Do I really have to explain why price controls are bad?

“Only by varied iteration can alien conceptions be forced on reluctant minds.”- Herbert Spencer

Vice President Kamala Harris is set to announce a new policy proposal to ban “price gouging” on groceries as part of her presidential campaign platform. While this may sound appealing to voters frustrated with high grocery prices, it demonstrates a fundamental misunderstanding of how markets work and the real causes of inflation.

Before we go into the problems with this proposal, let’s be clear about what it likely means in practice.

Harris’s campaign has been vague on details, but any attempt to ban “price gouging” on groceries would essentially amount to price controls. Some might argue that calling Harris’s proposal “price controls” is unfair or hyperbolic. After all, she’s not directly setting prices, right? But let’s be clear: any policy that gives the government the power to decide what price increases are “fair” or “unfair” is effectively a price control system. It doesn’t matter if you call it “anti-gouging,” “fair pricing,” or “consumer protection” - the effect is the same. When bureaucrats, not markets, determine acceptable prices, we’re dealing with price controls. Here’s why:

1. Vague definitions lead to broad interpretations: Without a clear, objective definition of “price gouging,” regulators would have wide latitude to decide what constitutes an “unfair” price increase. It typically refers to unfairly high prices during emergencies. This isn’t about emergencies. This ambiguity could easily lead to de facto price controls across a wide range of grocery items.

2. Enforcement requires price monitoring: To enforce a price gouging ban, the government would need to monitor price changes. This creates a system where prices are effectively controlled by bureaucrats rather than market forces.

3. Companies will err on the side of caution: Faced with potential penalties for “gouging,” grocery retailers and suppliers are likely to be overly cautious about any price increases, even when justified by rising costs or changes in supply and demand. This chilling effect is tantamount to informal price controls.

The chilling effect of these policies rivals that of explicit price ceilings, even if not true ceilings. If companies face severe penalties for “excessive” price increases (however that’s defined), they’ll err on the side of caution and keep prices artificially low. This informal price control can be just as damaging to market efficiency as a government-mandated price ceiling.

So yes, calling this proposal a form of price control is not only fair, it’s accurate. And it’s crucial that we recognize it as such, because history has shown time and again the failures of price control policies, regardless of their stated intentions.

To understand why Harris’s proposal is so concerning, let’s look at what these laws might actually look like in practice. As Chris Conlon has pointed out, the closest we have to a real proposal is a bill introduced by Senator Elizabeth Warren in 2022 and reintroduced in 2024. If that passed, you violate the law if:

1. Use shocks as a “pretext” to raise prices

2. Raise prices by an unspecified “excessive” amount

3. Charge more than a competitor

4. Charge different prices to different buyers (which would effectively outlaw common practices like Costco’s membership model)

5. Potentially just having $1 billion in revenue

Even more concerning is the penalty structure. Violating the law would result in a minimum penalty of 5% of the parent company’s revenue from the previous year. This isn’t tied to the specific violation or any damages caused—it’s a blanket punishment. Conlon uses the example that if Disney raised parking prices at Disney World on a busy day, they could forfeit 5% of all corporate revenues, even those unrelated to the price increase.

This draconian approach would create a chilling effect on any price adjustments, even those that are economically justified. It would effectively amount to widespread price controls, with severe consequences for market efficiency and economic growth.

Price controls don’t fix the problems of inflation.

Now, let’s break down why this proposal is misguided for the goal of addressing inflation:

As we’ve explained many times before, inflation is the result of too much purchasing power chasing too few goods. The recent bout of inflation we experienced was driven by a combination of expansionary fiscal and monetary policy boosting demand, coupled with supply chain disruptions reducing supply. Prices rose because demand exceeded supply—not because of some nefarious corporate plot. When demand increases relative to supply, prices naturally rise. This isn’t “gouging,” it’s the market's way of allocating scarce resources. Supply AND demand.

Or, as Josh explained in the New York Times

“If prices are rising on average over time and profit margins expand, that might look like price gouging, but it’s actually indicative of a broad increase in demand,” said Joshua Hendrickson, an economist at the University of Mississippi who has written skeptically of claims that corporate behavior is driving prices higher. “Such broad increases tend to be the result of expansionary monetary or fiscal policy — or both.”

We also explained the economics here and here and way too many other places.

The corporate desire for profits is constant—it doesn’t suddenly spike. As I wrote with Alexander Salter, “blaming inflation on greed is like blaming plane crashes on gravity.” What changed was market conditions, not corporate motivations. We can’t simply ask them to stop gouging in a way that doesn’t amount to price controls. With strong consumer demand fueled by stimulus payments and low interest rates, companies found they could raise prices without losing customers. This isn’t gouging, it’s responding to market signals. As I will explain below, this is different than stories about “gouging” in emergencies.

Just as a reminder, putting caps on grocery prices will lead to shortages and reduced quality as companies try to maintain profitability. It could also discourage investment in expanding production capacity, which is ultimately what’s needed to bring prices down sustainably. As Jason Furman noted, “If prices do not rise in response to strong demand, new companies may not have as much inclination to jump into the market to ramp up supply.”

The market must clear in some way, even if prices aren’t doing the work. Josh has been through this before.

Harris is clearly trying to tap into voter frustration over inflation. Good policy requires understanding root causes, not just appealing to popular sentiment. As economists, we need to push back against these misguided narratives and explain how markets actually work.

To be clear, I’m not saying all price increases are justified or that companies never engage in exploitative behavior. But a blanket ban on “price gouging” for an entire category of goods is the wrong approach. It fails to distinguish between legitimate price increases driven by market forces and truly abusive practices. Collusion is already illegal!

Now, you might be wondering—didn’t Josh argue that price gouging laws aren’t so bad?

There’s an important distinction to make here. Josh was referring to existing price gouging laws that typically only apply during declared emergencies and for essential goods. These laws, while not ideal from an economic perspective, are limited in scope and duration.

What Harris is proposing appears to be much broader—a permanent ban on undefined “price gouging” for all grocery items. This is far more sweeping and economically damaging than the narrow laws Josh discussed. Moreover, Josh’s argument was that many firms wouldn’t engage in price gouging anyway due to concerns about long-term customer loyalty. Harris’s proposal, by contrast, assumes widespread gouging that requires government intervention.

The reality is that inflation is driven by macroeconomic factors, not a simple problem of corporate greed that can be solved by government price controls. Harris would do well to consult some actual economists before pushing policies that could do more harm than good. Ultimately, Harris’s proposal is a reminder that the war on prices, to take the title of Ryan Bourne’s edited book that I contributed a chapter to, is alive and well in American politics.