Stop calling Kamala Harris’ anti-pricing proposal price control

Last month, Democratic presidential candidate Kamala Harris announced that if elected, she would support the first-ever federal ban on price gouging on food and groceries. Her opponent, Donald Trump, immediately attacked the idea as “Soviet-style price controls.” He wasn’t alone in his heated opinion. Several mainstream media outlets accused Harris of the same thing. “It’s hard to overstate how bad this policy is,” he snorted. Washington Post economics columnist Catherine Rampell. “It is, in all but name, a broad set of price controls enforced by the government on every industry, not just food.”

But that assessment is bunk. Harris’s real plan has nothing to do with price controls. Instead, it would clearly leverage a very different set of government powers, which states, including ruby-red ones like Alabama and Kentucky, have used robustly and without major controversy for decades. They are also widely popular, with approval ratings in the 80 percent range in some polls. I have personal experience with this, having used anti-price gouging laws in legal work I did for New York Attorney General Letitia James during the pandemic. The vice president is simply proposing that Congress extend these long-standing powers to the federal government—although a strong argument could be made that the Federal Trade Commission (FTC) already has anti-price gouging powers, so a future Harris-Walz administration would be able to act independently of what Congress does.

The degree of alarm that the announcement has stirred in some elite circles is understandable, if unwarranted. While price gouging bans are nothing new or particularly problematic, they do represent a profound and wise recognition that educated Americans in the libertarian era that began with Ronald Reagan have failed to recognize: that the “invisible hand” of the market does not always exist in reality as it did in its Platonic form, and that the magical “price discovery” promised by keeping government out of the way does not always work. All markets have and need rules, and they need rules not only about quality and safety but also about power and exploitation. As president, Joe Biden surprised many by breaking away from fundamentalist market thinking and becoming the greatest trust buster our country has seen in 50 years. Harris’s announcement about price gouging suggested that she would not turn away from the path he had charted, but would instead embrace it and leave behind a powerful legacy of a new — and old — vision of economics that puts issues of power at its center.

Price gouging laws in America are based on the observation that there are situations in which the asymmetry of power and information is too great for the price that “emerges” from these dynamics to remain unregulated. In times of crisis, companies can effectively set any price they want, using the disaster as leverage to reap windfall profits. When a hurricane knocks out all the power in a community, for example, grocery stores with generators could repeatedly raise prices, knowing that families with refrigerated food would have to pay the new prices or their children would go hungry. Such predatory behavior does happen, but it is much less common than it would be because grocers and other retailers know they could be investigated and charged with price gouging.

Free-market thinkers oppose anti-pricing laws as harmful interferences with the laws of supply and demand. They argue that large price increases are valuable market signals that warn investors and companies that there is money to be made by expanding production capacity to produce more of the goods they need. The problem, as I recently noted in Atlanticis that when the increase in demand is clearly the result of a temporary emergency that will subside when things return to normal, producers have little incentive to expand capacity. Rather, they have little interest in raising prices and enjoying higher profits while they last. Anti-pricing regulations are specifically tailored to precisely such scenarios.

Anti-pricing laws are similar to other long-established rules that restrict a company’s ability to set prices without dictating what that price might be. For example, predatory pricing (setting prices below cost to drive out a competitor) is illegal, as is price fixing (colluding with a competitor to fix prices). Add to that list securities fraud, insider trading, and price discrimination based on protected characteristics like race and gender. Like anti-pricing laws, these laws do not cover the government dictating a set price, but instead protect the market from pricing techniques that are exploitative.

It’s worth emphasizing how trivial and ordinary anti-pricing laws are. The overwhelming majority of states have them, and those that don’t have them have general “unfair business practices” laws that are used to prohibit price gouging. During COVID, some states and jurisdictions have enacted COVID-specific price gouging laws — most of which have since expired — and it’s not uncommon for other emergencies to trigger content or emergency laws. These laws generally work the same way — prohibiting the inflating of profit margins during an unexpected market disruption. All of them allow price increases to the extent that it results from an increase in costs, but prohibits profit increases so that companies cannot take advantage of the fear, anxiety, confusion, and panic that accompany crises. Price gouging laws almost always apply only to necessities, because rationing by ability to pay for essential goods (e.g., food and medicine) is more morally disturbing than rationing for luxuries (e.g., home pizza ovens or tickets to the Oasis) and also gives greater leverage to the seller.

Courts review hundreds of price gouging cases each year. Most are prosecuted by law enforcement (attorneys general and district attorneys); others are brought by private parties. But the real power of price gouging laws is that they warn companies: If you raise prices during this snowstorm/gas explosion/labor strike, we’ll call you. Companies know the law, usually follow it, and instruct their sellers not to jump on surprise market shocks to raise prices.

But the pandemic was not a local or regional disaster but a global one that state attorneys general could not have handled alone. With limited budgets and staff, attorneys general could investigate, say, local grocery chains for raising prices on diapers, but not manufacturers and distributors who set exorbitant prices for those items—especially when the companies are based in other states or countries and protected by phalanxes of white lawyers and accountants.

Worse, markets for essential goods like food and gasoline have consolidated under years of weak antitrust enforcement in Washington, giving big, monopolistic companies more pricing power. For example, a handful of companies that dominate the meat and poultry industry raised prices well above their costs of production in the first year of the COVID-19 pandemic, boosting their profit margins by 300 percent, according to a White House study. This seemingly textbook case of price gouging was crying out for a federal response. But the federal government has no specific statutory authority to prosecute such cases, so Harris’s proposal makes sense.

Another way to accomplish the same goal would be for Harris to encourage the FTC to issue a rule on price gouging, much like Biden encouraged the agency to issue a rule on non-compete clauses (which it did last year). Section 5(a) of the FTC Act prohibits “unfair or deceptive acts or practices in or affecting commerce.” The FTC has the authority to review state laws and practices generally on what is unfair, collecting qualitative and quantitative data to determine whether something is unfair by looking at how much harm it causes consumers, whether consumers can avoid it, and whether it tends to harm competition. There is a strong argument that price gouging is an “unfair practice” that meets all the criteria of Section 5, which is bolstered by the fact that many states treat price gouging as an unfair business practice under their state systems. While a state finding that a practice is “unfair” under state law is not necessary to establish a federal rule, decades of consensus on price gouging would be extremely helpful in legally substantiating the rule.

The FTC also has a history of investigating price gouging. It has investigated price gouging, including gasoline prices after Hurricane Katrina. It recently investigated grocery prices. But to do more, it would undoubtedly need more resources. The FTC’s staff is now 30 fewer than it was in 1979, while the sophistication and number of targets have increased. Successfully investigating price gouging in the oil and gas industry, for example, would be a formidable challenge. Companies like BP and Exxon Mobil routinely contract with dozens of law firms and employ hundreds of in-house lawyers—all of the FTC’s in-house lawyers combined are fewer lawyers than the lawyers employed by the supermajors themselves, and that’s just one industry!

In popular culture, price gouging has a second, broader meaning than in law. This broader meaning includes more everyday situations in which asymmetries of power enable price increases. For example, many people believe that Ticketmaster is “overpricing” them because Ticketmaster is a monopoly, or that they are “overpriced” when airlines appear to raise prices just for them based on their browsing history.

The way to deal with these problems is for the Harris administration, if elected president, to continue and intensify the Biden administration’s heavy-handed enforcement of antitrust laws. That she intends to do so is clear from the fact sheet the Biden-Harris campaign released announcing its anti-price gouging plan. It states that Harris “will also direct her administration to crack down on unfair mergers and acquisitions that give large food corporations the ability to raise the prices of food and groceries and undermine the competition that allows all businesses to thrive while keeping prices low for consumers.” She also says that her plan “will support smaller businesses, such as grocery stores, meatpacking plants, farmers and ranchers, so that these industries can become more competitive.” It’s a clear signal that she will continue FTC Chairwoman Lina Khan’s nascent efforts to enforce laws like the Robinson Patman Act, which prohibit big companies from using their monopoly buying power in ways that force higher costs on smaller retailers.

Harris did not provide details about how her anti-pricing proposal would be implemented. That has led some journalists to blame her for the widespread accusation that she plans to impose draconian price controls. That’s nonsense. The phrase “pricing” has an established meaning in law: Companies cannot significantly increase their profit margins on essential goods during an unexpected market shock. Ignorance of the law is no excuse for bad expert judgment.

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