A necessary step or government overreach? Economists are divided over Kamala Harris' plan to clamp down on food inflation

• Kamala Harris unveiled plans for the first-ever federal ban on price gouging.
• Some experts question whether price gouging has been a central factor in inflation's rise.

Vice President Kamala Harris' proposal to combat grocery inflation hasn't elicited a range of opinions from economists, and many have turned to history to dispute her idea.

Last week, the Democratic presidential nominee unveiled early details of her economic platform, which included a pledge to ban grocery price gouging.

Price gouging skepticism

The plan has elicited a range of responses from experts and economists, with some deriding it as an unnecessary overstep by the government to address a problem that is not at the heart of the inflation dilemma.

"I hope she walks this one back. She had some good ideas, some mixed ideas," Harvard professor Kenneth Rogoff told CNN. "This was a horrible idea."

Rogoff's position was based on doubts about whether retailers were to blame for the wave of inflation that has weighed on Americans' spending power in the last two years.

Harris called for a first-ever federal ban on the basis that firms have notched record profits at a time when many households have struggled to adjust to runaway costs. Since January 2020, grocery prices have jumped 25%.

But according to market veteran Ed Yardeni, data doesn't suggest gouging is the problem.

He wrote this week that the ratio between the consumer price index and supermarket producer price index has been dropping since 2000, suggesting that profit margins in the industry have been trending down, not up. CPI tracks prices paid by consumers, while PPI measures the prices paid by wholesalers.

And yet, consumers feel strongly that corporate greed is a central factor for why prices have risen abruptly. In a study from May, price gouging was the second leading perceived cause of inflation among surveyed consumers.

Real-world examples do exist. Cal-Maine, the largest egg producer in the US, saw its profits rocket 718% in the first quarter of 2023. By December, the distributor was found liable for artificially inflating prices.

'Price controls' a partisan label?

Whether gouging deserves the blame for inflation, some have also criticized Harris' plan as an ineffective government overreach.

Pundits have alluded to the price controls under President Richard Nixon. The Republican executive froze prices and wages over fifty years ago to clamp down on inflation, but it eventually jumped much higher, according to Cato Institute, a libertarian think tank.

"I think all of us would agree that price controls have never worked," Stephen Moore, visiting senior fellow at the conservative think tank Heritage Foundation, told CNBC. "They certainly were a complete failure in the 1970s when we had major inflation that hit 11%-12% and the government couldn't get rid of it."

Broader examples through history show that price ceilings can distort the allocation of goods and supply, as prices no longer serve to signal a surplus or scarcity. This can eventually lead to shortages and higher pricing.

However, supporters of the plan argue that such comparisons are an overreaction to Harris's proposal, as the details thus far say nothing about fixing costs.

"This is not 'price controls.' 40 states have price gouging laws on the books. These are red states. These are blue states," Groundwork Collaborative executive director Lindsay Owens said, noting that Donald Trump also cracked down medical supply price gouging during the pandemic. "This is a common-sense set of policies."

The federal ban would help patch up legal inconsistencies between each state's approach, experts told Business Insider. Harris would likely find success by empowering the Federal Trade Commission to pursue bad actors, though the challenge would lie in carefully defining price gouging.

While the plan's advocates have cheered this on, anonymous campaign sources that spoke with The New York Times noted that even allies may have the wrong idea about what it can do.

Given that it would be modeled on state laws, the ban would really only come into effect in emergencies, officials said, stating that just as price-control critiques are misguided, so are expectations that the ban will immediately cut down on grocery costs.

For that to happen, a campaign official cited Harris' other policy ideas, such as efforts to spur competition and support small businesses in the food sector.

While economists are divided, voters seem supportive of the proposal. Summer polling from the Democratic firm Blueprint found that four out of five voters are in favor of price-gouging prosecution, as well as price fixing.