Nixon imposed wage and price controls in the 1970s. “Ranchers stopped transporting their cattle to market, farmers drowned their chickens, and consumers emptied supermarket shelves,” write Daniel Yergin and Joseph Stanislaw in their 1998 book on the rise of free markets.

Or consider recent developments in eggs. Because of the bird flu, Furman said, “egg prices went up last year” because “there weren't as many eggs,” but the high prices encouraged “more egg production.” If federal regulators had tried to suppress egg prices, they would have stopped that market reaction.

Harris, of course, says she would only unjustified Price increases that amount to “illegal price gouging” by “opportunistic companies.” But as she points out, there is currently no such thing in federal law, and any attempt to define it would be marked by subjectivity and a lack of relevant knowledge.

The fact that Harris attributes the sharp rise in food prices in recent years to corporate greed suggests that her judgment on such issues cannot be trusted. Economists generally rate other factors – including the war in Ukraine, as well as pandemic-related supply shortages, changes in consumer demand and stimulus spending – as much more important.

In any case, high profits are another important signal that encourages investment and competition. By banning “excessive profits,” Harris's proposed price controls would undermine the incentive they provide.

According to the latest figures, the annual inflation rate has fallen below 3 percent since July. With inflation slowing, this may seem like an odd time for Harris to revive an idea that proved disastrous thousands of years ago. But as the Just notes that her message “resonates well with swing voters.”

Trump's favored comprehensive tariffs, which Harris condemns as a “national sales tax” that would “ruin Americans,” are doing well in the polls in theory, but they are only popular until voters think about the consequences.

In a recent Cato Institute poll, for example, 62 percent of respondents favored tariffs on “imported blue jeans,” but that number dropped sharply when asked to imagine the resulting price increases. Harris is also counting on voters who like what she says but don't think about what it would mean in practice.

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