Economist Friedrich von Hayek once pointed out that pricing’s charm stems from its unplanned emergence without deliberate human creation. Prices make complex processes easier by offering a standard unit of exchange. They smooth out interactions in the face of hurdles like rising transportation costs, material shortages and consumer preferences.
However, this delicate price mechanism can be destroyed if the government intervenes by artificially setting prices. Hayek’s mentor, Ludwig von Mises, warned that government-imposed prices, detached from production realities, lead to scarcity, inflation and a thriving black market.
Price control is now being proposed as a solution to the ever-rising cost of living and food. The alleged culprit for the higher prices is “price gouging.” Greedy corporations are raising prices to make record profits at the expense of the poor and middle classes.
The food industry is one of many fighting back against Kamala Harris’s price gouging plan. Companies deny claims of corporate greed and show why these claims are false.
When asked about the price gouging plan, the National Grocers Association said, “It’s an answer to a problem that doesn’t exist.” It stressed that its members face the same rising costs as shoppers. Most companies don’t apologize for keeping their profits stable; that’s why they’re in business.
Firms struggle to cope with the burden of government-mandated pricing because it does not respect the nature of a free market economy. Such policy comes from the hubris of politicians who believe they know better than all the stakeholders in business. Target CEO Brian Cornell states, “Companies can’t afford to engage in price gouging in a competitive sector like retail.”
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The former Secretary of Commerce and Kellogg CEO Carlos Gutierrez stated, “I thought we would’ve learned by now that price controls do not work. They actually have the opposite effect. They make inflation worse, they lead to shortages, they create a black market.”
Food producers especially face challenges with rapid payroll increases and precarious supply chains. Industry leaders indicate that a long-term rise in operating costs has led to higher prices. They point out that the profit margins of food producers and sellers are smaller than other industries. They strongly deny the allegations of gouging.
Socialists are quick to paint these companies as greedy exploiters of the market during times of economic unrest. Price gouging is a typical mantra leftists use to blame for the inflation they cause.
Due to the pandemic, prices jumped in 2021 for many consumer goods. Producers dealt with supply-chain issues and the rising costs of raw materials, fuel and transportation. At the same time, a poorly conceived federal stimulus program fueled spending, which in turn caused more inflation.
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One way food producers lessened the pain of higher prices was by slightly decreasing the size of products while maintaining the same cost to consumers. President Biden used Instagram to call out companies for this, calling it “shrinkflation.” While not illegal, many see it as a deceptive way of raising consumers’ prices without resorting to price increases.
Leftist politicians are proposing a federal ban on price gouging. For example, it calls for prohibiting large companies from making excessive profits on food. The campaign pledges to arm the Federal Trade Commission and state attorneys general with new tools for investigating and punishing violators while targeting deals that allow large food companies to raise prices and stifle competition.
“Price gouging” is what Prof. Plinio Corrêa de Oliveira called a “talismanic word.” The Catholic thinker and man of action noted how the left uses vaguely defined, emotionally charged words with several meanings to advance its agenda. Thus, price gouging can mean anything the left wants it to mean to push its agenda. It uses the word to denote the suffering of consumers and unproven greed on the part of corporations.
The liberals have not clarified what constituted excessive profits or other important charges, souring industry executives about the feasibility of such proposals.
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Far from exploiting consumers, large food manufacturers are mounting consumer-friendly efforts to combat higher grocery bills. Retail giants like Walmart are boosting their investment in cheaper store-brand merchandise. Many food manufacturers are using gradual price increases, larger discounts and launching new product lines to lessen the shock.
Food manufacturers point out that even shrinkflation can help consumers by increasing affordability since changing product size to meet consumers’ budget dimensions actually contributes to continuous purchases.
Corporate executives and economists, however, absolutely reject economy-wide price controls as a cure for inflation. Economist David Autor replied bluntly, “Price controls can, of course, control prices—but they’re a terrible idea, with potentially dire consequences!” One only needs to look at any country that has implemented them.
Politicians claim that price controls will help the poor. Rather than lift the poor, they generally destroy the economy and make everyone poorer.
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Sound economists propose a different approach, not demagoguery. One way to fight inflation would be to promote policies that boost the supply of inexpensive energy and essential goods and services that can drive down consumer market prices. This approach benefits everyone—companies, consumers and the economy overall.
However, the left does not like such a solution since it does not fit into its ideological mold of class struggle. Price control is a way to set up the rich-poor narrative that brings nations to socialism and state control of industry. It leads to the deplorable conditions of Chavismo’s socialism in Venezuela. It turned Latin America’s most prosperous economy into a basket case of poverty, chaos and crime.
Price control did not work in any socialist or communist country. Why would it work in America now?
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