It is true that I am not a fan of many of Trump's economic policies. This year, I criticized his proposed tax exemption on Social Security benefits, tax exemption on tipping (which Harris later copied), his past steel tariffs, and his proposed 60 percent tariff on China. Trump has delved into economic illiteracy more than once, but it looks like Harris could very well outdo Trump in terms of economic lunacy.
Harris previously advanced certain economic idiocies, such as the Green New Deal, Medicare for All, abolishing private health insurance, and a federal subsidy for rent payments. Now we can add more items to that list of insanity. Last week, Harris released her economic plan for what she would do to lower prices if elected. One of the items in her plan was to "advance the first-ever federal ban on price gouging on food and groceries," which I think takes the cake (pun intended) for dumbest policy proposal during this presidential election cycle.
Forget for a moment how in the world a Harris administration would even begin to determine what constitutes a "fair price" in a complex market with a myriad of grocery items and price differentiation in different regions of the country. It is unclear as to why Harris wants to apply "price gouging" laws to the grocery industry specifically.
The grocery market has a profit margin of 1 to 3 percent, which is lower than other retail markets. I dispelled the notion of "greedflation" in late 2022. More specific to this particular market, if grocery stores were really trying to gouge consumers, their profit margins would be much higher. In reality, grocery stores are operating on razor-thin profit margins, which implies a lack of price gouging. How much more difficult do you think it would be if a Harris administration would squeeze these small profit margins even further?
The lack of profit margins is not the only reason that Harris' plan is a solution in search of a problem. Jason Furman, who is a Harvard economist and was the chair of Obama's Council of Economic Advisors, told the New York Times that prices have stabilized and that price controls were unnecessary. This assertion will be confirmed with food inflation data shortly. If that were not enough, the Federal Reserve Bank of San Francisco released a research paper in May of this year showing the lack of correlation between the alleged price gouging and inflation (Leduc et al., 2024).
Then there is food as a percentage of income to consider. As data from the U.S. Department of Agriculture illustrate, food has accounted for about 11 percent of income for the past couple of years. Food has accounted for the highest percentage of income that it has been in about a decade. However, I want to bring up two points about food as a percent of income.
One, people on average are spending more on eating, which is important given that it is more expensive to eat out than it is to eat at home. This is even more important given that inflation on food at home increased by 1.1 percent in the past 12 months, whereas it increased by more than triple for food out, at 4.1 percent (Bureau of Labor Statistics; see below). If people are worried about food prices, they should eat out less.
Second, what we spend on food as a percent of income is lower than it has been in the past. That is not only evident in the graph below. Left-leaning economist Dean Baker brings up that food accounted for nearly a quarter of one's budget back in the mid-1940s.
Most importantly, her "price gouging" proposal is nothing more than a price control limiting how much grocery stores can charge for groceries. Rather than make groceries cheaper, price controls on groceries would make groceries more expensive.
How do I know this? Over the past four millennia, price ceilings have been a disaster when implemented, whether it is drug pricing, an overdraft cap, fixed exchange rates, price-gouging laws during natural disasters, consumer loan interest rate caps, and Harris' beloved rent control. You can read more at this article from the Cato Institute here. To quote a 2020 research paper from the World Bank:
"Although they are sometimes used as a tool for social policy, price controls can dampen investment and growth, worsen poverty outcomes, cause countries to incur heavy fiscal burdens, and complicate the effective conduct of monetary policy."
Groceries are not exempt from the law of supply and demand. In her plan, Harris stated that market consolidation is what is causing the high grocery prices in the first place. When I analyzed this topic in March, I concluded that the Federal Trade Commission (FTC) should not get in the way of the Albertsons-Kroger merger. I brought up how that given the ever-evolving nature of the grocery market, the merger is actually an example of increased competitiveness. If Harris succeeds in limiting prices, it limits a company's ability to grow and its willingness to operate, especially in less populated areas. As we see in the chart above, a price ceiling limits supply, thereby increasing prices.
This is not only criticism from a libertarian/fiscal conservative/capitalist such as myself. When the Left-leaning Washington Post, CNN, New York Times, and Newsweek all comment on its considerable flaws, you know Harris' plan of implementing price controls on groceries is a terrible idea. Rather than lower grocery prices, a price ceiling on groceries would limit the supply of groceries while exacerbate the inflation she is trying to prevent. Since Harris has not specified the extent to which she would like to meddle in the market, we do not know the exact magnitude of harm. However, if past price ceilings have taught us anything, her "price gouging" proposal will not help the everyday shopper.
I believe it is hard for Harris to have a clear view when she is defending Bidenomics instead of acknowledging the administration's role in exacerbating inflation. She might be proposing this price-gouging law to tacitly compensate for the Biden administration's failures in this respect, although she is trying not to be too critical since Biden is the incumbent and she was an ardent supporter of Bidenomics. It was actually both expansionary monetary policy and expansionary fiscal policy that got us into this inflationary mess. Given the size of the money supply and the amount of debt incurred during the pandemic, we unfortunately are not going to see pre-COVID prices anytime soon.
What worries me about this proposal, along with the rest of her economic plan, is that she wants a government that is even more heavy-handed than the Biden administration has been. With this "price gouging" law, she wants to blame a nonexistent boogeyman (Sorry, it's 2024...that should be boogey-person) of "greedflation." She should read this report from the John Locke Foundation, which illustrates such causes of food inflation as supply chain issues from the pandemic that have not resolved, labor shortages, and increased production costs. By addressing the root causes of food inflation, she would at least better target her concerns instead of using an economic policy that has failed time and time again.
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