Vice President Kamala Harris, who has been the presumptive Democratic nominee for about a month, finally has a new series of proposals to turn the US economy around. Despite sitting in the White House alongside President Joe Biden since January 2021, Harris plans to grapple with key issues affecting families once she’s elected, from supermarket prices to housing costs. The one 2024 campaign plank that has captured the attention of many has been her proposal to install price controls.
Kamalanomics 101: Price Controls
If elected in November, the vice president will prioritize lowering the cost of groceries and prescription drugs, bolstering affordable housing, and cutting taxes for the middle class in her first 100 days. "These bold actions will address some of the sharpest pain points American families are confronting and bolster their financial security,” the Harris campaign stated in a fact sheet released Friday, August 16.
A possible Harris administration would lay out the "rules of the road" to ensure businesses "can’t unfairly exploit consumers to run up excessive corporate profits" on supermarket staples. This would consist of expanding the power held by the Federal Trade Commission (FTC) and state attorneys general. Put simply, the core of her initiatives would rely on enhancing regulations and increasing anti-trust enforcement.
This proposal builds on the administration's joint FTC-Justice Department task force, announced earlier this year, which targets what the White House deems unfair and illegal price gouging. Indeed, price controls by any other name would smell as rancid.
Are Price Controls Necessary?
The current administration and Democrats in Congress have repeatedly insisted that corporate America is price-gouging and bolstering its profits. This – and only this – is the cause of rampant price inflation at supermarkets and everywhere else, they claim. However, the government’s data does not support this assertion, and the numbers dispel the myth that companies are juicing the Consumer Price Index (CPI) or the Personal Consumption Expenditure (PCE) price index.
Since January 2021, like consumers, businesses have been wrestling with higher costs, from energy to labor to materials. The Producer Price Index (PPI), a gauge that measures prices companies pay for goods and services, has surged by more than 25% over the last three-plus years. In this same span, the CPI has surged by approximately 20%. The food manufacturing component of the PPI has risen 27%. Individual food items have also rocketed over the last few years: eggs (94%), beef (39%), bread (28%), and rice (30%). Are politicians calling farmers greedy?
San Francisco Fed economists also noticed these figures, writing in a May 2024 paper: "An increase in pricing power would be reflected in price-cost markups . . . [and] aggregate markup across all sectors of the economy . . . [which] has stayed essentially flat during the post-pandemic recovery."
EJ Antoni, a Heritage Foundation economist, said it best on the social media platform X: "Average costs paid by businesses have risen just as much as costs charged to consumers – if businesses are being 'greedy,' they're doing it all wrong.” However, the White House and the Harris campaign cannot be informed of this reality because it contradicts the narrative that shrinkflation and price gouging are the true causes of financial plight rather than the Leviathan’s never-ending feast on the public’s purchasing power.
The Economics of Price Controls
The vice president is ostensibly ripping a page from history – without ever reading the book. The United States, the world's largest economy and the supposed beacon of free markets, has a long record of instituting price controls, from Presidents Franklin Delano Roosevelt to Jimmy Carter. Of course, the most egregious example was under former President Richard Nixon.
In response to rising price inflation and unemployment – both at around 6% in 1971 – the Republican president attempted to counter these trends by imposing a 90-day freeze on prices and wages for the first time since the Second World War. Credit to Nixon, leading up to the official announcement, he understood the dangers of these policies, conveying to the then–Federal Reserve Chair Arthur Burns and incoming Treasury Secretary John Connally that these efforts would "socialize America." A couple of years later, he reimplemented a temporary freeze.
At first, these public policy pursuits were effective, taming inflation. The American people also endorsed this plan. However, it did not take long for inflationary pressures – and basic economics – to come roaring back. Daniel Yergin and Joseph Stanislaw wrote in The Commanding Heights: The Battle for the World Economy: “Ranchers stopped shipping their cattle to the market, farmers drowned their chickens, and consumers emptied the shelves of supermarkets.”
While there was no emergency in the United States, Nixon behaved as if there were, obtaining powers typically abused by the government. Perhaps the real emergency for Nixon was his cratering approval rating, initiating a shock felt around the world.
Price controls, whether ceilings or minimums, have been tried worldwide for centuries. The contention is that these short-term panaceas are needed to fight gouging. The reality is different: Price controls produce shortages by fracturing the natural order of supply and demand and forcing companies to stop producing goods because it is unprofitable.
Eminent economist Ludwig von Mises famously asserted in 1950 – in his "Middle-of-the-Road Policy Leads to Socialism” literature – that when the government tries to bolster cheap milk supplies by using price-fixing mechanisms, the regulators and politicians must institute price controls on all of the components necessary to produce milk. As time passes, the government will need to impose price controls on everything to ensure a ceiling on the price of a carton of milk. Eventually, a price ceiling will manufacture a black market, create a climate of favoritism, stifle innovation, stop investment, and strangle the free-enterprise system.
Solutions
The post-pandemic inflation bomb reset prices across industries everywhere. US officials, from Treasury Secretary Janet Yellen to Fed Chair Jerome Powell, have admitted that prices will not return to pre-crisis levels. So, what is the trick to fight above-trend inflation? The solutions might be politically unpopular and will result in tremendous blowback, but halting the printing press and stopping spending would be the prescription for what sickens the US economy. Harris’ proposals aren’t new ideas – and if they could be made to work, they would already be in place and printed in every Econ 101 textbook. If only it were so, they would never have to endure high prices again.
