Kamala Harris is wrong. American economic history is full of failed price control policies
Politicians regularly flatter voters with ideas that sound appealing but are harmful in practice. The knee-jerk promise to introduce price controls to greedy Preventing companies from ripping off consumers with high prices is one example of this kind of bad policy. Yet in one of her first policy proposals as the Democratic Party’s nominee for the White House, Kamala Harris insisted that the country needs “the first-ever federal ban on price gouging on food and groceries.” She would “establish clear rules to make it clear that large corporations cannot unfairly exploit consumers to generate excessive corporate profits on food and groceries.”
While these allegations are vague, they clearly do not apply to grocery retail. In 2022, when inflation was at its peak, the average grocery store profit margin was 2.3%. Not only was this profit margin lower than in 2021 (2.9%), but it was also well below the average business profit margin of between 8 and 9%. To make the exploitation argument even stranger, profit margins fell further in 2023 to 1.6%.
While shortages in the wake of the COVID-19 pandemic caused supplier prices to rise more than general inflation, when grocers exploit consumers and charge extortionate prices, they are clearly the worst profiteers ever. Grocery retail is a low-margin, high-turnover business. Consumers are neither exploited nor ripped off. They can walk into the grocery store of their choice and find tens of thousands of products.
As is often the case, good economic policy leads to bad policy. Blaming corporations is politically expedient. Scapegoating corporations also lends a semblance of logic to the price control policies favored by Democrats. After all, if corporate price increases cause inflation, it follows that banning those price increases will remedy it.
The problem is that history is not on the vice president’s side. American economic history is full of failed price control measures.
For example, to counteract the inflationary pressures of World War II, Roosevelt introduced a comprehensive system of price controls and rationing.
While price controls were in place, prices stopped rising, but visible price increases were replaced by problems such as shortages and “shrinkflation.” Finally, price controls were lifted in 1946, and the annual inflation rate shot up to over 20% in 1947.
President Richard Nixon also failed to learn from history and in 1971 introduced a wage and price control regime that froze wages and prices for 90 days. The controls were then gradually relaxed over time. Instead of relief, this decision brought “bottlenecks and long lines,” according to the John Locke Foundation, which “frustrated consumers for years.”
The list of examples could go on, but the theme is always the same: price controls fail to stop inflation and ultimately impose costs that far exceed the burdens associated with the original inflation. Importantly, the negative consequences of anti-price gouging laws do not apply only to the fight against inflation. These controls never work, no matter how much they promise, and often lead to perverse, if not cruel, results.
Today, price gouging is enshrined in law across America. Take the case of John Shepperson, a Kentucky man who bought 19 generators from Home Depot, took time off work, rented a truck and drove 600 miles to Mississippi, where victims of Hurricane Katrina needed power in 2005. “John offered to sell his generators at double the price to cover his costs and make a profit,” says Mark Perry, an economist at the American Enterprise Institute.
Although “people were desperate to buy his generators,” needy Mississippians never had the opportunity. Shepperson was arrested for violating Mississippi’s price gouging law and held for four days. The generators were confiscated, Perry says, and never reached consumers with urgent needs. The prices Shepperson wanted to charge were high. But when locally available generators sold out, as they do in an emergency, those who came after the last purchase became victims of both the storm and laws that create artificial scarcity.
Historically, price controls have not lived up to the expectations of their proponents because they fail to address the root causes of the problem and result in a number of harmful and unintended consequences. Harris’ plan to raise prices follows the same pattern. It fails to understand the causes of inflation and fails to take into account the harmful consequences that price caps inevitably bring.
Given this history, the best we can hope for is that the Vice President’s proposal is simply to curry favor with voters and that she has no intention of implementing it. Otherwise, consumers will pay a very high price.
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