Revising Harris' strategy to prevent excessive pricing might inadvertently result in more complications than resolutions.
On a Friday, Vice President Kamala Harris suggested a solution: a federal ban on price hikes across the food industry.
"My strategy involves new penalties for enterprises that misuse crises and flout regulations," Harris mentioned at a political rally.
However, Harris' proposal could potentially create more complications than it aims to resolve, some economists argue.
Gavin Roberts, who examined anti-price hiking regulations implemented by certain states during the pandemic, observed a significant impact, especially at supermarkets. These regulations led people "to purchase goods more than they would if prices had escalated."
Generally, when prices skyrocket, the optimal action is typically inactivity, Roberts, the head of Weber State University's economics department, explained to CNN. This would enable consumers who are put off by costly items, such as beef, to opt for other types of meat or protein instead. This helps maintain beef availability on grocery store shelves for those willing to pay the higher prices.
Contrary to Harris' assertion that her proposal "will aid in Making the food industry more competitive," Roberts believed it would work against this. "It's more probable to maintain the current situation," he stated, as he believed it would discourage new competition from entering the market with increased profit margins — competition that could have contributed to lower prices over time.
Jason Furman, a prominent economist during the Obama administration, shared Roberts' views on how anti-price hiking regulations could unintentionally harm consumers. "This isn't sound policy, and I believe the best hope is that it becomes primarily rhetoric with little reality," Furman told the New York Times. "There's no upside here, and there is some downside."
Instead of pursuing anti-price hiking policies, Roberts suggested that Harris should look into what, if anything, is hindering new businesses from joining concentrated industries.
Supporting this perspective, a campaign fact sheet indicated that Harris also intends to provide more resources for "the federal government to detect and address price-fixing and other anti-competitive practices in the food and grocery industries."
The campaign team declined to comment on criticisms of Harris' proposed price hiking ban, instead directing CNN to Harris' speech and the briefing document published prior to it.
The Root Cause of Price Increases Lately
The verdict on the extent to which price hiking has contributed to inflation in recent times remains uncertain.
Research from the San Francisco Federal Reserve indicates that alleged corporate price hiking was not the primary reason behind the inflation surge that started in 2021, while progressive-leaning think tanks have published studies suggesting a more direct link.
Until late last year, businesses consistently informed investors during their quarterly earnings calls that customers continued to purchase goods despite price increases. This was due to sustained demand, driven by increased salaries and pandemic stimulus that boosted savings accounts. As such, many economists maintain that corporate profits were boosted primarily by the principle of supply and demand — not corporate greed (at least, not entirely).
Ultimately, the inflation that Americans have faced in recent times can be attributed to a multitude of factors, including the conflict in Ukraine, government spending, and pandemic-related disruptions across the economy. The extraordinary strain on supply chains during the pandemic, for instance, played a significant role in inflation's rise in early 2021.
And Harris' proposal had its supporters as well.
Lindsay Owens, executive director of Groundwork Collaborative, a progressive think tank, endorsed the plan. "I definitely do not think that the price hiking regulation will result in shortages," she informed CNN, adding that it would provide government agencies like the Federal Trade Commission additional power to "curb deceitful actors" who overcharge customers.
"It's commendable to see this assertive approach," she said.
In response to Harris' proposal, some business analysts might argue that implementing a federal ban on price hikes across the food industry could dissuade new competitors from entering the market, potentially hindering the industry's competitiveness in the long run. Moreover, prominent economist Jason Furman shared similar concerns, stating that such policies could lead to more rhetoric than reality, ultimately causing harm to consumers without clear benefits.
