Vice President Kamala Harris wants to make groceries cheaper. However, her vague proposal to ban “price gouging” will have the opposite effect.
Economists, not known for consensus, agree on one thing: Price controls don’t work. By mandating price ceilings, government price controls always lead to shortages.
And this isn’t some abstract economic theory; instead, it’s a real-world observation of their historically bad track record.
Anybody who bought gasoline in the 1970s can attest. To curb high fuel prices and inflation, the U.S. government instituted price controls on gasoline. This disastrous policy resulted in long lines of cars at fueling stations that spilled into the streets.
The 1970s fuel shortages gave Americans, in the words of Hugh Rockoff, “a little taste of what life was like for people in the Soviet Union.” Under oppressive price controls, citizens endured “the Soviet queues,” waiting in long lines to buy household necessities. In its callous efforts to control inflation, the Soviet system also reduced its citizenry to a brutally low standard of living.
Interestingly, an American grocery store began the downfall of Soviet central planning. In 1989, Boris Yeltsin—who supported the USSR dissolution and, in 1991, became Russia’s first elected president—visited a Houston neighborhood market. The abundance of affordable goods and the lack of lines amazed Yeltsin.
“I think we have committed a crime against our people by making their standard of living so incomparably lower than that of the Americans,” said Yeltsin during his return flight to Moscow.
The USSR wasn’t the only Marxist-Leninist country to abandon its centrally planned economy.
China emerged as a global superpower because of markets, not socialism. In the 1980s, the Chinese Communist Party instituted several market reforms, including privatizing its industries, removing state monopolies, and lifting all price controls. Since then, China’s economic output has grown 36-fold.
Assuredly, China is no bastion of liberty. To call the country’s human rights record appalling is an understatement.
However, Harris’s unforced error borrows from the economic failures of these authoritarian countries. “When your opponent calls you ‘communist,’ maybe don’t propose price controls?” writes Catherine Rampell, an opinion columnist at the Washington Post.
Harris is correct about one thing: Groceries are expensive. Since President Joe Biden took office, grocery prices are up about 20 percent. Even Harris concedes—despite rosy claims of reduced inflation—prices remain too high.
Yet, while Harris and her followers correctly identify the problem, their diagnosis is wrong.
During his most recent State of the Union address, Biden claimed that “shrinkflation”—companies reducing product sizes to cut costs—was the root of the problem. The President encouraged lawmakers to pass legislation, sponsored by U.S. Sen. Bob Casey (D-PA), that would empower the Federal Trade Commission to crack down on these corporations.
Casey’s bill is a direct attack on his constituents. Pennsylvania is home to “the Snack Belt,” with more than two dozen snack food companies competing internationally. Over 80 percent of pretzels consumed in the United States originate in the Keystone State. Penalizing these companies with arbitrary regulations would wreak havoc on Pennsylvania’s already vulnerable economy.
Moreover, shrinkflation didn’t cause grocery bills to skyrocket. Instead, injecting trillions of federal dollars into the money supply—coupled with pandemic-related supply chain failures and pent-up demand from locked-down consumers—destroyed the dollar’s value.
Now, politicians—often the ones who claimed inflation would be “transitory”—offer policies that undermine the foundation of our market economy.
Prices provide essential signals. When low, they tell producers to throttle down production and avoid costly surpluses. When high, they influence producers to ramp up production and meet increasing demand. Without a market-defined price, this natural equilibrium cannot achieve the proper balance between supply and demand.
To make matters worse, price controls, especially on groceries, are a solution in search of a problem. Profit margins at grocery markets are already razor-thin—1.2 percent compared to 8.5 percent across all industries. Due to competition, grocery stores can’t afford to be “greedy.”
Artificially controlling prices amounts to shortsighted economic suicide.
If we want the United States to compete internationally, the last thing we should do is hobble our economy with price controls. In the long run, citizens benefit from marketplace competition, not unnecessary government intervention.
Please follow DVJournal on social media: X@DVJournal or Facebook.com/DelawareValleyJournal
