Kamala Harris would bring in price caps to fight corporate gouging — it could work here too

As economies around the world grappled with inflation after the pandemic, one idea spurred both interest and controversy.
Prices for some essential goods rose far faster in 2021 and 2022 than their costs of production, as companies fattened profits to their highest level in history. That was the leading edge of economywide inflation.
The traditional medicine for this problem is to forcibly slow the whole economy with high interest rates. But that further punishes the victims of this profit-led inflation. Could government instead use pre-emptive price caps on strategic commodities to prevent those shocks from spreading into economywide inflation?
The idea has been debated for years. Now, Kamala Harris’s surging presidential campaign has seized on it. She pledged last week to strengthen existing U.S. laws against price-gouging (which already exist in 38 states), especially for groceries.
In Canada, the NDP’s Jagmeet Singh has also called for price caps on essential foodstuffs. In other countries (including Spain, France, and the U.K.), price controls have been established for food, housing, energy and other strategic commodities to help reduce inflation.
Price regulation has been ridiculed by conventional economists as a return to Soviet style central planning, sure to cause a breakdown of the market economy. Donald Trump claimed Harris’s proposals would turn America into Venezuela.
But ignore the gotcha politics, and price regulation is in fact a normal and accepted element of economic policy. In fact, we already use it in many areas.
For example, energy utilities are usually subject to price regulation, to prevent them from abusing their natural monopoly power. When those regulations are strong (especially when backed with public ownership of the system), undue price hikes can be prevented.
In British Columbia, Manitoba, and Quebec, strong regulation and public ownership held electricity price increases to just seven-to-10 per cent over the last five years. In Alberta’s wild west electricity market — privatized and largely deregulated — prices soared 45 per cent in the same time.
The Atlantic provinces even regulate gasoline prices, on the basis of allowed markups over international crude oil prices. This doesn’t fully prevent energy price shocks (as occurred after Russia’s invasion of Ukraine), but it moderates them.
Six provinces have rent controls that limit how much landlords can raise rents, at least for existing tenants. Again, that doesn’t single-handedly fix the housing crisis, but it protects long-term tenants and reduces inflation.
Meanwhile, the federal government regulates certain pharmaceutical prices under Canada’s patent laws. This system isn’t perfect, and the drugmakers hate it. But it helped hold average price increases for prescription medicines to just five per cent since 2019 compared to the 18 per cent rise in overall consumer prices.
Prices for other public services are also directly set by government, and can help reduce inflation. Average urban transit fares, for example, increased just nine per cent over the last five years, half the pace of overall inflation.
Child care is an outstanding example of how government pricing policy can reduce inflation. Average child care fees have fallen 25 per cent since 2019, thanks mostly to the new federal child care program, which is moving toward $10-per-day services. Those lower fees have measurably reduced the consumer price index.
In short, price regulations are not a bizarre, untested idea. They’re already in place, and already working.
Even the Bank of Canada acknowledges the importance of price regulations in moderating inflation. Its research shows that what it calls “regulation-affected services” — including sectors like communications, whose prices are subject to government oversight — have consistently dampened inflation since the pandemic. They constitute more than eight per cent of all consumer spending. Their prices have increased two-to-four percentage points less than expected, slower than any other sector of the economy.
Yes, price regulations must be carefully designed and enforced. They are not a magic bullet to single-handedly cure inflation. They are just one tool in the overall anti-inflation toolbox.
But given that the global economy will surely face more inflationary shocks in the future (from war in the Mideast, climate disasters, or future health crises), it’s a tool that should be kept at the ready. In times of trouble, quickly short-circuiting the inflationary impulse arising from undue profit-seeking is much preferable to imposing mass suffering through economywide austerity.