Vice President Kamala Harris has centered her anti-inflation agenda on combating price gouging, saying corporations are greedy villains padding profits by jacking up prices.
Yet economists and even Ms. Harris say there is scant evidence that price gouging is actually happening.
In a plan largely lacking concrete details, Ms. Harris has called for a federal ban on price gouging and for giving the Federal Trade Commission the power to prosecute companies it deems to have excessively increased prices.
Former President Donald Trump and Republicans slammed the plan as “communist,” warning that it would lead to the federal government telling businesses how to set their prices. Democrats cheered the announcement, calling it a critical check on corporate greed that would lower costs for consumers who have seen grocery store prices increase 21% since President Biden took office.
Economists say the biggest problem with the plan is that there is no evidence that grocery prices have risen because food companies and grocers are price gouging consumers.
“Harris doesn’t have a good way politically to attack this problem. She needs a scapegoat to blame for rising prices because the actual answer is the [Biden-Harris administration’s] policies are to blame,” said Joshua Hendrickson, an economist at the University of Mississippi.
Since proposing the crackdown, Ms. Harris has twice acknowledged that the problem is not as widespread as her campaign would make voters think. She recently told the Congressional Hispanic Caucus that “very few” companies are engaged in the practice, a line she later repeated during an interview with Oprah Winfrey.
The Federal Reserve Bank of New York issued a report in July concluding that rising grocery store prices were not caused by corporate price gouging but rather by increased operating costs. It laid the blame on a huge spike in the price of agriculture and livestock and increased wages for employees because of labor shortages.
Since 2019, industry wages have risen by 15% for grocery workers compared to the food manufacturing sector or the workforce as a whole, the report found.
A study by the Federal Reserve Bank of San Francisco reached a similar conclusion. At the same time, the Government Accountability Office found that a series of supply chain disruptions such as the avian flu, the COVID-19 pandemic and the war in Ukraine increased operating expenses for the food sector.
Overall food manufacturing costs have risen 28.4% since 2020, the Federal Reserve concluded. That was more than the 26.3% retail price increase on food products.
Those operating costs ate away at profits. Grocery store profit margins fell to 1.6% in 2023, the third consecutive year of decline since peaking at 3% in 2020, according to data from FMI — The Food Industry Association.
Large food producers haven’t been immune. Tyson Foods posted a negative 1.23% profit margin after accounting for extraordinary expenses, taxes and interest. Kraft Hines had a 10.72% profit margin, and General Mills’ margin fell to 12.9%, according to their Securities and Exchange Commission filings.
“When prices go up by more than inflation, everybody wants to blame price gouging, but they probably went up because there were changes in supply and demand, and you can see that by looking at net profit margins,” said Gavin Roberts, who studies state price gouging laws at Weber State University.
Zephyr Teachout, who teaches classes on the intersection of corporate and political power at Fordham University School of Law, said a national ban on price gouging is necessary to put businesses on notice that there will be penalties for trying to rip off consumers. She said it’s hard to know how widespread price gouging is because the most thorough investigations are conducted by state attorneys general, whose power is limited.
“No state attorney general can follow the supply chain trail, so we don’t know how prevalent it is. We need to investigate it, and federal investigations would allow us to see how prevalent it is,” she said. “If it’s not happening, there’s no harm in doing it.”
Mr. Roberts counters that the laws have unintended consequences that will only exacerbate at the federal level. So far, 37 states have implemented some form of an anti-price gouging law, and reviews on them have been mixed.
His study found that the laws resulted in shortages during emergencies. There was no incentive for retailers to stock much-needed products because they made little to no profit off the item.
For example, during the COVID-19 pandemic, some stores didn’t order extra hand sanitizer because there was no benefit in doing so. That resulted in consumers increasing their own costs because they were driving to four or five grocery stores to find what they needed.
“There is nothing to tamp down the demand and no incentive to provide the consumer, so consumers buy at higher rates to alleviate the shortages,” he said. “We saw this very explicitly during COVID.”
He said the best solution is to do nothing because increasing competition by encouraging more profit lowers prices in the long run. Markets correct themselves quickly when competition is allowed to flourish, bringing prices down.
Economists also say laws making it illegal to raise prices beyond the rate of inflation are unnecessary because the government already has laws in place to tackle the issue. There is a federal law against profiteering during wartime or other national emergencies, and antitrust laws prohibit retailers from setting prices unreasonably high or using their monopoly power to influence price changes.
“Harris is making a weird argument that simultaneously all these companies got together and collectively decided that they were going to go out and raise prices,” Mr. Hendrickson said. “That only works if there is some coordination. We don’t need anything new.”
However, proponents of stricter federal price intervention argue that price gouging laws, combined with antitrust enforcement, would better protect consumers from being exploited by corporations.
Some state investigations have uncovered credible accusations of price gouging. Drugstore chain Walgreens in May settled with New York state to resolve allegations it jacked up baby formula prices after a recall led to a nationwide shortage in 2022. New York prosecutors accused Walgreens of raising formula prices by 10% after accounting for increased costs and, in one case, 70% during the shortage.
The Texas attorney general last month opened an investigation after receiving 113 complaints of price gouging by hotels, gas stations and retailers during Hurricane Beryl this year.
Yet, the most successful antitrust case of the year was brought by prosecutors in Washington state under antitrust laws. Prosecutors secured a $40.6 million penalty against major chicken and tuna producers accused of price fixing.
“In local areas, you have some price gouging, such as hotels during a hurricane, but that market is very small,” Mr. Roberts said. “It might impact some of that market at best.”
Among the state laws, price gouging isn’t well defined, but it’s typically viewed as a significant increase in prices during an emergency or other market disruptions that make products scarce. The laws are aimed at stopping hardware stores, for example, from jacking up the price of snowblowers ahead of a blizzard.
Although Ms. Harris’ plan isn’t well defined, it appears to be casting inflation as an emergency or market disruption, which it is not.
The Harris plan labels price increases as greed, but Mr. Roberts said corporations haven’t become any more greedy since the pandemic or after inflation began soaring in 2021 under Mr. Biden’s watch.
“Did corporations’ ability to exercise greed change as a result of the pandemic? I don’t see any evidence of that. Greed has remained a constant,” he said.
Still, Ms. Harris’ anti-price gouging message is polling well with voters frustrated with high food prices.
A poll by the left-leaning Progressive Change Campaign Committee found that 87% of voters support reducing the price of groceries, and 82% support cracking down on corporate price hikes.
“The public believes that price gouging is happening in the economy on everything from groceries to prescription drugs to bank fees. It would be smart for Republicans to join Democrats on this issue,” said Adam Green, co-founder of the Progressive Change Campaign Committee.
Ms. Harris’ proposal has virtually no chance of making it through Congress. Sen. Elizabeth Warren, Massachusetts Democrat, introduced legislation to establish a federal ban on price gouging in the food and grocery sectors, but it has languished in the Senate, which has a narrow Democratic majority.
Analysts point to President Richard Nixon’s proposal in the late 1970s to tackle price gouging, which resulted in substantial shortages at grocery stores.
“This is a good political argument, but people who dig into it are going to find out it’s not a good economic argument,” Mr. Hendrickson said. “The best political scapegoat is one you don’t have to punish because they weren’t the problem in the first place.”
Mr. Green says even if the proposal is a messaging tactic, it’s a good one.
“We are living in a ‘vibes’ political world, and there is a gut sense with voters that corporations are not necessarily looking out for the best interests of the family budget,” he said.
• Jeff Mordock can be reached at jmordock@washingtontimes.com.
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