Ignoring the Economists: The Ongoing Debate over Price-Gouging Bans

Kamala Harris’s plan to tackle price gouging is ruffling the right feathers.

The New York Post cover page engages in its usual red-baiting while contending that laws against price-gouging have “failed in every communist country that has tried [them].”

This week, Kamala Harris released part of her economic policy platform, which includes the introduction of a new federal ban on price-gouging. The response was near hysterical, with commentators across the political spectrum treating this announcement as an economic heresy and rushing to compare her policies to some of history’s worst authoritarian regimes. Donald Trump (and the rest of the Republican party) accused her of Communism (“Kamunism,” if you must). The Washington Post published an opinion piece claiming that “It’s hard to exaggerate how bad Kamala Harris’s price-gouging proposal is.” Centrist blogger Noah Smith accused her of turning to “the dark side of progressive economics.” All of these criticisms included some hackneyed reference to Venezuela or the Soviet Union.¹

The history of price controls in America is complex. I attempted to summarize it in a post I wrote nearly a year ago after reading a short book by J.K. Galbraith, the administrator of the US’s largely effective price controls during World War 2:

Most commentators on price controls, even their most vocal advocates, would admit that the historical record of price controls is dismal. Limited human knowledge, real material constraints, the emergence of black markets, and political opportunism dulled their effectiveness and distorted economic incentives. Yet, it’s also clear that they’ve worked fairly well in some instances since the rise of concentrated industries, particularly in the context of World War 2. Even papers quite critical of price controls tend to include a caveat noting that they “may make a positive contribution by calming [inflationary] fears” or that there are situations in which “temporary controls may be effective.” Despite the economic community’s apprehensions, it seems that the reopening following the pandemic likely was one of those situations. The price increases in several industries were driven primarily by excessive margins in concentrated industries; there was tons of slack in the labor market; and shortages likely could have been held at bay. For years, economists scoffed at the idea of greedflation, though it’s becoming increasingly accepted. Now, they need to come to grips with how greedflation can be solved the next time it comes around. Price controls are at least worth serious consideration.²

Back then, even the aforementioned Noah Smith could begrudgingly admit that “price caps on oil and gas has been part of what has pushed inflation down from the 8-9% range to the 4-5% range” while remaining adamantly opposed to “anything resembling the more general regime of price controls…which the U.S. implemented in World War 2.”³

And let’s be clear. While the details of Harris’s price-gouging ban have not been spelled out in full, it’s almost assured that it will amount to nothing close to a generalized set of controls. Her use of the word “gouging” instead of “controls” is telling in itself. It suggests that her policy will look similar to the price-gouging laws already on the books in over 30 US states for which there’s already a vast repository of scholarship and precedent. This point was outlined in one of the few articles unabashedly defending VP Harris’s policy proposal, an article in The Atlantic by progressive law professor Zephyr Teachout. She explained that:

Price gouging in the popular imagination has a “know it when you see it” quality, but it is actually a well-developed body of law. A typical price-gouging claim has four elements. First, a triggering event, sometimes called an “abnormal market disruption,” such as a natural disaster or power outage, must have occurred. Second, in most states, the claim must concern essential goods and services. (No one cares if you overcharge for Louis Vuitton handbags during a hurricane.) Third, a price increase must be “excessive” or “unconscionable,” which most states define as exceeding a certain percentage, typically 10 to 25 percent. Finally, the elevated price must be in excess of the seller’s increased cost. This is crucial: Even during emergencies, sellers are allowed to maintain their existing profit margins. They just can’t increase those margins excessively.⁴

These state-level price-gouging laws are commonsensical and have been used repeatedly to stop obvious abuses of market power in times of emergency. For example, after an egg supplier raised prices by 300 percent during COVID lockdowns, Republican Attorney General Ken Paxton sued them; Kansas Attorney General Kris Kobach did the same to a natural gas company that jacked up prices after a winter storm.⁵ These sorts of controls are common sense and extremely popular, a sort of “poor man’s antitrust”⁶ that prevents large companies from taking advantage of desperate consumers in times of catastrophe. The adequate fear to be had by economists in these circumstances is not that anti-gouging laws will create Venezuela-style shortages, but rather that the absence of such laws would put essentials out of reach for people unable to pay rapacious markups.  

However, most commentators have not responded to Teachout’s article, except to feign offense at its provocative (and correct) title: “Sometimes You Just Have to Ignore the Economists.” One opinionated economist even went so far as to equate ignoring the predominant opinion of economists to ignoring the law of gravity, as if his own bloviating was as scientifically rigorous as Newton’s laws.⁷ The problem, in this instance, is not with economics. There is considerable economic research demonstrating that price controls can promote economic efficiency and more equitable allocation of resources, particularly when market power exists in an industry.⁸ The problem is with a subset of economists whose insights are biased by ideological lenses and a tendency to presume markets will behave as if their structure is perfectly competitive. 

There are some adequate (though minor) concerns with Harris’s proposal and how it’s being sold. First, some observers are concerned that the Federal Trade Commission does not have the authority to implement Harris’s ban. I don’t have the legal chops to determine whether this is true but to be safe Harris should prioritize passing something like Senator Elizabeth Warren’s Price Gouging Prevention Act of 2024. 

More troublingly, the proposal is being sold as a way to bring down the cost of groceries but inflation at grocery stores has markedly slowed in the last year, and their typical profit margins are under 3%. Noah Smith was largely correct in noting that “We already beat grocery inflation. It’s over. Harris’s big policy scheme is aimed at a problem that no longer exists.”⁹ The White House’s Council of Economic Advisers has tried to argue that grocery store margins are still elevated above pre-pandemic levels, but they misleadingly include all retail food and drink sales (including those at bars and restaurants) in their calculations.¹⁰ Still, there remains concern that concentrated middlemen within the grocery supply chain (i.e. meatpackers and egg producers) are driving up grocery costs —or at least keeping them unreasonably elevated— by gouging stores, which would obviously not show up in the stores’ margins but still increase prices for consumers. Harris’s anti-gouging measure could mitigate these problems but it is too soon to tell. Additionally, even if grocery inflation has been entirely vanquished, a law that prevents its recurrence would surely still be worthwhile; at worst it would merely be a redundant insurance policy and deterrent against future gouging attempts. 

Although this figure is titled “Grocery Store Margins,” it actually reports margins for all food and beverage retail. This came to my attention because of Ernie Tedeschi’s replication of this same figure (with accurate labels) on his Twitter account on 8/15/24.

So, we’re left to ask: how did a policy that has been long embraced in a majority of American states suddenly become regarded as a specter of communism? Surely the highly apologetic nature of the economics profession —and its insistence on downplaying the role of corporate market power in fueling inflation — plays a crucial role here. That’s why sometimes it is necessary to ignore the economists, though not economics.

1. See Gans, Jared. “Trump shares fake image of Harris speaking to communist event.” The Hill. August 19, 2024. https://thehill.com/homenews/campaign/4834669-trump-fake-photo-harris-communist/, “When your opponent calls you ‘communist,’ maybe don’t propose price controls?” The Washington Post, August 15, 2024 https://www.washingtonpost.com/opinions/2024/08/15/kamala-harris-price-gouging-groceries/, and Smith, Noah. “Harris makes a big mistake by embracing price controls.” Noahpinion, August 15, 2024.

2. Unraveling Economics. “Can Price Controls Work?” October 18, 2023.

3. Smith, Noah. “Price controls: Too early for a victory lap” Noahpinion, June 9, 2023.

4. Teachout, Zephyr. “Sometimes You Just Have to Ignore the Economists,” The Atlantic, August 22, 2024, https://www.theatlantic.com/ideas/archive/2024/08/economists-kamala-harris-price-gouging/679547/

5. Stratford, Michael. “Trump blasts Harris plan to ban price gouging as communism. But GOP states already block some price hikes,” Politico, August 24, 2024, https://www.politico.com/news/2024/08/24/trump-harris-price-gouging-groceries-00176247

6. Teachout, Zephyr. “Sometimes You Just Have to Ignore the Economists,” The Atlantic, August 22, 2024, https://www.theatlantic.com/ideas/archive/2024/08/economists-kamala-harris-price-gouging/679547/

7. See https://x.com/PhilWMagness/status/1826687800739332398

8. See, for instance: Cuesta, José Ignacio, and Alberto Sepúlveda. "Price regulation in credit markets: A trade-off between consumer protection and credit access." Available at SSRN 3282910 (2021).

9. Smith, Noah. “Harris makes a big mistake by embracing price controls.” Noahpinion, August 15, 2024.

10. The White House Council of Economic Advisers. “Update: Grocery Price Inflation Has Cooled Substantially,” June 20, 2024, https://www.whitehouse.gov/cea/written-materials/2024/06/20/update-grocery-price-inflation-has-cooled-substantially/