The Shiny Object of the 'Price Gouging' Ban

Kamala Harris's plan to end 'price gouging' is intentionally vague, unlikely to become law, and distracting from more consequentially good and bad aspects of her economic plan.

Dear readers,

In a speech last week, Kamala Harris declared that she would “work to pass the first ever federal ban on price gouging on food.” She added, “My plan will include new penalties for opportunistic companies that exploit crises and break the rules, and we will support smaller food businesses that are trying to play by the rules and get ahead.” What exactly does that mean? I don’t know, and neither do you. But both Harris’s fans and detractors have been reading too much into the statement.

Almost 40 states have some kind of anti-price gouging law already on the books. Most of these laws are drawn quite narrowly — applying only in the immediate aftermath of natural disasters and similar events, and only to a narrow set of goods and services, sometimes even just petroleum products. These laws don’t make us a socialist command economy with price controls that stifle investment and lead to bare store shelves. But these laws also, as we saw in the last few years, do not prevent elevated inflation.

Is a federal version of these laws all that Harris is proposing? That’s what Zephyr Teachout assumes in a piece for The Atlantic arguing that Harris’s critics are overstating how sweeping and controlling such a law would be. But a lot of the coverage — not just the critical coverage — has assumed that Harris is proposing a significantly more sweeping law than the ones we see across the states. The more informed versions of this coverage have dealt with Harris’s vagueness by looking to the details of an anti-price gouging proposal from several Democrats in Congress, led by Elizabeth Warren. And the Warren proposal is a lot broader than existing state laws. It would apply to goods and services broadly, be enforceable “anytime and anywhere,” allow the Federal Trade Commission to set its own terms about what constitutes an “excessive” price increase, and hold that certain price increases by large market players are presumptively excessive during times of crisis.

I think it’s fair to say the Warren bill, if actually enacted, would constitute a price control policy, and would have significantly negative economic effects, especially in the hands of an FTC that chose to use it aggressively.¹ But Harris’s vague comments last week were still specific enough to rule out the full sweep of the Warren bill — Harris said in her speech that she is looking for a price gouging law about food in crises, while Warren’s bill applies to all kinds of goods and services at all times (with certain added unfavorable presumptions that make it easier to take enforcement actions during times of crisis). And while Harris co-sponsored one of Warren’s price-gouging bills in 2020, that version was much narrower than the one Warren has proposed this year.

More importantly, even if Harris decided she wanted something like the Warren bill to pass, I don’t see any path for it to become law.

Vice President and Democratic presidential nominee Kamala Harris spoke at Wake Tech Community College in Raleigh, North Carolina, on August 16, 2024. Harris described her plans to grow the economy and control the cost of living, a pitch that included a call for some kind of federal law against ‘price gouging’ on food. (Photo by Allison Joyce / AFP) (Photo by ALLISON JOYCE/AFP via Getty Images)

Democrats have a difficult electoral map this year in the Senate. If Harris wins the election, there’s probably something like a 50% chance that she’ll be facing a Republican Senate majority. If Democrats retain Senate control, they’ll probably have exactly 50 seats. With 50 seats (and House control) Democrats might junk the filibuster, but I think it’s likelier they’d narrow its scope. Remember, when Joe Manchin and Kyrsten Sinema blocked filibuster reform in 2022, they were blocking a rules change that would have applied only to legislation about voting — there were not 48 Democratic votes to change filibuster rules for legislation more broadly. And even if you got 50 Democrats to agree to junk the filibuster, you’d still need to get 50 Democrats to agree on whatever piece of legislation is being considered. You wouldn’t get 50 Democratic votes for the Warren bill, precisely because of how sweeping it is.

So if Harris is elected president, what will happen on price gouging law? If there's a Republican Senate, probably nothing. And if there’s a Democratic Senate, probably either nothing, or something that’s drawn to get 50 (or over 60) votes — which is to say, something a lot more similar to those not-very-consequential state laws than to the Warren proposal. Whatever happens, it’s not going to be very important.

So I’ve been a little frustrated by the extent of the angst about this proposal, especially because Harris has proposed other things that are important and that may well happen — and because she hasn’t proposed anything of consequence on the important issue of energy prices. The focus is also frustrating because Trump has some economic ideas that are just as violative of Econ 101 as price controls, and that are a lot more likely to actually become public policy if he wins.

So how does this election matter for economic policy? At the top of my list (I wrote more on this in March) is that a major tax law must pass next year regardless of who wins the election, because so many provisions of Trump’s 2017 tax law are set to expire at the end of 2025, leading to a huge mess if Congress does not write a new tax law. So when candidates make tax proposals, you should listen — those proposals can hitch a ride on the must-pass tax bill and make their way into our tax code. A tax law can also pass through the budget reconciliation process with only a simple majority, making the filibuster irrelevant.

This is why I take “no tax on tips” seriously as something that’s likely to happen, even though it’s a dumb idea on the merits and not a hugely pressing political issue. It’s why I worry that Harris’s demand-subsidizing tax credit proposals on housing may pass, while her non-tax proposals to foster housing supply are likely to languish because they face more political veto points. And it’s why I think a Harris win plus Democratic congressional control would be likely to lead to significant expansions of the Child Tax Credit and Earned Income Tax Credit — she’s making clear that these are fiscal priorities, and the tax bill provides an avenue to pursue them. Even in a divided government scenario, I’d expect her to get these credits expanded as part of a bipartisan negotiation over the future of the tax code.

Meanwhile, if Trump wins, he’ll push the tax code in a less progressive direction, seeking to make as much of his 2017 law permanent as he can while pursuing new tax cuts for corporations. He’s also likely to use a new tax law as a vehicle for tax gimmicks he’s proposed, including eliminating taxes on tips and on Social Security benefits.² To make fiscal space for tax cuts, he’ll seek cuts to safety-net programs for the poor, though the extent of the cuts he can get will depend on the existence and size of a Republican congressional majority. And Trump’s plan for a universal 10% tariff on imports — an idea that causes the same kind of garment-rending among economists that price controls do — doesn’t even require legislation, because presidents have sweeping, existing authority to set tariffs. You should take Trump very seriously when he says he’s going to do that specific dumb thing.

There’s also monetary policy, where Harris has committed to Fed independence and Trump has signaled that he wants to meddle in the direction of easier policy — a push that could bring inflation pressures roaring back, especially if it’s combined with deficit-increasing tax cuts.

Finally, there are big economic stakes around energy. The difference between the candidates on domestic fossil-fuel production is less than it appears to be from their rhetoric — under Democrats, domestic oil production is already at a record level, despite the party’s psychotic refusal to brag about that fact. But price stability, energy independence and the transition to green energy all depend on the extensive construction of new infrastructure that is hampered by environmental review. A divided government might actually provide the best odds of fixing that problem — the Manchin-Barrasso bill on permitting reform could even pass in this year’s lame-duck session — but I’d personally love to see Harris commit to supporting that bipartisan initiative, much like she did yesterday with the bipartisan border enforcement bill.

Certainly, I think it matters a lot more for the future of our economy than whatever might happen on price gouging.

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Earlier this week, I spoke with Jeff Maurer for his “I Might Be Wrong” podcast about the economic stakes in this election. I think it was an interesting conversation and I’d encourage you to give it a listen. I also weighed in twice with The New York Times about Democrats’ convention programming, including Harris’s excellent Thursday night speech. You can check out those scorecards here and here.

Very seriously,

Josh

1. Teachout, in her Atlantic piece (one that was funded by the Hewlett Foundation as part of their ongoing campaign against so-called neoliberalism), says one of the reasons state price gouging laws don’t interfere with useful price signals is the short duration of their action. Spiking snowblower prices in a shortage after a blizzard cost consumers money but don’t allow enough lead time for a businessperson to open a snowblower factory and take advantage of the price signal. But the Democrats who back the Warren bill have been marketing it, in 2024, as a way to address knock-on price increases from the COVID pandemic that began in 2020 — suggesting they expect the FTC to use the bill’s broad powers to regulate prices for years after a crisis, well into the period when higher prices can and should be fostering increased production.

2. “No tax on Social Security benefits” sounds like a populist proposal, but the benefits go almost exclusively to higher-income retirees, because lower-income retirees already pay no tax on their Social Security benefits.