What is ‘price gouging’ and why is Kamala Harris proposing to ban it?

Faced with a heavy increase in inflation and consumer prices, US Vice President Kamala Harris has suggested steps to ban food producers from trying to sell food that’s out of season or grocery stores shortening their stock. Shipping prices fall within a wider range of activities predicted by this administration and its associated agencies, from moving goods through channels upon which the consumer depends on the law to regulations affecting how they are available.

She also addresses a major exposure of the present government: grocery prices have curved upward by 21% during the Biden-Harris era, and public property has collapsed in value.

Understanding Price Gouging and Its Legal Context

Price gouging typically refers to when prices rise rapidly, mostly in the case of conditions following a supply shock, which is caused by natural disasters or an economic jolt.

Although many states have anti-price gouging laws and a few counties already had their own laws on the books before COVID-19 hit, there was no federal law that outright prohibited price-gouging. Of course, price-fixing is very much illegal under federal antitrust laws, where companies plan together not to compete on price.

The Economic Debate: Will the Ban Lower Prices?

Despite a number of reasons to back Harris’s plan, her proposal is made as much for politics as against economic issues. Inflation is still a hot political topic, and voters have mostly pinned the recent price surge on corporations. The next GDP report will likely show corporate profits, which in many countries flew in 2021 and 2022; that is what gives the public the impression of papering over already padded profit margins for corporations.

It has not helped that prices have remained high even as supply-chain woes mostly abated. The cost of wood pulp, an ingredient in diapers, has hit by half from its level, but diaper prices have not dropped.

The Political Motivation Behind the Proposal

Just as important is the possibility that Harris’s proposal has more to do with appealing politically than it does with addressing economic concerns. Largely in the political eye is inflation, for which many voters blame companies. The result is that corporate profits surged in 2021 and 2022, which made it look to many ordinary citizens as if companies were just taking full advantage of the situation for higher margins.

It is also frustrating that despite the fact that most of these supply chain issues have been resolved, prices remain high. For example, the price of wood pulp and making diapers has dropped by half from the peak, but diaper prices are still high (e.g. dark lining products), which means that manufacturers or sellers enjoy higher profits instead of giving consumers a discount.

The Role of Supply and Demand in Recent Price Increases

Authorities have charged some people with price gouging, but many economists maintain the higher prices as a result of simple supply and demand. Production lines went down for weeks as meat processing plants shut, and a semiconductor crunch shortly halted car building.

Also, this led to an increase in wheat and grain prices around the world because of Russia’s invasion of Ukraine. Stimulus checks and “revenge spending” that followed the rollbacks of pandemic restrictions helped prop up price inflation on top of supply-side concerns.

Isabella Weber of the University of Massachusetts, Amherst and other economists contend that during the pandemic, some big companies’ “seller’s inflation” or “greedflation” on pricing consumers to pay more for products because they decided higher prices were fine with customers.

Is Harris’s Proposal Similar to Price Controls?

Harris’s proposal is more expansive than the price controls imposed during the 1970s inflation surge (and which produced shortages and long lines for goods such as gasoline), so it has far wider implications. Its critics, including a critical economic adviser in the Trump administration like Kevin Hassett, call it a “heavy-handed socialist policy that many economists of all stripes would say is likely to exacerbate capital allocation problems and reduce broad-based support for sound long-term growth.

Advocates argue it is consumer protection, not price control, as Elizabeth Pancotti of Roosevelt Forward put it last year. The measure would give the Federal Trade Commission (FTC) power to investigate and act on dramatic price hikes but not set prices itself as a means of protecting consumers against businesses artificially increasing their profit margins off market conditions.

In short, while Harris’s ban on price gouging may be politically popular due to the electorate’s fears about inflation, its ability to ease prices is open to question. This debate highlights the complex nature of management.

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