How price gouging bans really work
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Illustration: Maura Losch/Axios
One of Kamala Harris' most controversial policy proposals is a ban on grocery price gouging — critics are conflating the idea with Soviet-style price controls, and calling the plan "Kamunism."
Why it matters: If banning price gouging is communist, then the U.S. went Marxist long ago. Most of us live in states that already have bans in place.
State of play: Harris hasn't provided much detail. That's led to wild speculation about what the plan could mean, including opinion pieces expressing fears that retailers won't be able to, say, set the price of a gallon of milk, and that it would lead to widespread shortages, black markets and hoarding.
- But that's just not how anti-price gouging policies work in the U.S., nor does it line up with the language in a draft bill banning price gouging nationally, sponsored by Sen. Elizabeth Warren (D-Mass.).
- That bill largely mirrors state laws — but is limited to companies with at least $100 million in revenue — and some experts are pointing to the legislation as close to what a Harris administration would propose.
Zoom in: 38 states, including the most populous like Texas, California and New York, prohibit companies from jacking up prices during emergencies — think bans on selling $10 bottles of water after a major hurricane.
How it works: The laws are triggered by an event — typically a natural disaster like a hurricane, pandemic, or even a strike — a time when the governor or the federal government has declared an emergency.
- Once triggered, some laws explicitly prohibit price hikes above a certain threshold, anywhere from 10% to 25%. Others are more subjective, banning "egregious" or "unconscionable" price increases.
- The law is then enforced by state attorneys general, local district attorneys — and, in some states, private actors can sue businesses, as well.
One advantage of a national ban is that the federal government would have more power to go after big global corporations that are hard to pursue at the state level.
Under these laws, companies that raise prices can defend themselves by demonstrating that they increased prices because their costs went up, says Zephyr Teachout, a law professor at Fordham.
- That means they should be able to maintain their profit margins, says Teachout.
The big picture: Every state's price gouging laws were triggered in the pandemic; an unprecedented situation that led to dozens of actions against companies for price gouging.
- In New York, Tyson Foods is still fending off a civil probe looking into pandemic price gouging. Other states, like Tennessee — no commie stronghold — went after sellers who marked up hand sanitizer. The Florida AG's office issued 70 subpoenas investigating price gouging around PPE.
Since these laws are meant to deal with emergencies, businesses are free to raise prices once a state ends its emergency declaration — and many did just that, one lawyer who represents companies in these kinds of cases told Axios.
Our thought bubble: Harris' economic proposals, broadly speaking, are meant to help middle-class Americans deal with a higher cost of living.
- If a national price gouging ban is structured like these local bans, only triggered by emergencies and targeted to specific firms, it's not clear it would make much of a dent.
The bottom line: Price gouging is not the same thing as "price controls," where a government sets prices for certain goods (the U.S. dabbles there just a smidge; see the new insulin price cap).
- These measures are oft-hated by economists, but they've been around for a long time. Still, most Americans intuitively understand the rationale behind them, and Harris is trying to appeal to voters — not academics or newspaper columnists.
