Campaigning against ‘gouging’ makes for good politics, but lousy policy
California’s most prominent political figures, Vice President Kamala Harris and Governor Gavin Newsom, have devised similar strategies to offset consumer price increases from what they label as corporate greed—call it the California anti-gouging strategy.
Vice President Harris has aimed her anti-gouging strategy at grocery stores. The details are thin, but Harris claims her anti-gouging regulations will force grocers to bring down food prices, even though reportedly groceries live off a narrow profit margin.
Governor Newsom’s recent call for a special session of the legislature to set more regulations on the fossil fuel industry comes after he pushed through a previous anti-gouging law on oil prices less than two years ago.
Many economists think neither the Harris or Newsom anti-gouging plans will succeed. There are reasons for price increases including overall inflation, regulation and supply chain problems. But the most high-profile California politicians think the problem is corporations fleecing the public, and California has a legacy of trend setting.
Harris’s team says her anti-gouging plan is fashioned to deal with price increases in emergency situations, and to go after bad actors who take advantage of the consumers during those moments. However, the anti-gouging plan is expressed broadly, implying that it will bring down current food costs once implemented, not related to weather or pandemic type emergencies.
What prompted the increase in food prices came from supply chain problems, labor issues, and most importantly, inflation—spurred on in great part by the federal spending pushed by the Biden-Harris administration. Anti-gouging is not the solution for such problems.
Governor Newsom’s battle with the oil business has been on-going for years. He already succeeded in supporting an anti-gouging bill which set up a Division of Petroleum Market Oversight to discover price gouging and potentially see that price gougers are fined by the California Energy Commission.
Yet despite this oversight, California gas prices are still some of the highest in the country.
The governor’s current plan now being discussed in a special session of the legislature is to require oil refineries in the state to keep an accountable reserve on hand so when a refinery is taken off line for maintenance, there is enough supply to prevent any price increases.
Part of the problem is that California has fewer gasoline refineries than it once did. California has seen refineries closed in part due to state regulations and requirements to operate.
California regulations and taxes lead to a whopping price at the pump—taxes are about a dollar a gallon, about three times as high as the national average. California restrictions against fossil fuels have limited the amount of petroleum extracted from the state meaning about 75-percent of the crude oil the state uses comes from foreign sources—and that shipping comes with carrying charges. In addition, the general high cost of doing any business in the state is passed on to consumers.
Chevron announced it is moving its headquarters out of California after more than 140 years and settling in Texas citing business costs and regulations as the prime motivator for the move. You can bet that California’s unfriendly attitude toward the fossil fuel business was part of the reasoning.
The California anti-gouging strategy may resonate in the political chamber, but economic reality is another thing. Many economists say implementing anti-gouging measures can lead to product shortages and in turn that will increase prices rather than lower them.
It is election season and blaming business for a troubled economy is standard procedure, especially when such political attacks deflect examination of economic woes away from other causes in price run-ups, including government’s regulatory, spending and taxing roles.
Joel Fox is an adjunct professor at Pepperdine University’s Graduate School of Public Policy.