With election season upon us, candidates are certainly not short on making promises out on the campaign trail to appeal to potential voters. It’s what they do. Some make good on those promises; others fall flat. And sometimes you hope and pray those promises never come to fruition.
Upon Kamala Harris’ rise to her party’s nominee, she cheerfully announced she would cap prices by implementing “the first ever federal ban on price gouging on food and groceries.” Although vague on the exact policy, her rhetoric is eerily analogous to price controls. Harris’ remarks received criticism from folks up and down the political spectrum, suggesting that this is not a great idea and calling into question her economic literacy.
Promising to control prices may score some political points, but such draconian measures will become a nightmare if actualized. Price fixing has a terrible track record.
Anyone with even a smidgen of knowledge regarding world events over the past century should immediately think of the Soviet Union. A key element to its governing apparatus was a command economy where unelected bureaucrats coordinated economic activity, including price controls. Shortages ruled the day and bread lines were unfortunately a common occurrence. After decades of struggle, the Iron Curtain eventually fell and the region split into 15 countries.
More recently, Venezuelan president Hugo Chavez did not learn from Soviet mistakes and instituted price controls on a host of basic foods and household necessities. After little more than a decade, scarcity of these basic goods reached over 82 percent and 93 percent of Venezuelans could not afford food. More than half the population reported losing weight due to malnutrition. A once prosperous Latin American country, which had enjoyed one of Latin America’s highest scores on the Index of Economic Freedom scale, quickly sunk to the bottom.
Ancient history is even replete with examples. Egypt, Babylon, and Rome faced economic turmoil and collapse on account of similar disastrous price-control measures. The Babylonian and Roman empires both fell.
The famous U.S. example is President Nixon’s restriction on gasoline hikes in the 1970s, resulting in long lines and rationing. People old enough to remember those days do not want to go back.
Simply put, price controls are a losing strategy.
Businesses generally adjust supply and pricing according to customer demand and customers react to product supplies in the market. Imposing price ceilings on goods and services distorts market signals with respect to the consumption and production of those commodities. A central planning board cannot account for the day-to-day preferences of millions of individuals. When demand outpaces supply, regardless of prices, shortages occur, and rationing begins. Such measures also decrease efficiency, diminish innovation, and reduce competition, and in some cases, lead to black markets.
You cannot expect businesses to offer goods at artificially low prices and stay viable. This could lead to companies exporting to outside markets, further intensifying domestic shortages.
High grocery prices are the direct result of a number of factors, including the pandemic, supply chain interruptions, increased production costs, lousy policies, and global conflicts. Grocers are not colluding to rip off their customers. They generally maintain slim profit margins; last year recorded an average of 1.6 percent.
Consumers are already suffering from inflation; these problems should not be exacerbated by toxic policy which has demonstrated failure time and again. Turning the U.S. into a Soviet- or Venezuelan-style situation is unthinkable, and elected officials need to steer very clear of such misguided notions.
If the goal is to lower prices, something everyone would welcome, the government ought to do what it can to let the market more freely operate. Deregulation, providing cheap and abundant energy, and fostering agricultural development and expansion are a good start. Appropriate fiscal and monetary policies can also help reduce price swelling. For instance, printing too much money and government overspending do more harm than good, and only add fuel to the inflationary fire.
Fixing prices is not a cure for inflation. It may hide it for a time, but in the end, will merely prolong it and make it worse. Irrational cures divert attention from real causes and real cures.
Price controls belong in the annals of history, never to be resurrected, renamed, and/or reinstituted.
Kristen Walker is a policy analyst for the American Consumer Institute, a nonprofit education and research organization. For more information about the Institute, visit www.theamericanconsumer.org or follow us on Twitter @ConsumerPal.