Vice President Harris' proposal to ban food price gouging has caused a stir in business circles, with traditionalists and business groups worried about shortages, while other economists argue the proposal is well-suited to the nature of post-pandemic inflation.
Details of the plan have yet to be released by the campaign, but Harris' initial remarks suggest it will have four distinct components and employ a range of policy measures.
“I will work to pass the first ever federal price control bill. [gouging] “Our food plan includes new penalties for companies that exploit the financial crisis and break the rules. We will also support small food businesses that play by the rules and succeed. We will help make our food industry more competitive because we believe competition is the lifeblood of our economy,” Harris said earlier this month.
Interpreting the language, the plan could involve strict price controls, as the word “prohibit” suggests. Progressive economists also cite state-level price-gouging laws such as: Section 396-r New York's general business law effectively defines them as price controls, but avoids using that term.
Harris cited “support” for small businesses, which could take the form of federal grants, and increased “competition,” suggesting increased antitrust enforcement by the Justice Department and the Federal Trade Commission, whose antitrust divisions have been more active under Biden than under the previous administration.
Harris also spoke explicitly about civil “penalties” that could be imposed on companies as an additional policy tool.
The Harris campaign did not respond to questions about the details of the proposal and did not provide specifics about how the plan would become law.
Still, her support for anti-price gouging legislation suggests her approach may be particularly well suited to the kind of inflation we’ve seen since the pandemic.
Unlike the wage-price spiral that has occurred during past inflationary periods, prices have risen steadily throughout the pandemic as surging demand has run up against supply constraints, giving companies ample room to raise prices.
“Price gouging restrictions don't prevent companies from maintaining profit margins by passing on higher costs to customers and increasing their profits. But they do prevent companies from increasing their profit margins at least above a certain level in times of emergency, which can encourage extreme price increases,” Isabella Weber, an economist at the University of Massachusetts, told The Hill.
The Federal Reserve Bank of New York Seller's Inflation Weber and fellow economist Evan Wasner first outlined this in a recent paper: Policy Summary We analyzed prices in the food industry.
The Fed's economists noted that grocers' profit margins rose from 2.9% to 4.4% between 2019 and 2023 as prices rose by 25% over the period, mainly as a result of rising input costs.
Weber said the fact that simply maintaining margins would increase unit profits even as costs rise means that margin expansion in such a scenario is particularly problematic.
“Companies took advantage of public perceptions that the unique nature of the supply shock justified higher prices,” Weber said. “If public perceptions change, companies could come under pressure to lower prices.”
This week, the head of pricing at grocer Kroger Co. articulated rising costs as well as expanding industry margins — exactly what many CEOs have been doing on company earnings conference calls as post-pandemic inflation peaked.
“For milk and eggs, retail price inflation has significantly outpaced cost inflation,” Groff wrote in the email, which was released as part of the merger trial and first reported. Bloomberg.
More traditional economists say that banning unfair price gouging would lead to shortages because companies would be discouraged from producing products that they could not freely price however they wanted.
Gary Hufbauer, an adjunct senior fellow at the Peterson Institute for International Economics, called the proposal a “popcorn policy” designed to keep voters in a “good mood” before the election.
“Most of the time, it sells,” he told The Hill, “but if you try to do it in earnest, you'll create a shortage and a black market.”
In a report earlier this year, the FTC accused grocers of inflating their profit margins.
“Retailers' profits increased further in the first three quarters of 2023, with revenue reaching 7% of total costs, casting doubt on the assertion that grocers' price increases are simply keeping pace with retailers' own cost increases,” the regulator wrote in March.
“The increased benefit levels require further investigation by the Commission and policymakers,” they concluded.
But the grocery industry disputes accusations that it is raising prices beyond what is necessary to cover costs.
Greg Ferrara, president and CEO of the National Grocery Association, He told Fox Business Members of his industry group said rising food and labor costs had pushed their net profit margin to 1.4% in 2023.
“Wages have risen significantly since before the pandemic, but commodity prices have also risen significantly and, although they have come down a little, they remain high,” Ferrara said.
Across the economy, retail prices continue to rise and wholesale prices fall, even as the pace of inflation has moderated since 2022. The gap between the Consumer Price Index and the Producer Price Index is approaching its widest level on record.
Academic studies show that the rate of profit in the economy has been expanding for decades, rising from 1% to 8% since 1980. 2020 Papers Written by Jan de Loecker, Jan Eeckhout, and Gabriel Unger.
These trends are Economic Benefit Distribution It jumped more than a percentage point in 2021 before declining slightly in 2022. It remains high compared to the past decade and is currently at its highest level since the 1920s.
One of the forces behind the seller-side inflation the economy has experienced since 2021 is likely to be increased private sector market power due to greater concentration across industries.
S&P Global's analysis of sector consolidation in 2023 described the current economic climate as “the era of superstar companies.”
“In 91 of the 157 major industries tracked by S&P Global Market Intelligence, the top five U.S. companies by revenue accounted for at least 80 percent of the total revenue of publicly traded companies in their respective industries, up from 71 industries in 2000,” the analysts found.
