Are Price Controls on Groceries and Food a Good Idea?

Current Vice President Harris is proposing federal price caps on groceries to stop the “price gouging” if elected President.

But is it a good idea?

What would be the consequences of empowering the Federal Trade Commission (FTC) to set prices on food and groceries?

Imagine if you manufactured a widget and made a profit of 2% on each one sold. 

But the government thought your profit was too high and set a price cap so your profit was now 1%. 

What would your choices be?

One option would be to stop making the widget and close your business. 

Another would be to cut corners and make the product more cheaply and of a lesser quality so you could still maintain the 2% profit.

A current example of this is “shrinkflation.”

You pay the same price for a box of cereal but the boxes have shrunk from 32 ounces to 24 ounces.

Another example is selling a lower grade of steak at the higher price choice or prime grade. 

A third option would be to cut down on the number of widgets you make. 

However, if it was a popular or essential product like toilet paper, it would be sold out as soon as it hit the shelves and there would be shortages.   

In order to meet demand, a black market would be created and prices for your widget would soar but your profit would still be limited to 1%.

The person selling it on the black market would be making all of the profit, not you. 

Thus, politically the government could say that they did something about price gouging but in reality they created a supply shortage and a subsequent price increase.   

The exact opposite of what the government was looking to achieve.

Competition is what keeps grocery prices in line. 

I can go to Stater Brothers, Whole Foods or Bristol Farms, Trader Joe’s, Aldi’s, Costco or Albertsons.  

Choice.

Price controls are not the answer.