As Donald Trump has pointed out, the price of groceries was one of the determining factors in his election win. But there was a moment when Kamala Harris led that debate.
When Harris rolled out her economic platform in August, a new proposal captured the public’s attention: a federal ban on price gouging for food and groceries. Though many voters seemed to support the idea, economists at the time derided it. If the federal government were to cap prices, they argued, supply and demand would become misaligned and shortages would ensue.
This gut reaction from her fellow economists troubled Isabella Weber. “It really broke my heart, in a way, to see these reactions,” Weber said. “They were so completely in parallel with what I had experienced.”
In 2021, Weber wrote a Guardian op-ed that went against how economists usually thought inflation should be managed. Most believed that the only way to combat inflation was to increase interest rates, which at the time were at zero.
But fluctuating interest rates can have an unpredictable impact on the economy. If the Federal Reserve brings rates up too high too quickly, inflation would go down, but unemployment would also go up, and millions of Americans would be laid off. But if interest rates aren’t going up quickly enough, inflation could continue.
In the op-ed, Weber argued that tempering inflation is not a zero-sum game. “If your house is on fire, you would not want to wait until the fire eventually dies out. Neither do you wish to destroy the house by flooding it,” Weber wrote at the time.
She called for an alternative solution, “tailored controls on carefully selected prices”. She pointed out the “explosion of profits” that were seen in the middle of the pandemic: corporations were benefiting greatly from government stimulus and, in turn, continued to jack up prices. The government could step in by capping prices strategically.
The response to her op-ed was eviscerating. First, it was people in crypto and rightwing groups on Twitter that started piling on Weber. Then the economists started weighing in. The Nobel prize winner Paul Krugman said in a tweet – that he later deleted and apologized for – that the idea was “truly stupid”.
“It basically opened up the floodgates of hate,” Weber said.
In the years since, Weber has experienced something of a redemption arc. Though her argument about strategic price controls was seen as radical at the time, now that countries around the world have dealt with skyrocketing inflation and the political fallout it can cause, her ideas now come off as incredibly prescient.
Weber has worked with the federal government in Germany, her home country, to implement price controls on gas and heating prices after Russia invaded Ukraine. The European Union soon followed suit with its own cap on gas prices.
And some economists have changed their minds over time. Krugman was one of the economists who defended Harris’s price-gouging proposal, writing in the New York Times, “just because something is popular doesn’t mean that it’s a bad idea”.
Weber is still worried about the implications high inflation can have on democracies, especially if the tools a government thinks it has to manage soaring prices mean choosing between high unemployment or high inflation.
“We need to do better and think about a toolbox for intervention and not just rely on interest rate hikes,” she said.
Weber and her research associates used AI and natural language programming to comb through hundreds of thousands of company earning calls that took place during the pandemic to see how company executives were talking about prices to shareholders.
What they found is that companies were actually talking positively about price influxes, specifically increases in oil and gas prices. Companies reasoned that all other companies were also going to increase prices, so they could increase prices to ultimately improve their bottom line.
“If there’s an economy-wide shock … companies actually express relatively positive sentiment about these cost shocks, because these cost shocks send a clear signal to everybody in this market that this is a window of opportunity, this is a moment to hike prices,” Weber said.
While traditional economics said that market forces would prevent this from happening – a firm will lose its market share if it increases prices too high in relation to competitors – Weber argues that much of America’s economy does not operate within traditional market forces. Competition in many industries have been whittled down by consolidation, giving more power to the big companies that dominate an industry.
The power of these sellers only goes up when there are economy-wide shocks, and they increase prices to pump up profit in return.
It’s different from when economic shocks hit an individual business, and a firm has to adjust its costs. But when it’s economy-wide, “companies feel good about cost increases, if these cost increases hit everybody at the same time”.
More than half of the inflation that was seen in 2021 could be attributed to corporate markups, according to an analysis from the Kansas City Federal Reserve.
Some have called this practice “greedflation”, but Weber prefers the more academic “supply-side inflation”.
Weber emphasizes that her proposed solution, strategic price control, does not mean capping the price of every good and service. Rather, price controls can be focused on sectors further upstream in the supply chain, like oil and gas.
Price controls already exist in the US for certain goods and services, like utilities, rent and medication, Weber pointed out.
That economists were so quick to balk at the idea that corporate profit played a central role in inflation, and that the federal government should intervene in some way, made Weber believe that many in the profession have become dangerously narrow-minded.
“Economists just can’t afford to say, ‘I have studied economics from first principles for 20 years, and here is the one and only acceptable answer to the problems we face.’ I think if that continues to be the culture of our profession, then we are not part of the solution, but we are part of the problem,” Weber said. “We need to dare to think outside the box.”
In the lead-up to the presidential election, Americans kept saying that the rising cost of living was making their lives harder, that they were frustrated with higher prices and that they felt financially behind. In a Harris/Guardian poll released in May, a majority of Americans believed the US was in a recession even though, in technical terms, it wasn’t.
Instead, economists said the economy was in an excellent position. Inflation was coming down, while unemployment stayed low, a miracle given how much the Federal Reserve pulled up interest rates.
The divide between the two perspectives was nicknamed the “vibecession” – in theory, the economy was doing fine, but Americans still felt bad. It’s what eventually drove millions to the polls to vote for Donald Trump, and millions more who had voted for Joe Biden to skip the election entirely.
When many Americans are losing trust in the economic and political systems, economists “think about the everyday lived experiences of ordinary people in the economy in a more direct way and make improving these things a direct goal that sometimes might be at odds with efficiency”, Weber said.
The stakes for Weber are higher than just rising costs at grocery stores. The anger that people feel about skyrocketing prices can lead to a feeling of disenfranchisement and frustration toward a government that ultimately propels people to more sympathetic parties – some that exist on the far right.
“I think we are in a historic moment where the far right is as strong as it has been since the 30s and 40s, and I think this is extremely dangerous,” she said.
“It’s not enough to walk around and say, ‘I am defending democracy, therefore please vote for me.’ To defend democracy, you have to deliver policies that the majority of people feel is actually making their lives better. Otherwise, it will be very, very hard to prevent the sliding down on the slippery slope toward more fascist-looking political arrangement.”
