Presidential Candidate Platforms Explained: Kamala Harris' Price Controls

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3:55All right, here is the second part of this week's dive into the economic plans of the two major candidates for president Kamala Harris and Donald Trump. If you listen to yesterday's episode, you know the deal here. As we get closer to the election, I'm going to be unpacking the major economic policies from both candidates so that you can make your own decisions about which candidate will be best for the economy. Your own personal micro economy, that is. Yesterday, I talked about the economic cornerstone of Trump's campaign, tariffs, especially on China. Today, I'm going to be looking at one of Harris's proposed policies.

4:28Harris's platform has several economic tenets to it, but I want to start with one that really captured my attention and also got a lot of criticism. The vice president says she's going to put in place the first ever federal ban on corporate price gouging on food and groceries. Price gouging is when a business takes advantage of an emergency to raise prices. Like if your house was on fire and I told you I'd give you a bucket of water for a million dollars, that would be price gouging. And this has really happened. Remember Pharma Bro, aka Martin Shkreli? His claim to fame, or infamy more accurately, is that he acquired the rights to a drug called Daraprim.

5:04That drug is used to treat infections that can be life-threatening for people with weakened immune systems like people with HIV. And after acquiring that drug, Shkreli's pharmaceutical company increased the price of one Daraprim from$13.50 to$750 per pill overnight, which for those carrying the one is a 5 ,000 % price hike. This price gouging sparked outrage from patients, healthcare providers, and politicians alike, because Daraprim is a lifesaving medication, and the massive price increase made it unaffordable for so many. But this price gouging wasn't actually illegal, so Shkreli didn't face any jail time.

5:47Well, not for this anyway. He was arrested for securities fraud related to a hedge fund that he managed before he even entered the pharmaceuticals industry. Also, remember Hurricane Harvey in 2017, the Category 4 hurricane caused widespread flooding and devastation in Texas, leaving thousands of people displaced and in need of essential supplies. In the aftermath, there were reports of businesses dramatically increasing the price on critical goods like gasoline, water, and basic food items. Bottled water was being sold for as much as$99 for one case. So what are the levers that the government typically uses to enforce a ban like this.

6:25While Harris hasn't been too specific here, she has said that this ban will, quote, build on the anti-price gouging statutes already in place in 37 states. So to predict what this ban might look like, it's helpful to look at some of the states that have these statutes as a comp for what might be in our futures. In New York, for example, the big component of the anti-price gouging rules is limiting the amount that a company can increase prices during an emergency. Specifically, New York says that companies can't increase prices more than 10 % after a state of emergency is declared. In economics, this type of rule is called price control.

7:02And this is one of the elements that has made the plan so controversial. So what are price controls and more importantly, do they work? At the most basic level, price controls are government regulations that set price limits for goods and services. There are two main types, price ceilings and price floors. Price ceilings cap how high a price can go. I mean, think rent control, where the government says you can't charge more than X amount for an apartment in this area. Price floors do the opposite. They set the minimum price. The most well-known example is minimum wage, which sets the lowest amount a worker can legally get paid.

7:38The idea behind price controls, especially price ceilings, is to protect consumers from being exploited, especially in times of crisis. The goal is to stop sellers from charging more than is fair, and in doing so, you make sure things like gas, food, and even housing remain affordable. On the surface, this sounds like a no-brainer. No one likes the idea of getting ripped off when they need something crucial. But history cautions that if we aren't careful, price controls can lead to shortages, black markets, and more unintended consequences. This has to do with the way price, supply, and demand interplay.

8:16For example, if a price cap makes it unprofitable for companies to supply gas or food, they might just stop doing it, leading to shortages, which defeats the whole purpose of the price control in the first place because the big goal with price controls is, again, to make sure people get what they need. Many economists say that price controls try to fix the symptom, high prices, but they don't always address the root causes like supply chain disruptions and production costs. In some cases, allowing prices to rise can actually encourage more suppliers to enter the market and produce more goods in short supply, which can eventually bring prices down through competition.

8:54But when prices are capped, you could end up with fewer suppliers, less competition, and more scarcity. So even though price controls are all about fairness, in theory, in practice, they tend to create more problems than they solve. Take price ceilings, for example. Imagine there's a cap on gas prices. That sounds good, until gas stations can't make enough money to cover the cost of their supply. So what happens next? They stop selling gas, or they sell less of it, creating shortages. We saw this during the 1970s oil crisis, when drivers were left in long lines at gas stations. Then there's rent control.

9:31It's meant to keep housing affordable. But in many cases, landlords respond by doing things like letting their buildings fall into despair, since they can't charge enough to justify maintenance costs, or they stop renting altogether. The result, a tighter housing market, fewer available apartments, and sometimes higher rents for units not covered by controls. We've seen this play out in New York City, San Francisco, and other major cities with strict rent controls. That is not to say that price controls never work. They can in specific, tightly regulated situations like during wartime or extremely short-term crises.

10:12Fast forward to the 20th century. During World War II, the U.S. government imposed strict price controls to prevent wartime inflation. In that case, it mostly worked because the government also rationed supplies, ensuring that goods were distributed evenly and people couldn't just hoard or sell on the black market. But as a long-term strategy, history shows us it's a risky bet. And unlike the Trump tariffs that we talked about yesterday, Harris has never been president and this federal ban has never existed. So we don't have an exact historical analog that we can look at here. But there are plenty of examples of price controls because they have been around for millennia.

10:51Seriously, all the way back to the Roman Empire. So for you boys who haven't gotten your fix of the Roman Empire today, I got you. In 301 AD, the Roman Emperor Diocletian imposed price controls on goods like food and clothing to curb inflation. Spoiler alert, it didn't go well. Sellers just stopped selling at those prices, leading to shortages. People couldn't buy basic goods, and it caused more problems than it solved. This is a theme you're going to pick up on. In the 1970s, President Nixon froze wages and prices for 90 days in hopes of curbing inflation. Initially, it seemed like a success.

11:27Prices stayed low and inflation dropped. But when price controls were lifted, prices surged even higher, and businesses that had been forced to keep prices artificially low now scramble to catch up, sending inflation through the roof. So whether or not Harris's plan includes strict price controls, it's important to keep in mind that the devil is in the details. If they're implemented carefully and with an understanding of how markets work, they might help keep essentials affordable in a crisis. But like everything in the economy, there is no one size fits all solution. I think what really upset a lot of people here, beyond the soundness of the economics, is that Harris did imply that corporate greed and price gouging was a meaningful driver of the inflation that we've seen in recent years.

12:17But really, the biggest driver of inflation has been interest rates, pure and simple. And while interest rates were lowered during the pandemic to keep us from going into a recession, some critics of Harris felt like this was her trying to find a scapegoat for inflation. And there are few things voters like less than feeling like they are being manipulated. But it seems like Harris took this feedback because since she originally announced the anti-price gouging plan, she's focused less on groceries and more on pharmaceuticals, where price ceilings are much more reliably problematic. For today's tip, you can take straight to the bank.

12:53If you're looking for more resources on comparing the economic policies of Harris and Trump, check out the link in the episode description. This is a comparison by the Council on Foreign Relations, which aims to be nonpartisan and compares the two candidates on not just economic policy, but also AI, foreign affairs and a whole lot more. But if you're curious about a deep dive on the economic issues specifically, well, keep listening, because there are more of these episodes in the works as we get closer to November. Money Rehab is a production of Money News Network. I'm your host, Nicole Lappin.

13:25Money Rehab's executive producer is Morgan Lavoie. Our researcher is Emily Holmes. Do you need some money rehab? And let's be honest, we all do. So email us your money questions, moneyrehab at moneynewsnetwork.com to potentially have your questions answered on the show or even have a one-on-one intervention with me. And follow us on Instagram at moneynews and TikTok at moneynewsnetwork for exclusive video content. And lastly, thank you. No, seriously, thank you. Thank you for listening and for investing in yourself, which is the most important investment you can make.