‘Believe me, as president, I will go after the bad actors and I will work to pass the first-ever federal ban on price gouging on food,’ Kamala Harris declared in a speech on 16 August, adding: ‘My plan will include new penalties for opportunistic companies that exploit crises and break the rules’ (tinyurl.com/7c373bda).
Price gouging is not a term employed this side of the Atlantic where the equivalent would be ‘profiteering’ or ‘rip-off’. Basically, it’s when a firm or individual selling something to the general public takes advantage of some temporary shortage to jack up the price and reap an extra profit beyond what they would get in normal times.
What Harris was promising appeared to be to bring in legislation to stop the price of food rising, a people-pleasing promise when there’s a cost-of-living crisis.
Actually, when you look at the small print, all she was promising was legislation at federal level to prevent this when a State of Emergency had been declared such as for a forest fire, a hurricane or some other disaster. It wouldn’t apply in the case of a supply chain problem or a temporary shortage arising from some other economic or industrial cause. In any event, many of the states of the US already have such legislation.
In her first interview after officially becoming the Democratic Party’s candidate, Harris went further and promised not simply to stop grocery prices rising but to actually bring them down:
‘Prices in particular for groceries are still too high. The American people know it. I know it. Which is why my agenda includes what we need to do to bring down the price of groceries’ (tinyurl.com/5eyfpf7m).
She didn’t explain how she was going to do this. A federal act to punish ‘opportunistic companies that exploit crises’ won’t do it. Nor will naming a raft of measures an ‘Inflation Reduction Act’ as the Biden administration has already done.
These days ‘inflation’ is defined as a rise in some index of the price of a basket of consumer goods, whatever the cause. This can be caused by a depreciation of the currency through over-issue (the main cause since the 1940s) or by an exceptional rise in the prices of some key products in the basket of consumer goods (which was the main cause from 2020 till this year due to supply chain problems as a result of the Covid epidemic). In neither case would price controls work to stop ‘inflation’ any more than a command by King Canute stopped the tide coming in.
‘Inflation’, then, is the difference between what the index was at one date compared with what it was at a previous date. What this measures is the rate of increase. So, ‘bringing inflation down’ is reducing the rate at which prices are rising, not bringing prices down. Doing the latter would be ‘deflation’, which is what Harris seemed to be promising.
This is theoretically possible, but it would require a change of policy on the part of America’s central bank, the Federal Reserve, which currently aims to keep the rate of increase in the general price level at 2 percent a year (even if not very successfully in the past few years). In other words, that prices, including the price of groceries, should rise at this rate every year.
Since it is unlikely that the Fed will abandon this policy or that she will pressure them to do so, we can confidently predict that a President Harris will not bring down the price of groceries. Anyone who votes for her because she has pledged this will find that they have been ripped off.
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