Vice President Kamala Harris‘s plan to address so-called “price-gouging” in the grocery sector and other industries is a misguided effort at expansive government control over private industry. It is straight out of the Marxist playbook, and it would have disastrous results for our country.
Harris is correct that grocery store prices are far higher today than they were at the beginning of the Biden administration. As just one example, consumer food prices were 26% higher in July than they were five years earlier. However, Harris has blamed corporate greed, rather than government overreach, as the primary driver of this inflation. She says that further government interventions offer the solution to the problem of corporate greed.
The data tell a different tale. Last year, retail grocery stores had a net profit margin of just 1.18% — far below the 8% average net profit margin of all public U.S. companies. The historic inflation is primarily the result of excessive government spending programs, not corporate price gouging. The government’s infusion of cash caused a corresponding increase in consumer demand and wage pressures, and inflation followed.
Harris plans to combat this inflation with further government intervention into the free market through price controls — even though this inflation was caused by government intervention in the first place. But the simple fact is that price controls do not work in practice, no matter how good they might sound to the public. When the government imposes a price ceiling on goods or services, that discourages sellers from entering that market, inadvertently restricting the supply of those goods or services and raising the cost on consumers even more.
Pricing acts as a signaling mechanism to divert resources to where more supply is needed and demand is greatest, thereby driving down consumer prices. Government intervention in the pricing system distorts these crucial signals, artificially diverting resources from their most productive use and leading to market inefficiencies.
Under Harris’s plan, instead of prices set by millions of individuals acting based on market signals to aggregate their knowledge into a national economy, pricing would instead be set by bureaucrats in Washington. This is what free-market economist F.A. Hayek once called “the fatal conceit,” or the idea that a small group of government officials can effectively manage an economy when such economic knowledge is dispersed across a complex web of millions of individual actors.
One result of price controls is shortages. But another result is the further concentration of business and formation of monopolies — the very outcome Harris claims to want to prevent. In reality, the smaller market players will be unable to survive the diminished profit margins that come with price controls. On the other hand, the big guys can have the resources and capital to withstand the short-term losses and gobble up the rest of the market share. This industry consolidation will only further restrict market competition, thus keeping prices high for consumers.
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America’s free-market system, which unleashes the genius of individual actors, created the greatest economy in the history of the world and catapulted us to the status of world superpower.
People of all stripes must reject Harris’s attempts to abandon that formula through price controls, or the consequences could be dire, as history has shown us before.
Dr. Ben Carson serves as Founder and Chairman of the American Cornerstone Institute.