President Biden's war on shrinkflation!

WEDNESDAY, FEBRUARY 28, 2024

A State of the Union alert: Yesterday, if only in passing, we mentioned reports that President Biden is planning to go to war with the practice known as shrinkflation. 

The latest report to that effect appeared yesterday, on the front page of the New York Times' Business section. Print edition headline included, the Times report started like this:

New Target For Biden: Shrinkflation

On Super Bowl Sunday, the White House released a short video in which a smiling President Biden, sitting next to a table stocked with chips, cookies and sports drinks, slammed companies for reducing the package size and portions of popular foods without an accompanying reduction in price.

“I’ve had enough of what they call shrinkflation,” Mr. Biden declared.

The video lit up social media and delighted a consumer advocate named Edgar Dworsky, who has studied “shrinkflation” trends for more than a decade. He has twice briefed Mr. Biden’s economic aides, first in early 2023 and again a few days before the video aired. The first briefing seemed to lead nowhere. The second clearly informed Mr. Biden’s new favorite economic argument—that companies have used a rapid run-up in prices to pad their pockets by keeping those prices high while giving consumers less.

The products arrayed in the president’s video, like Oreos and Wheat Thins, were all examples of the shrinkflation that Mr. Dworsky had documented on his Consumer World website.

So the Times report began, with a definition of "shrinkflation" lurking in paragraph 1: 

When companies "reduce the package size and portions of popular foods without an accompanying reduction in price," what we have is a case of "shrinkflation!"

The price of the candy bar stays the same, but the candy bar is smaller! That sort of thing happens all the time—but it doesn't necessarily mean that the company has been "padding its pockets" by "keeping prices [where they were] while giving consumers less."

Wheat Thin consumers, let's talk! Sometimes a company has to charge more just to keep its profit margin where it is. 

The company may be paying more for the ingredients it uses in creating its biscuits or crackers.  To maintain its pre-existing profit margin, the company has to "pass that increase along to the consumer." 

It has to pass the increase along! A company can accomplish that task in two different ways:

It can keep the size or the volume of its product the same while raising the price of the product. Or it can leave the price of the product where it is while providing a smaller candy bar or a few less potato chips.

That second practice is known as shrinkflation. You get to keep paying the same old price, but you run out of Oreos faster. 

Now for the key point in all this:

There's no obvious reason to believe that shrinkflation is a sign of price gouging. The company may be boosting its profit margin but there's no reason to assume that it is.

As noted above, there are two different ways to raise the per-unit price for products like Triscuits or Froot Loops. Why should the practice known as "shrinkflation" come in for special attention?

We don't have the slightest idea! But as the Times report continues, it almost sounds like the Biden White House has signed on to that fuzzy idea:

While inflation is moderating, shoppers remain furious over the high price of groceries. Mr. Biden, who has seen his approval ratings suffer amid rising prices, has found a blame-shifting message he loves in the midst of his re-election campaign: skewering companies for shrinking the size of candy bars, ice cream cartons and other food items, while raising prices or holding them steady, even as the companies’ profit margins remain high.

The president has begun accusing companies of “ripping off” Americans with those tactics and is considering new executive actions to crack down on the practice, administration officials and other allies say, though they will not specify the steps he might take. He is also likely to criticize shrinkflation during his State of the Union address next week.

Mr. Biden could also embrace new legislation seeking to empower the Federal Trade Commission to more aggressively investigate and punish corporate price gouging, including in grocery stories.

Raising the price of the product is OK, but reducing the size of the product isn't? That doesn't seem to make any obvious sense, but presidential action against this practice may be lodged in next week's State of the Union address!

Just a thought:

Consumer anger about inflation almost surely isn't based on the price, or on the size, of candy bars and bags of potato chips. Second term presidents have sometimes been accused of taking aim at tiny targets, but this first-term target seems especially tiny, and the way it's being singled out from its fraternal twin doesn't seem to make any sense.

To be clear:

Pretty much by definition, "corporate price gouging" isn't OK. Presumably, corporate price gouging is already illegal under a thousand and one different federal laws. 

If President Biden can offer evidence of that kind of corporate conduct, appropriate action would be desirable. But there's no particular reason to think that "shrinkflation" is more corrupt than the simpler practice of raising the price that is charged for an existing product.

A war on shrinkflation would seem to be a bit incoherent and remarkably small. Will we the people really go for some such crusade?

Just a guess:

Red tribe pundits will scream and howl. Blue tribe scribes will applaud it!