The Backlash Against Kamala Harris’s Price-Gouging Proposal: Understanding the Debate
Last week, a firestorm erupted in the economics community and mainstream media over Kamala Harris’s proposed federal price-gouging law. Pundits, op-eds, and even straightforward news articles mocked Harris, accusing her of economic illiteracy and warning of Soviet-style price controls that would supposedly lead to shortages and inflation. Yet, the irony of this backlash is that Harris’s proposal is neither radical nor new. In fact, nearly every state in the U.S. already has laws restricting price gouging. While Harris hasn’t released the exact details of her plan, it’s reasonable to assume it would align with the existing framework of state-level bans, which prohibit unjustified price hikes for essential goods during emergencies. The uproar over her proposal highlights a deeper divide between economic theory and real-world realities.
What Is Price Gouging, Anyway? A Closer Look at the Law
Price gouging often feels like one of those “I know it when I see it” concepts, but it’s actually a well-defined legal doctrine. A typical price-gouging claim has four key elements. First, there must be a triggering event, like a natural disaster, pandemic, or other emergency that disrupts the market. Second, the goods or services in question must be essential—no one gets upset if luxury items like designer handbags are overpriced during a crisis. Third, the price increase must be “excessive” or “unconscionable,” which most states define as exceeding 10% to 25% of the original price. Finally, the price hike must exceed the seller’s increased costs. This last point is crucial: businesses are still allowed to maintain their profit margins during emergencies; they just can’t exploit desperation to pad their profits.
For example, during the early days of the COVID-19 pandemic, some New York City residents complained about exorbitant prices for Lysol. However, investigators found that grocery stores were simply passing along higher costs from their distributors. The real culprit was the wholesaler, which eventually agreed to pay $100,000 in penalties and restitution. This case underscores how price-gouging laws are designed to target unfair exploitation, not legitimate price adjustments.
Why Economists Oppose Price-Gouging Bans (And Why Regular People Support Them)
Despite their popularity among the general public, price-gouging bans are seldom favored by economists. In the idealized world of economic theory, allowing prices to rise during emergencies is seen as beneficial. High prices send signals to the market, encouraging suppliers to ramp up production and attract new competitors. Prohibiting price gouging, economists argue, could reduce incentives to produce essential goods and services, potentially leading to shortages. Additionally, higher prices help ensure that scarce resources go to those who value them most.
But regular people see things differently. In the real world, supply can’t always keep up with demand during emergencies, and sellers may exploit their temporary monopoly. For example, during a blizzard, a store might double the price of snow blowers, but no investor is going to build a new factory overnight. The market doesn’t adjust as seamlessly as economic models suggest. After the emergency passes, life goes back to normal—except for the wealth transferred from hard-hit consumers to corporations. This disconnect between theory and reality explains why price-gouging bans remain popular, even if economists dismiss them as “bad policy.”
The Limits of Supply and Demand in Emergencies
Another flaw in the economic argument against price-gouging bans is the assumption that higher prices will always lead to the best allocation of resources. In theory, high prices ensure that scarce goods go to those who need them most. But this assumes a level playing field where everyone has the same ability to pay. In reality, wealth inequality means that the person who can afford to pay more isn’t always the one who needs the product most urgently. For example, during a power outage, a millionaire might outbid a working-class family for a generator, even if the family needs it to refrigerate life-saving medication.
This is where price-gouging bans step in as a form of moral policy. They recognize that consumers aren’t the perfect, hyper-rational agents of economic theory. During crises, people are desperate, and their inability to shop around or wait for prices to drop makes them vulnerable to exploitation. Price-gouging laws are a way to ensure fairness and protect those who can’t afford to pay exorbitant prices for essential goods. They represent a values-based approach to economics, one that prioritizes people over profits.
The Problem with State-Level Price-Gouging Laws
While state-level price-gouging laws are common, they have significant limitations. For starters, enforcing these laws is challenging, especially when corporations operate across multiple states. For instance, if a company in Wisconsin produces baby formula and sells it to a distributor in Minnesota, which then sells it to a supermarket in Oregon, it’s unclear which state’s attorney general has jurisdiction if the company hikes its prices during a pandemic. Multinational corporations are often beyond the reach of individual states, making enforcement difficult.
Additionally, small businesses often find themselves caught in the crossfire. When large corporations raise their prices, small retailers have little choice but to pass those costs on to consumers. This puts them in the uncomfortable position of being the public face of price gouging, even though they’re just trying to stay afloat. A strong federal law would not only protect consumers but also shield small businesses from being scapegoated for price hikes they can’t control. Moreover, a well-designed federal ban would likely deter most corporations from engaging in price gouging in the first place, as the threat of penalties would keep them in check.
Why a Federal Price-Gouging Law Makes Sense
The final argument for a federal price-gouging law is simple: it’s a pragmatic solution to a real-world problem. While economists may argue that such laws disrupt the free market, the truth is that markets aren’t always fair or efficient, especially during crises. Price-gouging laws don’t eliminate markets; they just ensure that markets operate with a sense of fairness and decency. They prevent corporations from exploiting desperation and protect vulnerable consumers who are least able to absorb sudden price hikes.
Moreover, the absence of a federal ban leaves the door open for price gouging to exacerbate inflation and instability during emergencies. For example, unchecked price spikes during the COVID-19 pandemic contributed to broader economic problems, harming both individuals and the macroeconomy.
In conclusion, Kamala Harris’s proposal for a federal price-gouging law isn’t about imposing Soviet-style controls or stifling innovation. It’s about ensuring that corporations can’t exploit Americans during their most vulnerable moments. Price-gouging bans are a necessary safeguard against exploitation, and a federal law would finally provide the teeth needed to enforce them. As the Lysol case in New York shows, these laws can work—when they’re enforced. The question now is whether lawmakers have the will to protect consumers and small businesses from those who would profit from disaster.
