This represents a direct effort to address a significant vulnerability associated with Harris:
During the Biden-Harris administration, grocery prices have increased by 21%, contributing to an overall inflation rise of approximately 19%. This situation has led to a negative perception of the economy among many Americans, despite the fact that unemployment rates have reached historic lows.
In addition, wages have seen a substantial increase since the pandemic, surpassing the rate of price growth for over a year. Nevertheless, surveys indicate that many Americans are still facing challenges due to elevated costs.
“We are all aware that prices surged during the pandemic as supply chains were disrupted,” Harris stated on Friday in Raleigh, North Carolina. “However, our supply chains have since improved, yet prices remain excessively high.”
Will her suggestions significantly reduce prices? Additionally, what exactly constitutes “price gouging”?
What is price gouging?
While there is no universally accepted definition among economists, it generally pertains to significant price increases that occur following a disruption in supply, such as after a hurricane or other natural calamity. Consumer advocates argue that gouging takes place when retailers dramatically raise prices, especially for essential goods, in such situations.
Is it already prohibited?
Several states have enacted laws to limit price gouging; however, there is no overarching federal prohibition.
There are federal regulations concerning related but distinct practices, such as price-fixing laws that prevent companies from colluding to avoid competition and establish elevated prices.
Will Harris’ proposal lead to lower grocery prices?
Most economists would likely respond negatively, although her plan may influence future emergencies. One uncertainty remains regarding the extent of price gouging currently occurring.
Grocery prices remain significantly elevated compared to four years ago; however, they experienced a modest increase of only 1.1% in July relative to the same month last year, as indicated by the latest inflation report. This rate aligns with the increases observed prior to the pandemic.
On Wednesday, President Joe Biden proclaimed that inflation has been effectively addressed, following the release of the inflation report which revealed a decrease to 2.9% in July, marking the smallest rise in three years.
Michael Strain, an economist at the American Enterprise Institute, noted, “There’s a contradiction between declaring victory over inflation in one instance and simultaneously asserting that price gouging is causing consumers to endure excessively high prices in another.”
Generally, following a surge in inflation, it proves challenging to revert prices to their previous levels. Significant and sustained price reductions typically occur only during severe and prolonged recessions. Economists generally contend that a more effective strategy is for wages to increase sufficiently, enabling Americans to manage the elevated costs.
The timing of Harris’s remarks on this issue is likely influenced by the ongoing prominence of inflation in the political landscape. Many voters attribute the recent inflationary trends to grocery stores, fast food establishments, and producers of food and packaged goods, particularly given the significant rise in corporate profits during 2021 and 2022.
Strain suggests that the administration may be responding to opinion polls indicating that inflation is the foremost concern among voters, with a substantial portion attributing this economic challenge to corporate practices.
Moreover, despite a reduction in the rate of price increases, as Harris pointed out, prices remain elevated, even with the resolution of supply chain disruptions.
Elizabeth Pancotti, a policy analyst at Roosevelt Forward, highlights the example of wood pulp used in diapers. Although the price of wood pulp has decreased by 50% from its peak following the pandemic, the prices of diapers have not reflected this decline.
“This situation effectively enhances the profit margins for both manufacturers and retailers,” she noted.
Did price gouging contribute to inflation?
Most economists would argue against this notion, attributing inflation instead to a more fundamental issue of supply and demand dynamics. The onset of the pandemic led to intermittent closures of meat processing facilities due to COVID-19 outbreaks, alongside various other supply chain disruptions. Additionally, Russia’s invasion of Ukraine resulted in increased prices for wheat and other grains in global markets. The automotive sector also experienced price hikes as manufacturers struggled to obtain sufficient semiconductors from Taiwan, leading to temporary shutdowns of several car production plants.
Simultaneously, multiple rounds of stimulus payments enhanced the financial resources of American consumers. Following a period of confinement during the initial stages of the pandemic, a phenomenon known as “revenge spending” emerged. This interplay of heightened demand and constrained supply created an environment conducive to rising prices.
Nevertheless, some economists contend that major food and consumer goods corporations capitalized on the disruptions caused by the pandemic. Consumers encountered empty shelves and were inundated with reports of supply chain issues, leading them to feel they had little alternative but to accept elevated prices.
Economist Isabella Weber from the University of Massachusetts, Amherst, termed this phenomenon “seller’s inflation,” while others have labeled it “greedflation.” According to Pancotti, “What many corporations did was exploit consumers’ willingness” to tolerate the pandemic-induced disruptions.
Is the prohibition of price gouging akin to the implementation of price controls?
During the inflation surge of the 1970s, both Democratic and Republican administrations occasionally enacted price controls, which restricted the prices that companies could charge for various goods and services. These measures were often criticized for leading to shortages and long queues at gas stations.
Some economists suggest that Harris’ proposal may yield similar consequences.
“It represents an overly aggressive socialist approach that I believe no economist would endorse,” stated Kevin Hassett, a former senior economic advisor in the Trump administration.
Conversely, Pancotti contended that the proposal is more aligned with consumer protection. Under Harris’ plan, the government would not dictate prices; however, the Federal Trade Commission would have the authority to investigate instances of price surges.
“The proposal fundamentally aims to safeguard consumers from unethical corporate practices that exploit consumers due to their market power,” she asserted.
