Inflation or price gouging? We all know the answer.

By David Larson

Raleigh, NC – For better or worse, the incumbent president and his party tend to own the economy. There are countless factors at play — their predecessor’s policies, Federal Reserve policy, global competition, foreign wars, and their own decisions — but only the last one is likely to be top of voters’ minds. For this reason, the persistent inflation of the last few years has been hung around President Joe Biden’s neck. Many even call it Bidenflation.

Image from Freepik

But it isn’t just an accident of history. Biden has done a lot to increase prices, with the two biggest contributions being his naive energy policy (which has made everything from gas at the pump to home power bills more expensive) and his major public-spending initiatives. The ironically named “Inflation Reduction Act,” which was packed with random green-energy priorities, was a good example of both.

Former President Donald Trump also contributed to the inflation with his major spending during COVID and his protectionist trade policies. But to be fair to him, COVID was an unforeseen, once-in-a-generation event and his energy policies helped put downward pressure on prices.

All that aside, polling right now shows that inflation is the top issue for voters in North Carolina and that Biden is bearing the blame. A recent High Point University poll showed 76% of respondents thought inflation was very important (more than any other issue). When asked who would deal with the issue better, respondents said Republicans (43%) over Democrats (31%). Our recent CJ polls have similarly shown inflation as a top concern.

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Biden’s misguided attempts to buy off voters by releasing a million barrels of oil from the strategic reserves and eliminating student loan debt are backfiring, since anyone with elementary knowledge of economics knows those are exactly the kind of short-sighted actions that caused the problem in the first place.

So what are Biden and his allies in North Carolina going to do to change voters’ minds? Blame it on greedy corporations!

In an interview earlier this month with CNN, Biden told Erin Burnett that people “have the money to spend,” but that it just “angers them and angers me that you have to spend more.”

He then pivoted to smaller Snickers bars and other examples of shrinking product sizes, saying, “It’s like 20% less for the same price. That’s corporate greed. That’s corporate greed. And we have got to deal with it. And that’s what I’m working on.”

Staying on this message, North Carolina Democratic Party executive director Anderson Clayton tried to correct an ABC-11 story about shops having summer sales for “inflation-weary shoppers,” asking whether shoppers might actually be weary of price gouging.

Progressives make this a regular refrain. Prices are higher, they say, because business owners are trying to cheat us by charging more than is fair. It seems so simple. But in a competitive market economy, raising prices at the levels we’ve seen over recent years is not a good strategy, especially when your rivals could just keep theirs lower and take your customers.

You see this with gas stations on adjacent blocks. When one drops their price a cent, the other drops their two cents, and then advertises it on enormous boards so those driving by will choose them over their rival. If the world operated like progressives assume, they would just take down the price boards and charge whatever they felt like. Because why not?

Thankfully, multiple studies, including a comprehensive one by the Federal Reserve Bank of San Francisco, have looked at whether current inflation is due to “price gouging,” which they call markups. And they did find some markups in cars and gasoline, probably because of the uncertainty from anti-fossil-fuel “green” policies. But overall, they found that markups “have not been a main driver” of inflation post-pandemic. Read their full summary paragraph below:

How much impact have price markups for goods and services had on the recent surge and the subsequent decline of inflation? Since 2021, markups have risen substantially in a few industries such as motor vehicles and petroleum. However, aggregate markups—which are more relevant for overall inflation—have generally remained flat, in line with previous economic recoveries over the past three decades. These patterns suggest that markup fluctuations have not been a main driver of the ups and downs of inflation during the post-pandemic recovery.

Lastly, and don’t shoot the messenger here, what many call price gouging is actually good. Prices are a signal to both consumers and producers of what the supply and demand are for a specific product or service. If you are on an island with one banana tree, and hundreds of people want those bananas, the price should be much higher for a banana than if there are hundreds of banana trees and only one person who likes bananas.

The scarcity in the first scenario, signaled through the high price, would tell consumers that they should not eat bananas every day and tell producers that planting a banana tree would be highly profitable. Meeting the demand with more supply would then bring the price down and make bananas more available, which is what the real goal should be.

“Gouging” with high prices only works if one has no competition (a monopoly) or if there has been a crash in supply for some reason. In the latter case, that high price is important because it signals to others that there is money to be made by increasing the supply in a scarce product.

Inflation is more directly caused by increasing the money supply through government spending and artificially low interest rates, since having more of something in circulation, even money, reduces its value. Blaming the subsequent spike in prices on business owners who are also experiencing higher costs is, well, bananas.


David Larson is opinion editor of Carolina Journal.