Who or what determines food prices?
In a true “free market” price is determined solely by supply and demand. If, for example, the supply of eggs decreases on account of a bird flu epidemic while demand for eggs remains the same, the price will rise and, as classical economics teaches us, some consumers will be priced out of the market and demand will decrease. The result is a new equilibrium price. It’s all supposed to be very tidy; no regulation or oversight needed; price is determined automatically. (This is Adam Smith’s formulation of “the invisible hand”).
There are a number of troubles with this formulation when applied to the real world. Money itself is not a stable commodity, the value of a unit of money tends to diminish with time. When monetary inflation is in the news like it was last year, consumers tend to seize on inflation as the cause of rising prices. We don’t haggle with the grocer, we pay the sticker price if we want our eggs—especially if all the grocers are posting similar prices.
Imagine in this setting some very large producers of eggs who account for, say, 90 percent of the egg supply, get together and agree they will all set a price of five dollars per dozen eggs. After all, why not take advantage of the public’s perception that prices are up because of some combination of the bird flu and inflation—both items that are in the news? That’s price-fixing, the use of effective monopoly power to make more profit for the companies and for the company’s shareholders by gouging the consumer—a short-circuit of the vaunted “free market”.
One can readily see how this could spiral out of control with companies in every industry consolidating, setting prices, taking huge profits for them and their shareholders (investors in the stock markets)—all at the expense of what my dad used to call “the little guy” (among whom he counted himself). Conglomerations of corporate behemoths can get richer by fixing prices, effectively stealing small amounts of money from a huge number of consumers—no one or several of whom has the wherewithal or the investigative clarity to challenge the robbery.
Is there anyone who protects the little guy from such corporate predation? Isn’t that supposed to be one of the functions of government? Well, yes, but the efforts rarely get much press, partly because lawsuits take years and many steps to resolve and partly because the those most hurt by the price gouging are not often compensated directly (more on that later). This does not make for eye-catching news stories.
Just such an easily missable story appeared on the front page of the Business Section of the Spokesman on December 7, 2023. The headline was “Many Washingtonians getting checks from settled cases”. If you read the article closely you might have learned that Washington State Attorney General’s office is taking notice of illegal corporate monopolistic practices that violate the principles of a “free market”.
In 2021, Washington sued 19 chicken producers for violating the state’s antitrust laws, asserting the producers conspired to “inflate and manipulate prices, rig contract bids, illegally exchange information and coordinate industry supply reductions to maximize profits,” according to the AG’s office.
Washington’s AG’s office under Attorney General Bob Ferguson has been looking out for consumers by policing activities antithetical to the function of the free market. The AG’s office has amassed evidence of price fixing across a concentrated industry over more than a decade in order to bring—and win—these civil suits. By the time of the article 15 of the 19 chicken producers had settled a series of suits for a total of $35.5 million. (Here’s the list and the amounts paid as of April 2023.)
One must assume that this anti-competitive, anti-free market behavior would have continued had it not been ferreted out by the AG. $35.5 million, while a big number on its own, is likely only a small dent in the profits of these corporations—but the cost in time and treasure of dealing with these civil suits is still likely to make corporate executives think twice before engaging in price-fixing behavior when they are next tempted.
So what happens to the $35.5 million the state collected? For that matter, what happens to the money paid the state in any civil suit like this? Generally, the results of successful class action lawsuits are meant to be distributed to those harmed. Of course, it is an impossible task to identify everyone who bought over-priced chicken from one of these producers in Washington State during some specific time period. Instead, the Attorney General’s office negotiated a “cy-pres” (pronounced SEE-pray) settlement. According to the AG’s website: “Cy pres means ‘as near as possible’ and requires that the funds be distributed in a manner that benefits the category of consumers harmed by the illegal conduct”. On the reasonable theory that low-income Washingtonians were likely to be those most harmed by the illegal rigging of the cost of chicken, about a month ago the AG’s office disbursed the money “as near[ly] as possible” to low income households. Checks for $50 went to single-person households and $120 to a multi-person households with incomes less than 175% of the federal poverty level for the size of household. (That threshold is an income of $25,515 per year for the single individual and stretches to $61,495 for a family of five. More detail here.)
One might have (incorrectly) imagined that Republicans would laud the work of the Attorney General’s Office for its efforts to rein in monopolistic practices that clearly violate the core principles of a properly functioning free market. After all, Republicans claim to stand in defense of free market capitalism over the supposed depredations of “socialist” Democrats, right?
But that’s not the way Sue Lani Madsen sees it. After all, it is a Democrat, Bob Ferguson, leading the Washington State Attorney General’s Office. In an 850 word opinion piece in the January 4 Spokesman entitled “Chickens, checks and conflicts of interest” Sue Lani Madsen wants us to know that Bob Ferguson’s name appears with the checks—and that she and Toby Nixon, a former Republican State legislator and president of the non-profit Washington Coalition for Open Government from 2007 to 2021, think it’s unethical for Ferguson’s name to appear in the mailing, even though Ferguson actually isthe Attorney General. Why? Because nine months from the mailing of the checks Bob Ferguson’s name will appear on the primary ballot as a candidate for governor. Ms. Madsen also wants us to know that the mailing of a little over four hundred thousand checks wasn’t flawlessly executed (surprise!) and that she thinks the AG’s office should have, instead, quietly distributed the money to food banks. She offers zero credit for the AG’s office defending integrity of the free market by working against monopolistic corporate actions.
Even as reported, rather breathlessly, by the right-leaning online “news” outlet, The Center Square, the response of the AG’s office to the Republican generated “ethics complaint” sounds entirely appropriate [the bold is mine]:
AGO Communications Director Brionna Aho wrote, “when Washingtonians receive restitution from cases brought by our office, it is our longstanding practice that those checks are signed by the attorney general, and come with a letter from the attorney general. We serve the people, and it is important that Washington taxpayers know the work that is being done on their behalf. This has been standard since at least 2013. We have provided more than $200 million in direct restitution to Washingtonians during this time.”
That the Washington State Attorney General’s Office is successfully addressing price-fixing corporate behavior that abuses the free market ought to be cause for celebration by both political parties. In this era of suspicion of the workings of government (nurtured by at least three decades of Republican rhetoric) the successful return of illegally obtained profits ought to be the subject of a PR campaign explaining the years of work and the results—not the target of a gotcha complaint.
But here we are.
Keep to the high ground,
Jerry