With inflation and high grocery prices still frustrating many voters, Vice President Kamala Harris on Friday proposed a ban on “extortion” by food suppliers and supermarkets as part of a broader agenda aimed at lowering the cost of housing, medicine and food.
It’s an attempt to directly address a glaring vulnerability for Harris: Under the Biden-Harris administration, grocery prices have risen 21%, part of a wave of inflation that has pushed up overall costs by about 19% and left many Americans disappointed with the economy even as unemployment fell to historic lows. Wages have also risen sharply since the pandemic hit, outpacing prices for more than a year. Yet surveys show Americans are still struggling with higher costs.
“We all know that prices went up during the pandemic when supply chains stopped and failed,” Harris said Friday in Raleigh, North Carolina. “But our supply chains have improved now and prices are still too high.”
Will her proposals do much to lower prices? And what exactly is “price gouging”? The answers to these and other questions are below:
What is usury pricing?
There is no strict definition that economists would agree on, but it generally refers to price increases that typically follow a disruption in supply, such as after a hurricane or other natural disaster. Consumer advocates argue that predatory pricing occurs when retailers raise prices sharply under such circumstances, especially for essential items.
Is it illegal yet?
Several states already have restrictions on price gouging, but there is no ban at the federal level.
There are federal restrictions on related but distinct practices, such as laws prohibiting price fixing. These laws prohibit companies from agreeing not to compete with each other and to charge higher prices.
Will Harris’ proposal lower grocery prices?
Most economists would say no, although her plan could have an impact on future crises. First, it is unclear how much predatory pricing is going on right now.
Grocery prices are still painfully high compared to four years ago, but they rose just 1.1% in July from a year earlier, according to the latest inflation report. That’s in line with pre-pandemic increases.
President Joe Biden said Wednesday that inflation is under control, after Wednesday’s inflation report showed it fell to 2.9% in July, the smallest increase in three years.
“There’s a certain dissonance between claiming victory on the inflation front in one breath and then arguing that there’s all this profiteering going on that’s causing consumers to be hit with really high prices,” said Michael Strain, an economist at the American Enterprise Institute.
In general, after a spike in inflation, it is very difficult to get prices back to their previous levels. Sustained price declines typically occur only in steep, prolonged recessions. Instead, economists generally argue that the better approach is to keep wages rising enough for Americans to be able to absorb the higher costs.
Why is Harris talking about this now?
Probably because inflation remains a politically relevant issue. And many voters blame supermarkets, fast-food chains, and food and packaged goods companies for the inflationary surge of the past three years. Corporate profits rose in 2021 and 2022.
“It could be that they’re looking at polls that show that the number one concern of voters is inflation and that a large number of voters blame corporations for inflation,” Strain said.
At the same time, prices remain high, although not rising as fast, as Harris noted, because 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 increases the (profit) margins for both manufacturers and retailers,” she said.
Did price gouging cause inflation?
Most economists would say no, that it was a simpler case of supply and demand. When the pandemic hit, meatpacking plants were shut down intermittently after COVID-19 outbreaks, among other supply disruptions. Russia’s invasion of Ukraine raised the cost of wheat and other grains on the global market. Car prices rose because automakers couldn’t get all the semiconductors they needed from Taiwan to produce cars, and many auto plants temporarily closed.
At the same time, multiple rounds of stimulus checks were filling Americans’ bank accounts, and after curbs were imposed during the early stages of the pandemic, so-called “revenge spending” took over. The combination of stronger demand and reduced supply was a recipe for rising prices.
Still, some economists have argued that big food and consumer goods companies have benefited from pandemic-era disruptions. Consumers have seen empty shelves and heard countless stories of disrupted supply chains, and at least temporarily felt they had little choice but to accept higher prices.
Economist Isabella Weber of the University of Massachusetts at Amherst called it “seller inflation.” Others called it “greedflation.”
“Many companies took advantage of consumers’ willingness” to accept the disruptions caused by the pandemic, Pancotti said.
Is banning excessive prices the same as imposing price controls?
During the last inflationary peak of the 1970s, both Democratic and Republican presidential administrations sometimes imposed price controls, specifically limiting what businesses could charge for goods and services. They were widely blamed for creating shortages and long lines for gasoline.
Some economists say Harris’ proposal would have a similar effect.
“It’s a heavy-handed socialist policy that I don’t think any economist would support,” said Kevin Hassett, a former top economist in the Trump White House.
But Pancotti disagreed. She argued that it was more of a consumer protection measure. Under Harris’ proposal, the government would not specify prices, but the Federal Trade Commission would be able to investigate price increases.
“The proposal is primarily about protecting consumers from unscrupulous companies that only try to defraud consumers because they know they can,” she said.
