Here’s a letter to a long-time, antagonistic correspondent:
Mr. T__:
Unhappy with my opposition to price controls, you accuse me of being “consistently a simpleton at economics.” In your view, Kamala Harris’s proposal for government to police against price gouging “means she recognizes the monopoly power of grocery distributors and retailers and knows controlling prices charged by monopolists won’t bring on shortages.”
Please.
The notion that grocery retailing and wholesaling in America is monopolized is ludicrous. The profit rate in the grocery industry is today 1.6 percent. Whatever monopoly power there might be exists much further upstream; it comes exclusively from government protection and subsidization of farmers. Yet I’ve heard nothing from Ms. Harris about ending those cronyist programs.
But let’s suppose, contrary to fact, that Americans are today besieged by a Big Grocery monopoly. Fact is, price ceilings would do nothing to end the monopoly. This fictional monopolist would find ways other than charging high prices to exploit its monopoly. Mostly, it would reduce the quality of its products and service. And government, by signaling its refusal to allow prices to reflect existing market realities, would discourage the entry into the grocery business of new competitors and encourage the exit from this industry of marginal firms less able than their more devious rivals to skirt price ceilings.
Ironically, the price controls that you support might well make real the monopoly power that is now merely a figment – please forgive my frankness – of your and Ms. Harris’s over-wrought imaginations.
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
