Stop Calling Kamala Harris’ Anti-Price-Gouging Proposal Price Controls

Last month, Democratic presidential nominee Kamala Harris announced that, if elected, she would advance 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 was not alone in that hot take. Several mainstream media outlets accused Harris of much the same. “It’s hard to exaggerate how bad this policy is,” harrumphed Washington Post economics columnist Catherine Rampell. “It is, in all but name, a sweeping set of government-enforced price controls across every industry, not only food.”

That assessment, however, is humbug. Harris’s actual plan has nothing to do with price controls. Instead, it would clearly tap an entirely different set of government powers that states, including ruby red ones like Alabama and Kentucky, have exercised robustly and with little controversy for decades. They are also widely popular, garnering 80 percent approval ratings in some polls. I have personal experience in this area, 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 longstanding powers to the federal government—though a strong argument can be made that the Federal Trade Commission (FTC) already has anti-price-gouging authority, and therefore a future Harris-Walz administration would be able to act regardless of what Congress does.

The degree of anxiety caused by the announcement in certain corners of elite opinion is, in one sense, understandable if unwarranted. While price gouging bans are not novel nor particularly problematic, they represent a deep and wise recognition that educated Americans in the libertarian era that began with Ronald Reagan don’t recognize: that the “invisible hand” of the market doesn’t always exist in reality as it does in platonic form and that the magical “price discovery” promised by keeping government out of the way doesn’t always work. All markets have rules and need them, and they need rules not just about quality and safety but also about power and exploitation. As president, Joe Biden surprised many by breaking with market fundamentalist thinking and becoming the greatest trustbuster our country has seen in 50 years. Harris’ price gouging announcement suggested she would not turn away from the path he forged but instead embrace it and make a powerful legacy of a new—and old—vision of economics, one which puts power problems at the core.

Price gouging laws in America are based on the insight that there are situations where the asymmetry of power and information is too great to allow the price that “emerges” from those dynamics to go unregulated. During emergencies, companies can effectively set whatever price they want, using disaster as leverage to reap windfall profits. When a hurricane shuts down all the electricity in a community, for instance, the grocery stores with generators could hike their prices manyfold, knowing that families with refrigerated food will have to pay the new prices or their children will go hungry. Such predatory behavior happens, but it is far less prevalent than it would be because grocers and other retail sellers know they can be investigated and charged with price gouging.

Free market thinkers object to anti-price-gouging statutes as damaging interference with laws of supply and demand. Severe price hikes, they argue, are valuable market signals that alert investors and companies that there is money to be made in expanding capacity to produce more of the needed goods. The problem, as I recently noted in The Atlantic, is that when a spike in demand is clearly the result of a temporary emergency that will recede once the situation returns to normal, producers have little incentive to expand capacity. Rather, it’s in their interests to merely jack up prices and enjoy the higher profits while they last. Anti-price-gouging laws are specifically tailored for precisely these scenarios.

Anti-price-gouging statutes are like other long-established rules that limit a company’s ability to price without dictating what that price may be. For instance, predatory pricing (pricing below cost to drive a competitor out) is illegal, as is price-fixing (conspiring with a competitor to set prices). Add to that list securities fraud, insider trading, and price discrimination based on protected characteristics like race and gender. As with anti-price-gouging statutes, these laws don’t involve the government dictating a set price but instead protect the market from pricing techniques that are exploitative.

It is worth emphasizing how banal and ordinary anti-price-gouging laws are. The overwhelming majority of states have them, and those that don’t have general purpose “unfair business practices” laws that are used to prohibit price gouging. During COVID, some states and jurisdictions passed COVID-specific price gouging laws—most of which have now sunset—and it is not unusual for other emergencies to trigger content-or emergency-specific laws. These laws tend to operate the same way—they ban increasing profit margins during an unexpected market disruption. They all allow price increases, so long as it is due to increased costs, but forbid profit increases so that companies can’t take advantage of the fear, anxiety, confusion, and panic that attends emergencies. Price gouging laws almost always apply only to necessities because rationing by the ability to pay for basic goods (say, food and medicine) is more morally concerning than rationing for luxuries (say, home pizza ovens or Oasis tickets) and also gives greater leverage to the seller.

Courts hear hundreds of price-gouging cases every year. State enforcers (attorneys general and district attorneys) bring most of them; private actors file others. But the real power of the price gouging laws is putting companies on notice: if you hike prices during this snowstorm/gas explosion/labor strike, we’ll come after you. The companies know the rules, generally follow them and instruct their sellers not to jump on surprise market shocks to hike prices.

The pandemic, however, was not a local or regional catastrophe but a global one that state prosecutors could not hope to deal with on their own. With their limited budgets and staff, state AGs could investigate, say, local grocery chains if they jacked up the price of diapers, but not the manufacturers and distributors that set the exorbitant prices of those items—especially when the firms are headquartered in other states or countries and protected by phalanxes of white shoe lawyers and accountants.

Making matters worse, markets in basic goods like food and gasoline had consolidated thanks to years of weak antitrust enforcement in Washington, giving large monopolistic firms greater pricing power. The handful of firms that dominate the meat and poultry processing industry, for instance, raised prices during the first year of COVID-19 far above their input costs, which increased their profit margins by 300 percent, according to a White House study. This seeming textbook case of price gouging cried out for a federal response. But the federal government lacks specific statutory authority to prosecute such cases, which is why Harris’ proposal makes sense.

Another way to achieve the same end would be for Harris to encourage the FTC to issue a rule on price gouging, much as Biden encouraged the agency to issue a rule on noncompete 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 general practices regarding what is unfair, take in qualitative and quantitative data to determine whether something is unfair by looking at what kind of harm it causes to consumers, whether consumers can avoid it, and whether it tends to cause harm to competition. There’s a strong argument that price gouging is an “unfair practice” that meets all the Section 5 criteria, one bolstered by the fact that many states do treat price gouging as an unfair business practice under their state regimes. While you don’t need state determinations that a practice is “unfair” under state law for a federal rule, the decades of consensus around price gouging would be extremely helpful for the legal justification for the rule.

Moreover, the FTC has a history of investigating price gouging. It has studied price gouging, including gas prices after Hurricane Katrina. It recently investigated grocery prices as well. To do more, however, it would doubtless need more resources. The FTC staff today is 30 percent smaller than it was in 1979, while the sophistication and number of targets have grown. Effective price gouging investigations into, say, the oil and gas industry would be an immense challenge. Companies like BP and Exxon Mobil routinely contract with dozens of law firms and have hundreds of in-house lawyers–all the FTC in-house attorneys combined are less than the number of lawyers employed by the Supermajors alone, and that’s just one industry!

In popular culture, price gouging has a second, broader meaning than it does in the law. This broader meaning includes more day-to-day situations in which an asymmetry of power enables price increases. For instance, a lot of people think they are being “gouged” by Ticketmaster because Ticketmaster is a monopoly or that they are “gouged” when airlines appear to hike up prices just for them based on their browsing history.

The way to deal with these problems is for the Harris administration, if she becomes president, to continue and ramp up the serious antitrust enforcement of the Biden administration. That she intends to do that is obvious from the fact sheet that the Biden-Harris campaign released when it announced its anti-price-gouging plan. It states that Harris “will also direct her Administration to crack down on unfair mergers and acquisitions that give big food corporations the power to jack up food and grocery prices and undermine the competition that allows all businesses to thrive while keeping prices low for consumers.” It further says that her plan “will support smaller businesses, like grocery stores, meat processors, farmers, and ranchers, so those industries can become more competitive.” That is a clear signal that she will continue the nascent effort by Lina Khan, the FTC chair, to enforce statutes like the Robinson Patman Act, which bar large companies from using their monopoly buying power in ways that force higher costs on smaller retailers.

Harris has not issued specifics on how her anti-price-gouging proposal would be implemented. That has led some journalists to blame her for the widespread accusations that she plans to impose draconian price controls. That’s nonsense. The phrase “price gouging” has an established meaning in the law: companies can’t significantly increase profit margins for necessities during an unexpected market shock. Ignorance of the law is no excuse for bad punditry.

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