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

Against a backdrop of inflation and high food prices that still frustrate many voters, Kamala Harris proposed banning “price gouging” by food suppliers and grocery stores as part of a broader agenda aimed at lowering the cost of housing, medicine and food.

It’s an attempt to address head-on a clear vulnerability for Harris: Under the Biden-Harris administration, food prices have soared 21%, part of a surge in inflation that has raised overall costs by about 19% and left many Americans disheartened about the economy, even as unemployment fell to historic lows. Wages have also risen sharply since the pandemic and have outpaced prices for more than a year.

Still, polls show Americans continue to struggle with higher costs.

“We all know that prices went up during the pandemic when supply chains shut down and failed,” Harris said Friday in Raleigh, North Carolina. “But our supply chains have now improved and prices are still too high.”

Will your proposals go a long way towards reducing prices? And what is “price gouging” really?

The answers to these and other questions are below:

There is no strict definition that economists agree on, but it generally refers to sudden price increases that typically occur after a disruption in supply, such as after a hurricane or other natural disaster. Consumer advocates argue that profiteering occurs when retailers sharply raise prices, particularly on basic goods, in such circumstances.

Several states already restrict price gouging, but there is no ban at the federal level.

There are federal restrictions on related but different practices, such as price-fixing laws that prevent companies from agreeing not to compete with each other and setting higher prices.

Most economists would say no, although his plan could have an impact on future crises. For one thing, it is not clear to what extent price gouging is taking place at the moment.

Food prices remain painfully high compared with four years ago, but rose just 1.1% in July compared with a year earlier, according to the most recent inflation report. That’s in line with pre-pandemic increases.

President Joe Biden said Wednesday that inflation has been defeated after Wednesday’s inflation report showed it fell to 2.9% in July, the smallest increase in three years.

“There’s some dissonance between declaring victory on the inflation front on the one hand and then arguing that all this price gouging is leading consumers to face really high prices on the other hand,” said Michael Strain, an economist at the American Enterprise Institute.

In general, after an inflationary spike, it is very difficult for prices to return to their initial level. Sustained price declines tend to occur only in deep and prolonged recessions. Instead, economists generally argue that the best strategy is for wages to continue rising enough so that Americans can afford the higher costs.

Probably because inflation remains a hot political issue. And many voters blame grocery stores, fast food chains, and manufacturers of packaged foods and goods for rising inflation over the past three years. Corporate profits have soared in 2021 and 2022.

“It could be that they are looking at opinion polls that show that voters’ top concern is inflation and that a large number of voters blame corporations for inflation,” Strain said.

At the same time, even if prices aren’t rising as much, as Harris noted, they are still high even when supply chain issues have been resolved.

Elizabeth Pancotti, a policy analyst at Roosevelt Forward, a progressive advocacy group, points to the wood pulp used in diapers. The price of wood pulp has fallen by half from its post-pandemic peak, but diaper prices have not.

“That just increases the margins for both manufacturers and retailers,” he said.

Most economists would say no, that it’s more a case of supply and demand. When the pandemic hit, meat processing plants had to shut down occasionally after outbreaks of COVID-19, among other supply disruptions. Russia’s invasion of Ukraine drove up the price of wheat and other grains on world markets. Car prices rose because automakers couldn’t get all the semiconductors they needed from Taiwan to make cars, and many auto plants temporarily closed.

At the same time, several rounds of stimulus checks fattened Americans’ bank accounts, and after lockdowns during the initial phase of the pandemic, so-called “revenge spending” took over. The combination of increased demand and reduced supply was a recipe for rising prices.

Still, some economists have argued that big food and consumer goods companies took advantage of the pandemic-era disruptions. Consumers saw empty store shelves and heard numerous stories about disrupted supply chains, and at least temporarily felt they had no choice but to accept the higher prices.

Economist Isabella Weber of the University of Massachusetts at Amherst called it “seller inflation.” Others called it “greed inflation.”

“What a lot of corporations did was exploit consumers’ willingness” to accept the disruptions of the pandemic, Pancotti said.

During the last inflationary spike of the 1970s, both Democratic and Republican presidential administrations imposed price controls that specifically limited what businesses could charge for goods and services. They were widely blamed for creating shortages and long lines for gasoline.

Some economists say Harris’s proposal would have a similar impact.

“It’s a heavy-handed socialist policy that I don’t think any economist would support,” said Kevin Hassett, a former senior economic adviser in the Trump White House.

But Pancotti disagreed. He argued that it was more of a consumer protection measure. Under Harris’ proposal, the government would not specify prices, but the Federal Trade Commission could investigate sudden price increases.

“The proposal is really about protecting consumers from unscrupulous corporate actors who try to defraud consumers simply because they know they can,” he said.