The Price Tag for Price-Gouging: $12,000 Per Family

The Pitch: Economic Update for August 22nd, 2024

Friends,

For The New Republic, Civic Ventures founder Nick Hanauer published a piece explaining why Vice President Kamala Harris is correct to make stopping greedflation a priority of her presidential campaign.

While nearly every nation on earth went through a painful round of price increases after global supply chains broke down in the early days of the pandemic, Nick writes, “Supply chains have long since healed, and this week’s inflation report shows that the inflation rate has cooled.” But even though inflation has cooled, “high prices are still shocking Americans, making them feel sour about an economy and labor market that are objectively the strongest in the world right now.”

How can this be? “Over the last two years, CEOs learned they could get away with padding their profits by keeping prices high,” Nick writes. In other words, they’re price-gouging. Nick adds that CEOs of some of the world’s biggest companies have been openly bragging about how much money they’ve made by raising prices far above costs.

“Four decades of growing corporate concentration has distorted the market so much that CEOs are now addicted to breaking profit records. When their costs go up, prices go up. When their costs go down, prices go up,” Nick writes.

Many states, including conservative strongholds like Texas and Arkansas, have laws against price-gouging, which the state of Texas describes as when “a seller takes advantage of a disaster by selling certain goods or services at excessive prices.” The current situation, in which corporations bragged about using pandemic-era supply chain problems to raise prices far above costs, certainly seems to fit their definition.

Nick also puts a dollar figure on the amount of money that American families have paid since all this started: “the average American household has paid an eye-popping $12,000 in higher prices solely to pump up quarterly corporate profit margins. To put that figure into perspective, $12,000 could buy the average American household more than two years’ worth of groceries.”

“That money was picked directly from the pockets of American families, who each paid $12,000 more to plump the profit margins of corporations (and that’s not even counting the excess APR rates that have cost the average credit card user $946 over the same four-year period,)” Nick writes, concluding, “This is unsustainable. By taking a stand against those CEOs and bringing prices back down for the American people, Harris can ensure that the American people continue to make our economy the envy of the world.”

Nobody resents businesses for earning a profit. But when businesses consolidate markets and form monopolies, and then they use that lack of competition to pump up their profits, that kind of behavior hurts the whole economy, making it harder for American families to get by. Rather than allowing a small handful of shareholders and executives to take an extra $12,000 from every American household, we want policies which encourage families to circulate that $12,000 throughout the economy, creating jobs and supporting small businesses, which benefits everyone — not just the wealthy few.

The Latest Economic News and Updates

The Price-Gouging Conversation Continues

In the introduction, we looked at Nick Hanauer’s support for Vice President Harris’s plan to combat extreme corporate price-gouging. Axios explains how her plan would likely work: By limiting the amount that companies could raise prices during an emergency, unless they can prove that not raising prices would harm their business.

At the same time that Nick’s piece was published, some of the loudest neoliberal pundits complained about Harris’s proposed policies, with some calling price-gouging a “myth,” and others arguing that attacking price-gouging opens Harris up for attacks that she is a “communist.”

Economist J.W. Mason takes on those claims directly, arguing that neoliberal critics “are imagining an Econ 101 world where there is a fixed stock of stuff, and the market price is the one where people just want to buy that much. There are, to be sure, cases where this is a reasonable first approximation — used car dealers, say. But it is not a good description of most of the economy.”

Mason explains that across the United States, private companies that are the sole supplier of water to municipalities are not allowed to jack up the price of water simply because they want to report a higher profit margin. The same is true of other private companies that supply utilities like gas, electricity, and trash removal.

“The principle in these types of regulations — which, again, are ubiquitous and uncontroversial — is that in the real world prices may or may not track costs of production,” Mason writes. “Price increases that reflect higher costs are legitimate, and should be permitted; ones that do not are not, and should not.”

In other words, banning price-gouging has historically been the normal response from our leaders. Allowing price-gouging to run amok is a bizarre and self-sabotaging policy.

In the past, railroads possessed an incredible amount of power: They were often the sole provider of transportation for people and goods across the country. “The result was cycles of price gouging and ruinous competition, in which farmers and small businesses could (much of the time) reasonably complain that they were being crushed by rapacious railroad owners,” Mason explains.

Critics might argue that there’s a great deal of distance between railroad barons of the 1800s and meat and dairy providers in the year 2024, but the truth is that they share one vital characteristic in common: Outsized market concentration has essentially transformed a handful of giant food manufacturing corporations into monopolies. And like the railroad monopolies, without any meaningful competition these companies are able to jack up the prices of milk and meat with no regard to costs.

Mason also argues that one of the two major-party nominees talking about corporate price-gouging is in itself a kind of weapon against corporate price-gouging. “If fear of antagonizing customers is normally an important restraint on price increases then maybe we need to stoke up that antagonism! The language of ‘greedflation,’ which I admit I didn’t originally care for, can be seen as an updated version of Arthur Hadley’s proposal to “disqualify socially” any business owner who raised prices too much,” Mason writes. “It is also, of course, useful in the fight for more direct price regulation, which is unlikely to get far on the basis of dispassionate analysis alone.”

On Twitter, Mason sums up: “My big point: critics of price regulation like to present it as a reflexive, populist reflex without any analysis behind it. But there is actually good reason, and long historical precedent, for regarding price-setting as a political setting and a suitable object for policy.” At a time when, as Nick argues, the average American family has paid $12,000 over the last three years for no other purpose than to fluff up the record-breaking profit margins of a handful of giant corporations, that’s a perfectly reasonable conversation to have.

Harris Unveils a Middle-Out Economic Platform

Last Friday, Vice President Kamala Harris unveiled some of her headline economic policies. We’ve talked at length about her proposed ban on price-gouging, but there’s a lot more to discuss.

For most of this year, I’ve been saying that the single biggest economic pinch point for most Americans is in housing — rents and home prices skyrocketed over the past few years, and the Federal Reserve has kept interest rates incredibly high for a very long time, which means that mortgages have also been much higher than in recent memory.

Thankfully, Harris offered a comprehensive housing plan including a mix of new and strengthened Biden-era policies:

• Investments to build 3,000,000 units of additional housing over the next four years.
• The creation of a new tax incentive for the construction of affordable starter homes, and the expansion of an existing tax incentive to build affordable rental properties.
• Doubling funding for cities and states to explore alternative housing solutions and opening up federal land for housing solutions.
• Providing a $25,000 down payment for first-time home buyers.
• Fighting concentration and anti-competitive activities in the housing market by stopping big investors from buying up homes in bulk and stopping corporate landlords from using software to collude with other landlords to fix rent prices.

The Harris campaign calls for reviving the $3600 annual Child Tax Credit, which provides direct cash payments to families, and raising the CTC for the first year of life to $6000. This is a tried-and-tested policy that all but eliminated child poverty when we did it a few years ago. And they also call for slashing the price of insulin for all Americans to $35 a month and capping yearly drug expenses at $2000, in addition to finding ways to eliminate medical debt and fight Big Pharma’s corporate concentration.

All told, this is a strong middle-out economic plan that seeks to grow the paychecks of working Americans by cutting costs and ensuring that more people have more money in their pockets, thereby powering local economies with their increased spending.

So naturally, neoliberal pundits were quick to protest the proposals. Paul Krugman notes that “The usual suspects are claiming that Harris revealed herself to be an extreme leftist,” adding that “Even some middle-of-the-road economic commentators have been hyperventilating, saying that she’s essentially calling for price controls, which is odd, because she didn’t say anything like that.”

“All in all,” Krugman argues, “Harris staked out a moderately center-left position, not too different from President Biden’s original Build Back Better agenda.”

I agree, assuming that Krugman is referring to Nick Hanauer’s definition of centrism that I highlighted two weeks ago: These proposals are centrist, in that a broad majority of the American population supports them and they will economically benefit a broad majority of the population.

How’s the Economy Doing?

Last week, we got some more good news about the economy: “Retail sales increased 1 percent in July from the previous month, the Commerce Department said, well above the 0.4 percent rise that economists were expecting. A bounce-back in auto sales as cyberattack-related disruptions faded probably intensified the jump in overall retail sales,” reports the New York Times’s Danielle Kaye. “But sales excluding autos and gasoline, a calculation that can be more indicative of spending trends, also beat expectations, rising 0.4 percent.”

Remember, earlier this month a tepid jobs report and a sudden dip in the stock market had many pundits convinced that the economy was about to take a nosedive into a recession. But American consumers seem to be spending with great confidence, and because consumer spending makes up 2/3rds of the economy they continue to power our nation’s strongest-in-the-world recovery from the pandemic.

“Based on the ‘solid’ retail sales data, consumer spending is on track for 3.5 percent growth in the third quarter, according to Kathy Bostjancic, the chief economist of Nationwide,” Kaye writes. “That would propel overall economic growth to a healthy rate of more than 2 percent for the quarter.”

The quantity of spending is important, but we also need to keep an eye on the quality of spending — if fewer people are spending more money but other Americans are frozen out of the economy altogether, for example, that’s a very bad sign. But a report from Walmart last week offered some promising data that suggests consumer spending is strengthening:

“At Walmart, transactions during the quarter were up 3.6 percent, while the average amount spent per visit showed a slight increase, of 0.6 percent,” writes Jordyn Holman at the Times, adding, “That combination has been relatively rare for retailers recently: Many have seen cost-conscious shoppers visit less or spend less per trip, or both.”

In other words, more shoppers are spending more money, which is what we like to see.

But pundits looking to overreact always have a new piece of data to justify their fears:. Just yesterday, the Labor Department issued an uncharacteristically large preliminary revision of the last year’s worth of jobs data.

Ben Casselman explains: “On Wednesday, the Labor Department said monthly payroll figures overstated job growth by roughly 818,000 in the 12 months that ended in March. That suggests employers added about 174,000 jobs per month during that period, down from the previously reported pace of about 242,000 jobs — a downward revision of about 28 percent.”

Conspiracy theories are already spreading among alarmists online, but this is a normal part of the Labor Department’s standards and procedures. “This year’s revision was unusually large,” Casselman explains. “Over the previous decade, the annual updates had added or subtracted an average of about 173,000 jobs. Still, substantial updates are hardly without precedent. Job growth for the year ending March 2019, for example, was revised down by 489,000, or about 20 percent.”

The most important thing to keep in mind is that while the exact numbers were off, the trends that the Labor Department reported over the last year have been generally accurate. In sum, Casselman writes, “Even accounting for the new estimates, the big picture remains relatively unchanged: Job growth is slowing, but not collapsing. The unemployment rate is rising, but layoffs remain low.”

But many Americans aren’t feeling that resilience in the job market and consumer behavior. As anyone who reports on the economy can tell you, the gap between economic data and the public’s perception of economic data has almost never been bigger.

For Axios, Courtenay Brown reports that the Biden Administration is trying to incorporate those feelings into their economic response. That’s why “Council of Economic Advisors chair Jared Bernstein consults a Gen Z staffer, dubbed in-house as the ‘vibe-rarian.’ This staffer, Molly Opinsky, at times updates Bernstein on the economic vibes observed on social media platforms including TikTok.”

Brown lists one example of how Opinsky spotlighted a problem that economic data wouldn’t catch: “Groceries started showing up in TikTok videos of shopping ‘hauls’ — when influencers post videos about their purchases — along with complaints about the high prices at the supermarket.”

Obviously, no one is saying that leaders should ignore economic data and solely watch TikTok instead. But it is important to pay attention to how people are reporting their own interactions with the economy, because those anecdotes might contain important information that has yet to show up in the data.

One such economic outcome that is just starting to show up in the data but which has been a vibe for a while is the growing number of Americans who aren’t having children. “The decision to have children never involves just one consideration. But for millions” of families, reports the Washington Post’s Rachel Siegel, “the economic and financial toll of raising a family increasingly weighs on the choice.”

“Between 2018 and 2023, there was a sharp rise — from 37 percent to 47 percent — in the share of U.S. adults under 50 who don’t have kids and are unlikely to, according to a July Pew Research Center survey,” Siegel writes. “Of those, 36 percent said they can’t afford children.”

Until now, trickle-downers have responded with proposed policies that punish people who don’t have children or ban access to family planning. But the craziest part of all this is that we already know how to grow the birth rate: By investing in middle-out economic policies that establish good health insurance, higher wages, affordable child care, paid family leave, and affordable housing — in other words, making it easy for people to afford having kids.

In a world full of complicated problems, it’s almost refreshing how un-complicated this particular solution is. These economic policies are all very popular, and they would grow the economy. Full stop. We can enact this solution any time we want — we could even do it right now, if trickle-downers were to come around to the idea of investing in working Americans.

This Week in Middle Out

• “A judge issued a preliminary injunction against Disney, Fox and Warner Bros. Discovery on Friday over a planned sports-focused streaming service from the companies, saying the joint venture would most likely make the market for sports viewership less competitive,” writes Benjamin Mullin at the New York Times.
• “The Biden administration will award up to $1.6 billion in grants to Texas Instruments to help the company build three new manufacturing plants” in Texas and Utah, reports Madeleine Ngo at the Times.
• Robert Kuttner at the American Prospect looks at the remarkable middle-out economic policy achievements that Tim Walz helped win as governor of Minnesota, explaining that “these programs are popular with Minnesotans. The right has tried and failed to demonize Walz as far-left, but the programs are as economically mainstream as Walz presents as culturally mainstream.”
• The Prospect also looks into Walz’s record of worker protections. “Walz and the Minnesota state legislature have an outstanding labor record in general, instituting paid family and medical leave, banning noncompete clauses, prohibiting anti-union ‘captive audience’ meetings, and creating a statewide council to improve conditions for nursing home workers,” the Prospect notes. “Minnesota under Gov. Walz also runs one of the most effective OSHA state plan programs. And they’re saving lives. The state ranks fifth-lowest in the rate of workplace fatalities, significantly lower than the federal workplace fatality rate.”

This Week on the Pitchfork Economics Podcast

Martin Wolf, chief economics commentator at the Financial Times, joins the podcast to discuss his new book, The Crisis of Democratic Capitalism. It’s a clear-eyed study of how rising income inequality has eroded the successes achieved by democratic capitalism in the last century. Wolf explains to Nick and Goldy that stronger social safety net programs won’t just strengthen the economy — they’ll help protect democracy for future generations.

Closing Thoughts

Here’s the latest version of a song that we’re all sick of hearing by now: This week, a Trump-appointed judge in Texas unilaterally blocked a hugely popular Biden Administration protection for workers. For the Washington Post, Julian Mark writes: “A federal judge in Texas on Tuesday struck down the Federal Trade Commission’s ban on noncompete agreements, finding that the agency exceeded its authority with a rule that would have voided contracts that bar workers from moving to rival employers.”

The rule would have gone into effect on September 4th. Mark explains, “An estimated 30 million U.S. workers in a wide range of fields are subject to noncompete agreements.” Those workers were forced to sign agreements that say they’re not allowed to leave their current employer and go to work anywhere else in the same field within a broad geographic area. And while many people think of noncompetes as solely the realm of people with high-level secret information, like CEOs and new product developers at Apple or Google, the truth is that most noncompete agreements are forced on workers in fields like fast food, hairdressing, and construction.

Judge Ada Brown didn’t seriously argue that noncompetes were good for the American economy or for American workers. Of course she didn’t; everyone knows that competition is necessary for healthy capitalism. From online services to grocery stores, we have an abundance of proof that when monopolists don’t have to compete for customers, they jack up prices for consumers, slash wages and benefits for workers who don’t have other employment options, and lower the quality of their products.

Instead, Brown directly challenged the FTC’s authority to regulate the workplace. “Brown found that the FTC lacked the statutory authority to issue the rule,” Mark writes, explaining that “Brown wrote that the ‘FTC’s promulgation of the Rule is an unlawful agency action.’” It’s yet another big step forward in the ongoing trickle-down judicial war on the regulatory power of the United States, and this decision will make a tiny handful of super-rich people and corporations even richer at the expense of everyone else.

A number of states, including my home of Washington, have banned noncompetes, and those bans still stand. But for now the FTC is considering appealing Judge Brown’s decision. And unless progressive leaders want to lose all the progress they’ve made toward building an economy that works for American workers, they need to enact a strategy that will stop this judicial activism.

The first logical step is to make it impossible for trickle-down groups like the Chamber of Commerce to go shopping for judges who will rubber-stamp their anti-worker agendas. After that, Congress needs to pass laws that bolster the right of agencies like the FTC to actually do their job without concern that the interference of a single judge could undo years of work for no good reason.

Let’s be clear: This decision on noncompetes is a huge loss for American workers. It enables employers to exact immense control over their workers even after they leave the job, keeping wages low and throttling healthy competition in the workforce. These kinds of setbacks are disheartening, but I can promise you that the good folks at the FTC aren’t giving up, and neither are the leaders who called on them to pass these sensible, popular middle-out regulations. You can only deny American workers their rights for so long before the will of the people makes itself known.

Be kind. Be brave. Take good care of yourself and your loved ones.

Zach