California’s Terrible Price-Gouging Law Puts Markets at Mercy of Ambitious Prosecutors

California’s insane, anti-market emergency “price gouging” laws, which prohibit the sale of eggs in panic situations, have again struck, hitting another grocery chain.

Value grocery chain Smart & Final has agreed to pay California $175,000 because, between March and June 2020, it increased the price of four different types of eggs during a period in which stores were struggling to keep their shelves stocked.

This happened in the very early days of the pandemic. Gavin Newsom  declared a state of emergency. California’s price-gouging law was activated by Gavin Newsom’s declaration. This means that prices cannot be increased more than 10% during emergencies. Only if the increase in production or labor costs can they prove it. According to Attorney General Rob Bonta, Smart & Final raised prices for some eggs by as much as 25 percent.

It Los Angeles Times notes that Smart & Final did have a reason for raising the prices—suppliers were also jacking up prices of eggs. But apparently Smart & Final acknowledged that suppliers were raising the prices of “standard” eggs, and that the chain commensurately raised the price of “premium” eggs.

Laws that prohibit price-gouging can be bad, illegal, and counter-productive. Bonta’s comments about the case are quoted in The TimesExplain why. He mentions that “When California went into lockdown in the middle of the pandemic,” there was a shortage of essential supplies. Unfortunately, many businesses saw this as an opportunity.

While these products were of premium quality, consumers had few options. The options available to consumers were limited if not zero.

This is a poor economic understanding of why shops raise prices during a crisis. Many customers were able to over-purchase and hoard excessive amounts of essential supplies due to the “run on necessities”. This was largely due in part because prices were not allowed to rise. This sharp rise in demand causes a chain reaction that leads to empty shelves, higher prices and increased production.

These price-gouging legislations are simply attempts to eliminate basic economics at retail. The end result is reasonable prices on goods that are scarce or nonexistent. When a supermarket does not have eggs on hand, the price doesn’t matter. People would be less likely to buy toilet paper from the supermarkets if they had to.

Bonta describes how the store was affected by the shortage of regular eggs.. The same demand issues were most certainly going to come into play if people continued to purchase the premium eggs at the same rate they purchased the standard eggs. This is not a comprehensive list of California’s high food prices.

Bonta, like Sen. Elizabeth Warren (D–Mass.They are trying convince people that supermarkets have huge profit margins and therefore “gouging” their customers. The reality is that most grocery stores have very tiny profit margins—for 2018, Smart & Final actually reported a net loss of more than $100 million.

What’s more, the money that Smart & Final agreed to pay the attorney general’s office will not be going back to consumers who allegedly got “gouged” on fancy eggs. Under state law, when the attorney general gets a judgment or agreement for a civil penalty for violating consumer protection laws, half of that money goes to the county where the judgment was rendered—San Mateo county in this case—and half into the state’s General Fund.

San Mateo County, with its median annual income of $138.500, is among the most wealthy counties in America. To be precise, this means that a grocery shop with a low profit margin (or even zero) is forced to pay $138,500 to California’s wealthiest government. This settlement was made in order to protect poor Californians, and they won’t receive a penny.

But the money will be used to “enforce consumer protection laws.” The city and county attorney have twisted profit incentives to encourage businesses to sue, as they stand to make a financial gain through the settlements. The process is similar to civil asset forfeiture for large companies.