In her first economic policy speech as the 2024 Democratic presidential nominee, Kamala Harris rightly criticized Donald Trump for favoring steep tariffs, saying her Republican opponent "wants to impose what is, in effect, a national sales tax on everyday products and basic necessities that we import from other countries." But in the same speech, Harris pitched a half-baked idea that is just as economically dubious, promising to crack down on "price gouging" by the grocery industry.

That proposal is so misguided that it provoked undisguised skepticism from mainstream news outlets such as CNN, the Associated Press, The New York Times, and The Washington Post, along with criticism by Democratic economists. It showed that Harris joins Trump in pushing populist prescriptions that would hurt consumers in the name of sticking it to supposed economic villains.

"If your opponent claims you're a 'communist,'" Post columnist Catherine Rampell suggested, "maybe don't start with an economic agenda that can (accurately) be labeled as federal price controls." Harvard economist Jason Furman, who chaired President Barack Obama's Council of Economic Advisers, was equally scathing.

"This is not sensible policy, and I think the biggest hope is that it ends up being a lot of rhetoric and no reality," Furman told the Times. "There's no upside here, and there is some downside."

That downside stems from any attempt to override market signals by dictating prices. High prices allocate goods to consumers who derive the greatest value from them, encourage producers to expand supply, and spur competition that helps bring prices down.

Without those signals, you get hoarding and shortages. This is not some airy-fairy theory; it reflects bitter experience since ancient times with interventions like the one Harris proposes.

Consider what happened when President Richard Nixon imposed wage and price controls in the 1970s. "Ranchers stopped shipping their cattle to the market, farmers drowned their chickens, and consumers emptied the shelves of supermarkets," Daniel Yergin and Joseph Stanislaw note in their 1998 book on the rise of free markets.

Or consider what happened more recently with eggs. Thanks to avian flu, Furman noted, "egg prices went up last year" because "there weren't as many eggs," but the high prices encouraged "more egg production." If federal regulators had tried to suppress egg prices, they would have short-circuited that market response.

Harris, of course, says she would target only unjustified price increases, the kind that amount to "illegal price gouging" by "opportunistic companies." But as she emphasizes, there currently is no such thing under federal law, and any attempt to define it would be plagued by subjectivity and a lack of relevant knowledge.

The fact that Harris pins the sharp grocery price inflation of recent years on corporate greed suggests that her judgment about such matters cannot be trusted. Economists generally rate other factors—including the war in Ukraine as well as pandemic-related supply disruptions, shifts in consumer demand, and stimulus spending—as much more important.

High profits, in any event, are another important signal that encourages investment and competition. By forbidding "excessive profits," Harris' proposed price policing would undermine the motivation they provide.

According to the most recent numbers, the annual inflation rate dropped below 3 percent as of July. With inflation cooling, this might seem like a strange time for Harris to resuscitate an idea that was already proving disastrous thousands of years ago. But as the Times notes, her message "polls well with swing voters."

The broad tariffs that Trump favors, which Harris condemns as "a national sales tax" that would "devastate Americans," also poll well in the abstract. But they are popular only until voters consider the consequences.

In a recent Cato Institute survey, for example, 62 percent of respondents favored a tariff on "imported blue jeans," but that number plummeted when they were asked to imagine the resulting price increases. Harris likewise is counting on voters who like what she says but do not contemplate what it would mean in practice.

© Copyright 2024 by Creators Syndicate Inc.

The post Kamala Harris' 'Price Gouging' Ban: A New Idea That Has Failed for Thousands of Years appeared first on Reason.com.

When you've caused a problem, deflect! At least, that seems to be the strategy of Vice President and Democratic presidential candidate Kamala Harris, who spent the last several years as part of an administration that presided over a growing mismatch between Americans' pay and the cost of living. Rather than take responsibility for the decline of the dollar's purchasing power, she blames businesses that were forced to raise prices as a result. And she wants to fix the problem she helped cause by restricting those prices, never mind the inevitable consequences for the availability of goods and services.

Wait, I Thought This Was an Economy To Be Proud Of?

First though, let's journey back to 2023 when Harris claimed to be proud of the state of the economy.

"That is called Bidenomics, and we are very proud of Bidenomics," she insisted last August in a speech where she also trumpeted, "the unemployment rate is near its lowest level in over half a century. Wages are up. Inflation has fallen 12 months in a row."

Now though, the vice president and would-be chief executive huffs, "When I am President, it will be a day one priority to bring down prices. I'll take on big corporations that engage in illegal price gouging and corporate landlords that unfairly raise rents on working families."

And that's exactly what she proposed in her speech last week which recognized concerns over the cost of living and included a host of schemes for greater government involvement in the economy, including "the first ever federal ban on price gouging on food" amidst worries over grocery bills.

It's nice that Harris recognized Americans' concerns over making ends meet. Less nice, though, was pretending that cost concerns are a result of mean corporations rather than bad policy. Also not so nice is her insistence on doubling down on bad policy with even worse cost controls.

Let's emphasize that there's little doubt government policy is at the root of inflation.

Government Officials Should Get the Blame for Those High Prices

"Inflation comes when aggregate demand exceeds aggregate supply," wrote economist John Cochrane of the Hoover Institution and the Cato Institute in a March piece for the International Monetary Fund. "The source of demand is not hard to find: in response to the pandemic's dislocations, the US government sent about $5 trillion in checks to people and businesses, $3 trillion of it newly printed money, with no plans for repayment."

"Fiscal stimulus boosted the consumption of goods without any noticeable impact on production, increasing excess demand pressures in good markets," admitted the Federal Reserve Board of Governors as early as July 2022. "As a result, fiscal support contributed to price tensions."

Even Jim Tankersley and Jeanna Smialek of The New York Times, a paper which almost reflexively supports Democrats, concede "most economists" say that factors including "snarled supply chains, a sudden shift in consumer buying patterns, and the increased customer demand fueled by stimulus from the government and low rates from the Federal Reserve…are far more responsible than corporate behavior for the rise in prices."

And the rise in prices is substantial. The U.S. Bureau of Labor Statistic's inflation calculator shows that in July 2024, it took $120.25 to buy what $100 purchased in January 2021 when Joe Biden and Kamala Harris took office. That's on average; some sectors have seen greater or lesser inflation.

What Price Gouging?

Especially when it comes to groceries, it's difficult to make a case for "price gouging." A New York University Stern School of Business annual survey shows a net profit margin of 1.18 percent for retail grocery stores last year. That's down a bit from when the Biden administration took office (you can check annual data here). Kroger, the industry giant that is frequently portrayed as a greedy bogeyman, recently enjoyed a slightly higher net profit margin of 1.43 percent; over the last 15 years, its profits briefly reached as high as 3.02 percent in 2018. (The Cato Institute's Scott Lincicome does a good dive into food-industry economics on X.)

So much for Harris's deflection. But then there's her scheme for price controls to address the higher prices brought by government policy. Such controls have such a well-documented track record that they heap stupidity onto Harris's dishonesty.

A History of Price Control Failures

In 2022, when inflation was surging and the dollar's declining purchasing power had many Americans looking for the sort of "solutions" that Harris now offers, Federal Reserve Bank of St. Louis economist Christopher J. Neely pointed out that schemes for government-imposed price controls date back to the Code of Hammurabi and "have costs whose severity depends on the broadness of the control and the degree to which it changes the price from the free-market price."

Free market prices, he emphasized, "allocate scarce goods and services to buyers who are most willing and able to pay for them" and "signal that a good is valued and that producers can profit by increasing the quantity supplied." In the absence of such allocation and signals, you get shortages of goods and services. With grocery stores, that means empty shelves—little to buy at the controlled prices.

There's more to it than that. Neely pointed out that you also get cheapened goods to reduce production costs, gamesmanship to get around rules, and black markets that entirely defy the law. He recommended that "price controls should stay in the history books."

The Washington Post editorial board, usually as protective of Democrats as the Times, agrees. It pointed out that Harris didn't define what constituted the "excessive" profits she wanted to target and that "thankfully, this gambit by Ms. Harris has been met with almost instant skepticism, with many critics citing President Richard M. Nixon's failed price controls from the 1970s."

From the Code of Hammurabi to former President Nixon, with a detour for the Roman Emperor Diocletian—who, economist John Cochrane notes, torpedoed production and trade with price restrictions—such controls have been irresistible for government officials. That's because bad economics all too often makes for good—or, at least, effective—public relations. People who tell pollsters they think corporations are raking in 36 percent profits (the real average across industries is closer to 8 percent) can be convinced by clever politicians that they're being ripped off and need government intervention.

What politicians won't admit is that it's their own policies that put the public in distress to begin with, and that their latest schemes, if implemented, will make matters worse.

The post Kamala Harris' Dishonest and Stupid Price Control Proposal appeared first on Reason.com.

Amid all the competing headlines of the 2024 election, there may be no more bread-and-butter issue—literally—than how much Americans are paying to put food on their tables. The GOP is gearing up to attack the Biden-Harris administration for escalating grocery store bills, while presumptive Democratic nominee Kamala Harris has now responded with her own plan to fight higher food prices. 

One of the hottest items in this political food fight is unquestionably the ongoing litigation from the Federal Trade Commission (FTC) attempting to block the Kroger-Albertsons grocery store merger. A host of Democratic lawmakers recently joined the legal fight, arguing that any potential merger would raise prices, increase food deserts, and disproportionately hurt unionized labor. As part of her new food price plan, Harris included a call for aggressive antitrust crackdowns in the food and grocery industry, mentioning the Kroger-Albertsons merger by name in her speech this week.

None of the arguments against the merger make much sense on the merits, but the FTC—and the Democratic Party writ large—are stacking the legal deck to achieve a predetermined outcome that conveniently aligns with their policy priorities.

The saga started back in October 2022, when The Kroger Company and Albertsons Companies Inc. (the parent company for popular grocery chains like Safeway and Acme, among others) announced their plans for a $24.6 billion merger. The FTC promptly launched a 16-month investigation, culminating in a lawsuit in federal court to block the proposed merger.

Kroger is the fourth-largest grocery store chain in America—behind Walmart, Amazon, and Costco—and Albertsons is the fifth-largest. Once merged, the combined company would rise to third on the list. On the surface, this may seem to provide some support for the FTC's position, but American shoppers would be wise to read the fine print.  

In truth, if the deal were to proceed, a merged version of Kroger and Albertsons would still only make up 9 percent of overall grocery sales. To put this in further perspective, consider that Walmart—the nation's largest grocery provider—would continue to operate more stores (including its Sam's Club outlets) than a Kroger-Albertson combo and maintain grocery revenue that is more than twice that of the merged company. 

One could easily argue, in other words, that far from being a monopoly, a Kroger-Albertsons joint venture would be the best hedge against potential monopolies forming among the even-more-dominant firms above it on the grocery store food chain. But incredibly, the FTC pretends that two of those larger companies don't exist in the marketplace at all simply by working with their own definitions.

The FTC contends that only local brick-and-mortar supermarkets (what one might think of as a "traditional" grocery store) and hypermarkets (such as Walmart or Target, which sell groceries alongside other goods) count in the market for groceries. This narrow definition completely circumvents wholesale-club stores (such as Costco) and e-commerce companies that sell groceries (such as Amazon). 

Given that Amazon and Costco just happen to be the second- and third-largest grocery retailers in the United States, the agency is blatantly gerrymandering the definition of the marketplace. The agency's longstanding position is that the only relevant market is stores where consumers can buy all or nearly all of their weekly groceries, which begs the question: Has anyone at the FTC stepped foot inside a Costco recently? Many Americans use club stores like Costco and BJ's Wholesale Club as their primary grocery stores, with around 15 percent of Americans ages 18–34 reporting that they do most of their grocery shopping at Costco.  

Pretending that the internet doesn't exist makes even less sense. As the International Center for Law and Economics notes, 25 years ago a mere 10,000 households took part in online shopping, whereas today 12.5 percent of consumers (or over 16 million people) purchase their groceries "mostly or exclusively" online. Amazon is also preparing to make its own big push into brick-and-mortar grocery retailing as well, with CEO Andy Jassy saying last year that the company must "find a mass grocery format that we believe is worth expanding broadly."

Beyond the FTC's tortured marketplace definitions, its arguments for the alleged harms of a conjoined Kroger-Albertsons are equal parts unconvincing and outdated. In its complaint, the agency points to escalating grocery prices in recent years, and Harris echoed this by stating that she would enact a "ban on price gouging on food and groceries" by directing the FTC to impose "harsh penalties" on grocers. She also pledged to continue aggressive antitrust enforcement in the food sector, going so far as to highlight the Kroger-Albertsons merger as an example of the type of deal that could increase prices. However, as many commentators have pointed out, food price increases likely have more to do with inflation than any lack of competition in grocery markets.

In addition to the consumer price harms the FTC alleges, over half of the agency's legal complaint focuses on the alleged harm the proposed merger would cause to the unionized workers at Kroger and Albertsons. Both companies are heavily unionized—in contrast to Walmart and Amazon—and the agency claims that a combined company would have more leverage over unions given that the unions would no longer be able to play one company off against the other as a negotiating tactic. This glosses over the fact that the demand for labor is particularly competitive in the retail sector broadly, and workers could easily just jump ship to a different employer in the face of any exploitative terms pushed by the merged firm.

A final concern highlighted by some Democratic lawmakers is that a merged company could result in more store closures that lead to geographical areas within which there are few or no grocery options. Once again, this ignores the rise of club stores like Costco and online/home delivery grocery options. These alternatives reduce the plausible areas within which such food deserts can take hold, showing once again a poor understanding of the modern grocery marketplace.

Despite the many dubious underpinnings of the FTC's challenge, it fits with the Biden administration's aggressive antitrust emphasis over the past four years. While some observers were holding out hope that a Harris administration might curtail overzealous antitrust enforcement, her new food price agenda has poured cold water all over that (already wishful) thinking.

The post Harris Joins the FTC's Food Fight Against Kroger-Albertsons Merger appeared first on Reason.com.

Lost amid the drive to expand alcohol delivery in the wake of COVID-19 has been the corresponding push—actually starting even before the pandemic—to allow more types of stores to sell alcohol. While more and more states have allowed grocery stores to sell booze in recent years, these efforts have been fiercely resisted by independent liquor store owners who claim that their small businesses will be forced to shutter if large chain retailers are suddenly able to sell alcohol.

Up until now, these debates have largely been devoid of actual data, but new empirical research has been published showing that grocery store alcohol sales don't really impact mom-and-pop liquor stores after all. At long last, this is one protectionist argument that can finally kick the bucket—if only policy makers will let it die.

Currently, 11 states still forbid wine from being sold in grocery stores while four still prohibit beer. In recent years, states as politically diverse as Mississippi, Connecticut, and Maryland have considered bills to expand wine and/or beer to their grocery store outlets, only to be met with a tidal wave of opposition. Any place where such reform legislation appears, it is immediately opposed by liquor stores in the state—sometimes called "package stores"—which already sell wine and beer and want to prevent any grocery store from becoming their new competitors in the market.

The impact of this protectionism extends far beyond the alcohol market, as well. It is why less populated states that restrict grocery store booze, such as Mississippi, have only one Costco and one Whole Foods in the entire state—and zero Trader Joe's outlets. These stores often depend on their alcohol selections, including their private-label alcohol offerings, to make their business models viable in more locales. Restricting grocery store booze can actually lock entire food stores out of a state.

This setup works just fine for liquor store owners. As one store owner claimed when discussing a Mississippi reform bill: "out of state retail corporations harvest money that could be recirculating in our local economies….Big out-of-state grocery and box retailers have had years of practice of profiting off the destruction of public health in other states." He went on to note that alcohol markets are "unable to regulate themselves without being destructive to public health and safety" and that if alcohol consumption increased, it would put "undue burden" on taxpayers, public safety officials, and the health care industry. One would be hard-pressed to find a business owner who so loathes the very product he sells, but these arguments are sadly par for the cronyist course when it comes to blocking grocery store booze sales.

While it is unclear how one might go about "harvesting" money, it is clear what this package store owner is really concerned about: protecting his bottom line. Unfortunately, package and liquor store lobbying associations are extremely influential in many states, which leads to reform efforts silently dying in committee year after year.

That's why states like Oklahoma and Colorado have opted for ballot initiatives to expand grocery store alcohol sales, as consumers overwhelmingly are in favor of it. But even successful ballot initiatives have not ended the debate, as a group of Colorado legislators introduced a bill in this year's legislative session to overturn the state's wine-in-grocery-stores ballot initiative (which only went into effect in 2023).

The main argument in favor of this repeal bill? "I don't want to see the independent liquor stores put out of business. They are owned by diverse entrepreneurs—50 percent are women- and minority-owned businesses—and provide jobs," said Colorado state Rep. Judy Amabile, a Boulder area Democrat who cosponsored the legislation. 

In other words, Justice Antonin Scalia's famous quip about the notorious Lemon test in Supreme Court jurisprudence—analogizing it to "some ghoul in a late night horror movie that repeatedly sits up in its grave and shuffles abroad, after being repeatedly killed and buried"—could just as readily apply to antigrocery alcohol claims.

After years of scaremongering and anecdotal supposition about whether grocery stores will or will not kill off mom-and-pop booze stores, facts have finally been injected into the debate by FMI, a food industry group. A new FMI paper by Vincenzina Caputo of Michigan State University studies the impact of Tennessee's 2016 reform that allowed wine to be sold in grocery stores in the Volunteer State. The paper compared the number of liquor licenses in post-2016 Tennessee with a hypothetical "synthetic version" of Tennessee in which the reforms were never passed. (This was done via a weighted average of control states that did not pass wine-in-grocery-store legislation.)

The report—a copy of which I obtained from FMI—shows just 62 fewer liquor stores selling wine in postreform Tennessee compared to the nonreform synthetic version of Tennessee—a result which was found to be not statistically significant. Overall, the quantity of liquor stores selling wine in Tennessee increased from 505 stores in 2004 to 733 in 2022, and liquor stores still held the greatest number of wine-selling licenses in the state in the postreform years. 

Further, the Tennessee wine-in-grocery-store reform accounted for a 23 percent increase in wine sales tax volume for the state—undermining the idea that chain stores "harvest" away money from local economies and the tax base.

These results show that our favorite mom-and-pop shops can do just fine in the wake of grocery stores being allowed to sell alcohol. In fact, many of these smaller stores have found a niche specializing in craft beer or hard-to-find wines and liquor that grocery stores have little interest in carrying, a point that both independent store owners and economists have made.

This new research provides a much-overdue corrective to the protectionist claims that small liquor stores have been peddling for years. Now lawmakers just need to listen.

The post Grocery Store Booze Doesn't Hurt Mom-and-Pop Stores appeared first on Reason.com.

A German court has ruled that the robots at the Tegut supermarket chain must be given Sundays off, just like human workers. Under German law, retail stores must close on Sundays and Christian holidays in order to give employees a day of rest. Tegut has gotten around that law by fully automating its stores, and it gets 25–30 percent of its sales on Sunday. A union that represents shop workers filed suit to force the stores to close on Sundays, saying it fears the company's success could undermine support for the nation's blue laws.

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