Price Controls Are Always a Bad Idea
The WasteWatcher
Throughout history, governments around the world have tried to control the prices of goods and services. They may have started with the Babylonian Code of Hammurabi in 2150 BC, and then showed up in America with price controls on the earliest colonists in the 1600s. The country was hit with President Nixon’s wage and price controls in the 1970s, rent control in large cities, and more recently prices are being set for pharmaceuticals under the Inflation Reduction Act. The latest idea is to institute price controls on groceries.
Prices controls have always disrupted the marketplace and created shortages or excesses. Nonetheless, big-government politicians keep trying to impose them because they think they know better than the “greedy” private sector and always fail to comprehend that price controls hurt the economy, consumers, and taxpayers.
The idea of controlling prices on groceries was first proposed in August 2024 by Vice President Kamala Harris and has been picked up by at least one Senate candidate, Democrat Angela Alsobrooks in Maryland. It is not likely to be a prominent platform for other candidates since it has been roundly criticized by economists.
Beyond the ample evidence that price controls do not work, the American people have suffered from the worst inflation since the 1980s over the past three-and-a-half years. They know that the primary cause of higher costs has been the massive increase in government spending during and after the pandemic, led by the Biden-Harris administration. They are not walking up and down the aisles at grocery stores yelling about how Coca-Cola, General Mills, Kellogg’s, Kraft Heinz, Nabisco, or Pepsi caused higher prices. And most of them have likely never heard of Mondelez, which was spun off from Kraft when it merged with Heinz and sells products made by Cadbury, Chips Ahoy, Oreo, Ritz, Triscuit, Wheat Thins, and other well-known brands. While the cost of some products increased more than others, everyone knows the underlying cause is increased federal spending, not “greedy” companies who price their goods based on the supply and demand for groceries.
While grocery price controls have not yet been imposed, the Inflation Reduction Act (IRA) included healthcare provisions that are failing to improve access to care or lower patient costs and having a devastating impact on medical research and development. Citizens Against Government Waste (CAGW) has continually warned about the negative implications of price controls on pharmaceuticals. CAGW’s November 2021 issue brief, “Pharmaceutical Price Controls Are Bad Medicine,” is one of many such publications.
An August 2022 University of Chicago issue brief, “The Impact of Biopharmaceutical Innovation on Health Care Spending,” found that price controls would increase healthcare spending by $50.8 billion over the next 20 years and result in 135 fewer new drugs, negatively impacting the lives of 2.47 million patients. A November 29, 2021, University of Chicago issue brief noted the impact of 135 fewer new drugs as “generating a loss of 331.5 million life years in the U.S., 31 times as large as the 10.7 million life years lost from COVID-19 in the U.S. to date. These estimated effects on the number of new drugs brought to market are 27 times larger than projected by CBO, which finds only five drugs will be lost through 2039, equaling a 0.63 percent reduction.”
Price-setting schemes do not work to lower prices in the healthcare industry, and they will not work in the food industry either. Grocery stores operate on 1-3 percent margins which means there is no room to cap prices. If grocery stores are forced to lower prices by arbitrary government force, instead of market demand, many would have close doors permanently. The first to go will be small businesses like neighborhood mom-and-pop grocery stores. There will not only be increased industry-wide consolidation, as only larger stores would be able to absorb the price caps, but also more food deserts across the country. There are 23.5 million Americans who do not have access to quality food, and price controls will exacerbate this problem.
Ironically, the attack on grocery prices, intended to impact the big “greedy” food companies, will neither hurt large companies nor reduce prices. Instead, as always, price controls will result in scarcity and higher prices, and they should be rejected for groceries and other goods and services.