Brennan: Price Fixing Hasn't Worked and Never Will

(Editor's Note: The following opinion column does not constitute an endorsement of any political party, or candidate, on the part of Newsmax.)

OPINION

In her recent economic speech, Vice President Kamala Harris revealed her economic platform to the nation for the first time.

Polls show that swing state voters are most frustrated about the high cost of rent and food. Harris placed the blame on landlords, grocery chains, food producers, and other "corporate sharks," whom she claimed are making "record profits."

But she should point the finger at herself and the Biden administration's inflationary fiscal policies. 

In the speech, Harris proposed what she billed as the first-ever government price controls on food as well as a federal rent cap and a ban on the software algorithms landlords use to help determine market rates for their properties. The Biden-Harris Justice Department is now even suing the software companies they use and is asking state attorneys general to sign on to its suit. 

Some landlords use computer algorithms to check applicants and determine possible prices, just as we consumers use algorithms like Priceline or Expedia to find the lowest hotel rates and airfares. The government complains this allows sellers to increase prices when there is peak demand. 

Imposing new regulations on landlords — whether through technology bans or imposing federal rent control — will do us consumers little good and ignores the true reason rent is so high today. 

There is a housing shortage, and that means there are high prices.

If we shut down price surging, which raises prices to meet demand, we don't get cheaper housing. Rather, we get long waitlists and lines — just another hidden price.  

A basic law of economics is that if the government prints a lot of money with deficit spending, everything will become more expensive. It's a simple, iron law: When you flood the economy with more money, but the amount of actual stuff that money can buy barely changes, then money is worth less and prices go up.

During the pandemic, the money supply increased by almost 40%, even as the real economy contracted from pandemic-induced supply problems.

Mass inflation is no surprise — of course it happened. The surprise is that there isn't more.

A second basic law of economics is scarcity: The states and federal government have imposed zoning and building regulations which make it difficult and expensive to build new housing. The NIMBY rule.

The U.S. built twice as many homes in the 1970s — hardly a decade of affluence — than it did in the 2010s, but the population is over 100 million people larger now. The problem is so clear that even former President Barack Obama, hardly a free marketeer, called for housing deregulation at the Democratic National Convention.

But a basic law of politics is to ignore the basic laws of economics.

Politicians never take the blame for the predictable bad consequences of their bad decisions. They can wreak havoc on the economy, blame some scapegoats, and then reap the rewards when angry voters turn to help from the very people who hurt them.

Prices at the grocery store are high. But grocery stores are not raking in the cash.

Profit margins are grocery stores were at their highest before the pandemic and the recent inflation but have fallen from about 3% to just over 1% today. Some food suppliers, like Tyson's, had a brief spike in profit, but then found their profits plummet into the red as they face the same inflated costs and low supplies we all face.

Adults who sell their homes today will enjoy high sales prices, sure, but then will see their profits vanish when they turn around to buy or rent their next home. The mean landlord in the U.S. is only making about $60,000 a year from their entire portfolio of holdings.

Politicians complain about price gouging, but there's hardly any profit there to call "gouging." If we magically eliminated all corporate profits in the inflated food sector but producers kept producing anyway, the prices consumers pay would be maybe 1% less.

Both the consumer and the grocery stores are just squeaking by, because the U.S. government devalued our currency and restricted our supply chains. 

Raising costs on food manufacturers and businesses and imposing price controls will not solve the problem — it will just cause other problems. Again, it's basic economics.

Imagine a government that tells gas stations they can't charge more than $2 per gallon for gas. We wouldn't be awash in cheap gas — we would have no gas at all.

The price the gas station pays — indeed, the price the oil companies pay to make the gasoline — is already higher than that.  

Imposing new regulations won't help either. A corporation has to soul to damn or body to kick.

When we throw a new cost onto business, that cost will then be spread onto someone else — employees, shareholders, consumers, or suppliers — based not on politician's intent, but whoever has the weakest bargaining position. Worse, according the federal government itself, regulations cost small businesses more than they cost large corporations, since the later have dedicated legal teams and can spread costs over more employees.

Our leaders owe us clearheaded thinking and smart solutions to the nation's problems. Pandering to ignorance and reciting known economic fallacies is shameful — and leaves the real problems unsolved. 

Jason Brennan is the Robert J. and Elizabeth Flanagan Family Professor of Strategy, Economics, Ethics, and Public Policy at the McDonough School of Business at Georgetown University.