Here’s a letter to The Atlantic:
Editor:
Attempting to justify the price controls proposed by Kamala Harris, Zephyr Teachout reveals in many ways her ignorance of relevant facts and of economics (“Sometimes You Just Have to Ignore the Economists,” August 22). Here are two.
First, she mistakenly insinuates that food retailers in America enjoy monopoly power. There are indeed ‘big’ grocers such as Walmart and Kroger. But not only do these companies compete vigorously against each other, they also face competition from independent grocers – companies that operate ten or fewer stores – that now account for 33 percent of all grocery sales. The large number of food retailers and the ease of entry into this industry keep food-retailers’ profit margins razor thin – 1.18 percent according to a recent NYU Stern School of Business study of Walmart, Kroger, and 12 other large U.S. food retailers. Industries suffused with monopoly power do not earn rates of return so paltry.
Second, she misses the point when writing that “during an emergency, such as a natural disaster … a short-term price hike won’t always trigger the long-term investments needed to increase supply.” These price hikes work not so much by increasing production as by attracting supplies from areas unaffected by the natural disaster into affected areas. If a hurricane damages New Orleans, rising prices there incite suppliers to hurry bottled water and plywood to that city from Memphis and Atlanta, where water and wood are much less needed than they are in New Orleans. Preventing prices from rising will keep water and wood in unaffected areas, where they are not so urgently needed, and away from the people who need them much more urgently. The economic case against “anti-price-gouging” legislation does not, contrary to Prof. Teachout’s implication, depend upon the higher prices inciting the creation of new productive capacity.
Perhaps we economists, after all, should not be ignored.
Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030
…..
This piece by Prof. Teachout is a cornucopia of fallacies; my letter mentions only two.
