Harris’ Plan To Stop Price Gouging Could Create More Problems Than It Solves

Food prices have risen by more than 20% under the Biden-Harris administration, leaving many people ready to stretch their expenditures at the grocery shop.

On Friday, Vice President Kamala Harris announced a solution: a government prohibition on price gouging in the food business.

“My plan will include new penalties for opportunistic companies that exploit crises and break the rules,” Harris stated during a campaign event.

Harris’ Plan To Stop Price Gouging Could Create More Problems Than It Solves

There is only one issue: some economists believe Harris’ idea will cause more problems than it will solve.

Gavin Roberts investigated anti-price gouging statutes enacted in several states during the outbreak. One of the most significant consequences he found, particularly at food stores, was that these laws encouraged people “to go buy goods more than they would if prices had risen.”

Roberts, chair of Weber State University’s economics department, told CNN that when prices are high, the best policy response is usually to do nothing.

This would cause consumers to put off by, say, high beef costs to buy another form of meat or protein instead. This helps keep beef on grocery store shelves for those willing to pay higher rates.

While Harris argues her idea “will help the food industry become more competitive,” Roberts believes it will accomplish the opposite. “It’s more likely to maintain that status quo,” he said because it would prevent new competition from entering to take advantage of the higher profit margins, which could have helped cut prices in the long run.

Jason Furman, the Obama administration’s senior economist, agreed with Roberts that anti-price gouging measures could accidentally harm consumers. “This is not sensible policy, and I think the biggest hope is that it ends up being a lot of rhetoric and no reality,” he told the newspaper. “There’s no upside here, and there is some downside.”

Rather than pursuing anti-price gouging policies, Roberts suggested that Harris look into what prevents new parties from joining concentrated industries.

According to a campaign fact sheet, Harris intends to increase resources so that “the federal government can identify and take on price-fixing and other anti-competitive practices in the food and grocery industries.”

Campaign officials declined to comment on criticisms of Harris’ proposed price-gouging ban, referring CNN to Harris’ speech and the information sheet sent before it.

What’s behind pricing hikes over the last few years
The jury is still out on how much price gouging has contributed to inflation in recent years.

According to the San Francisco Federal Reserve, reported business price gouging was not a significant cause for the inflation increase that began in 2021, although progressive think tanks have published data indicating a more direct link.

Harris’ Plan To Stop Price Gouging Could Create More Problems Than It Solves

Until late last year, firms typically stated on quarterly earnings calls with investors that customers continued to pay for items even when they raised prices. Demand remained robust, fuelled by higher salaries and economic stimulus that increased savings. Many economists believe supply and demand, rather than corporate greed, drove corporate profits.

In any case, the inflation that Americans have had to deal with in recent years is the result of factors such as the war in Ukraine, government spending, and pandemic-related disruptions throughout the economy. The enormous stress on supply systems during the epidemic, for example, contributed considerably to inflation rising in early 2021.

The Harris idea has some backers as well.

Lindsay Owens, executive director of the Groundwork Collaborative, a progressive think tank, praised the initiative. “I definitely don’t think that the price gouging statute will result in shortages,” she told CNN, adding that it would give government agencies like the Federal Trade Commission greater jurisdiction to “crack down on bad actors” that charge customers more money.

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

SOURCE | CNN