Food Price Controls—The Grand Illusion

In 1977, the rock group Styx released its triple-platinum album “The Grand Illusion.” In the album’s title song, lead singer Dennis DeYoung pled, “[D]on’t be fooled by the radio, the TV, or the magazines … they’re just someone else’s fantasy.”

That fantasy rears its head countless times a day in contemporary political discourse, although usually couched in more genteel terms like “misinformation” and “disinformation.” Typically, that label is assigned to allegedly false statements made by political opponents. But it can be applied to proposed policy solutions as well.

And never more so than today.

The Grand Illusion of Energy Price Controls

Before we consider the present, let’s return for a moment to the 1970s and consider the “grand illusion”—the stygian fantasy—of that era: energy price controls.

This grand illusion emerged early in the decade. As the American Institute for Economic Research noted, “August 15, 1971, forever lives in energy infamy. President Richard Nixon’s 90-day price freeze … disabled the impersonal market forces coordinating supply and demand.” The result was predictable: “Petroleum shortages began the next year, and the industry was fast-tracked to allocation controls…”

What made matters worse, price controls did not keep energy prices down: Despite four additional phases of controls and the passage of the Emergency Petroleum Allocation Act in 1973, average annual retail gasoline prices rose by 47 percent between 1972 and 1974 and more than tripled by 1980. As then-Director of the U.S. Office of Management and Budget George Shultz told President Nixon in 1974, “wage-price controls are not the answer.”

The grand illusion was unmasked.

The Grand Illusion Returns

Why dredge up a memory from so long ago? The reason is sobering: Despite price controls’ spectacular failure in the 1970s, that grand illusion has returned—this time against food and grocery companies—and threatens to bring to that industry the same havoc visited upon the energy sector nearly half a century ago.

As with energy in the 1970s, food prices have recently been rising sharply—since January 2021, by 20 percent overall and by 50 percent for some individual food categories. To fight these price increases, Vice President Kamala Harris proposed in an economic policy speech on Aug. 16 to vigorously combat “price-gouging” or “excessive prices unrelated to the costs of doing business that Americans have seen in the food and grocery industry…”

Unfortunately, the vice president’s goal—even if well-intended—is again little more than an illusion. Or as some would say, mis-/disinformation.

While the regulations to implement these price controls haven’t been fleshed out yet, they’re likely to be similar in principle to the Republican price controls of the 1970s. After all, the only way to determine whether a company is price-gouging is to establish a standard of what its retail prices should be, and that standard is nothing more than a soft price control.

The Fantasy of Food Price Controls

The results of such price controls on food aren’t likely to be any more favorable than they were in the energy sector.

At best, such controls will have little impact. As MSN.com admitted, “it remains unclear that restrictions on grocery price increases will have the intended effect of helping the American consumer, as food prices are historically fickle,” going “up or down based on a variety of factors,” such as bad weather or animal-disease outbreaks.

At worst, food price controls could put us on the path to Venezuela where, CNN pointed out, years of price controls have caused widespread food shortages, with Human Rights Watch conceding that up to 80 percent of Venezuelans don’t have enough food to eat. And despite these strict, starvation-inducing price controls, Venezuelan food prices, the United Nations said, are still escalating at a hyperinflationary rate.

But there is even more misinformation at work in the anti-price-gouging proposal than this: There is, in fact, no systematic grocery-chain price-gouging in the United States. The average profitability for all U.S. industries is 8.5 percent versus just 1.6 percent for the grocery sector. And those meager grocery store profits have actually fallen from 3.0 percent just three years ago.

Not Sensible Policy

The labels “misinformation” and “disinformation,” in short, are not restricted to political name-calling or long-debunked hoaxes. They can just as readily be applied to policy proposals, the asserted need, and the promised benefits. And, in this realm, such misinformation is far more deceptive—and more potentially destructive—than personal accusations.

As former Obama economic adviser Jason Furman pointed out, the proffered food price fixing plan is “not sensible policy, and I think the biggest hope is that it ends up being a lot of rhetoric and no reality.”  For the sake of America’s food and grocery sectors’ continued viability, this must be the case.