Kamala Harris wants to save corporations from themselves

A lot of economics pontificaters are, like Josh Barro in The Atlantic are calling Vice President Kamala Harris' proposal to curb price gouging as ignorant of basic economic theory. Ordinarily, as a lifelong economic conservative, I would agree. But that would require that corporations follow sound economic theory. They don't At least not in the past four years.

During the pandemic and a few months after, corporations in general followed a basic practice. They predicted massive inflation and economic recession without adequate validation and raised prices accordingly. If what they predicted came to fruition, the price increases would have been completely justified. They did not, and the result was massive profits that were distributed to shareholders in the form of stock value and dividends. They did not reduce prices to consumers. This phenomenon was widely reported in many business publications and in newspapers. It was also gleefully reported in many annual reports.

For several months, the corporations exulted in their windfall, while something sinister arose. The customers decided to stop buying the over-priced products. It started with Target cutting prices on thousands of products, shortly followed by McDonald's bringing back "value meals" as the retail and fast-food giants saw significant decreases in sales. Consumers walked away from name-brand products that had seen huge profits in exchange for off-brand competitors. Even Amazon is seeing a hit to sales as lower-priced competitors suck away customers.

This consumer reaction was the only legitimate market force in play. Corporations to some small degree have reacted, as noted above, but they also screwed up as instead of taking the hit, they started passing the losses on to the employees rather than the shareholders and executives that benefitted from the lapse in sanity.

What VP Harris is proposing is short on details. Barro worries that she might try what Richard Nixon did in the 70s with hard and fast price controls. That turned out to be disastrous for the economy. That doesn't mean what Harris proposes will be the same. More likely the legislation will be to temper greed-based economic policy with mandatory rebates if the research is off, as it was this time. Rather than raise prices when there MIGHT be increases in the cost of goods, predictions must include potential penalties if the irrational prognostications drive the prices too high.

Or Harris could drive through serious tax increases on windfall profits so something would go to the public good.

Adam Smith gave government the right to soften unreasonable profiteering over the public good through regulation and taxation. Since Smith was the guy that established the concept of sound economic practice, Harris is following established principles.