Kansas’ Sharice Davids backs ban on price gouging. Why it won’t lower your grocery bills
In a recent ad, Rep. Sharice Davids looks straight at the camera and addresses an issue that has plagued the country for the past four years: High food prices.
“Increased grocery prices, sometimes for less of a package, are hurting families. It’s called greedflation,” Davids, a Johnson County Democrat says in the TV ad. “And I’m trying to stop it.”
But the proposal Davids references, the Price Gouging Prevention Act, which would ban companies from significantly raising prices during an emergency, might not do much to address current high food prices, according to economists. That’s because, for the most part, higher grocery prices are a reflection of higher prices up and down the supply chain.
“I wish a politician would give the correct answer to this question that they keep being asked, ‘what are you going to do to bring prices down?’ and say, ‘prices are not going to come down,’” said Aaron Smith, an agricultural and research economics professor at the University of California in Berkeley.
Economists tend to oppose legislation specifically aimed at price gouging. The conventional wisdom is that, in a free market, a business will only be able to charge what people are willing to pay. If the product becomes too expensive, people will stop purchasing it, cutting into the profit margin.
Inflation over the past four years was largely caused by snarls in the supply chain, as the world shut down and then turned off the global economy. But in embracing a federal ban, Davids and other Democratic lawmakers are making a political argument as much as an economic one, proposing a policy that addresses one of their biggest vulnerabilities in the November election.
“Rep. Davids agrees that both price controls and price gouging are wrong, and she understands Kansans are feeling the pinch at the grocery store,” said Zac Donley, a spokesman for Davids. “She’s working hard to lower costs, but recognizes there’s no one-size-fits-all solution.”
Republicans have criticized a federal price gouging ban, denouncing it as “price controls.” But Prasanth Reddy, Davids’ Republican opponent in November, didn’t criticize Davids’ support for a price gouging ban and wouldn’t say whether he would support one in Congress.
“We must do everything we can to bring down inflation and the cost of living so every family can afford to put food on the table,” Reddy said in a written statement. “In Congress, I will work to cut extra government spending so we can balance the budget.”
Is it price gouging?
Since President Joe Biden took office in 2021, consumer food prices have gone up by about 20%.
Smith, the economist, has a simple answer for why food prices have increased – it’s because all prices have gone up.
“That’s true around the world,” Smith said. “And the proximate cause of that is that coming out of the pandemic, countries around the world, including the United States, turned off the economy and then turned it back on, and that led to a whole lot of inflation.”
He has another simple answer for whether companies are price gouging to juice their profits.
“The short answer is no,” Smith said.
The longer answer is more complicated. While there aren’t many examples of companies jacking up prices just because people are willing to pay them, many businesses recorded record profit margins in 2020 and 2021, during the heart of the COVID-19 pandemic.
Businesses may be paying more for labor, as wages have increased, or for raw materials, as the war in Ukraine disrupted the global food and energy market.
But there are also some products – like beef production – where there isn’t much competition. When companies don’t have to compete as much for consumers, people often end up paying more.
“It might be that for some products, you can find places where there’s parts of the supply chain that are not very competitive and they’re able to raise prices,” Smith said.
Democrats have pointed to examples where the costs of materials are down for some products, yet companies continue to charge higher prices.
The Groundwork Collaborative, a progressive economic think-tank based in Washington, found that the price of wood pulp – a key material for diapers – declined by 25% in 2023, yet the price of diapers remained high.
“A federal price gouging ban would be a common sense safeguard against big corporations abusing their power and jacking up prices on consumers,” said Rakeen Mabud, an economist for the Groundwork Collaborative. “A federal ban would follow in the footsteps of nearly 40 states – red and blue – that protect their citizens from exploitative and illegal pricing tactics.”
Democrats also point to how consolidation in the food industry creates less competition for lower prices. The Federal Trade Commission argued in federal court that Albertsons and Kroger – two of the country’s large grocery chains – should not be able to merge because it would increase prices for consumers.
Will food prices come down?
The price gouging bill Davids’ signed onto this summer won’t do much to address current prices.
Instead, it’s designed to prevent companies from excessively raising prices in the future. The bill would make it so that businesses with more than $100 million in gross revenue from the past 12 months can’t sell their product at a “grossly excessive price.” It would allow the Federal Trade Commission and state attorneys general to enforce the ban.
The language is similar to price gouging laws in several states – including both Kansas and Missouri. Those statutes tend to focus on increased prices during a national emergency, to prevent companies from taking advantage of the chaos that often follows.
Kansas’s law allows the Kansas Attorney General to launch an investigation into a company if prices rise more than 25%from their normal level during an emergency.
The statute has been used to force companies into lowering costs for gas and energy. In 2021 former Kansas Attorney General Derek Schmidt launched an investigation after energy prices sharply increased for businesses across the state after a long cold snap. Kansas Attorney General Kris Kobach relaunched the $50 million lawsuit in 2023.
But while the price-gouging statute could come into play during national emergencies, the policy may serve a larger purpose politically than economically.
Inflation continues to be one of the top issues for voters heading into November. More than 80% of voters said the economy is one of the top issues affecting their vote in November, according to a September poll by Pew.
Rep. Emanuel Cleaver, a Kansas City Democrat, said there is a political advantage in Harris focusing on price gouging. Along with showing voters she’s concerned about how prices have risen during her term as vice president, Cleaver said it could help give the federal government leverage to drive prices down.
He said he’s pleased that Harris has backed a federal price gouging ban – even though he hasn’t signed on to the legislation in Congress.
“If you’re saying she’s doing this for some attention,” Cleaver said. “Yeah. I’ve been in this business for a while. Yeah, she’s doing this for attention.”
Regardless of the promises from both Republican and Democratic politicians, it isn’t likely that prices fall any time soon. And, Smith said, they shouldn’t. If prices fall significantly, it’s usually because the economy is in a deep recession.
Instead, Smith said, the burden of higher costs only lifts with higher wages.
“I think a lot of people do understand that prices are not coming down,” Smith said. “But they also understand that it can be a popular thing to say, politically, that you’re going to bring down prices.”
This story was originally published October 1, 2024 at 11:15 AM.
