Shrinkflation, Inflation, and Climate Change

Posted in: Consumer Law

Thanks to the media feeding frenzy after Special Counsel Robert Hur inappropriately described President Joe Biden as “a well-meaning, elderly man with a poor memory” who had “diminished faculties in advancing age,” the bar for the President during last week’s State of the Union address was about as low as it could possibly be set. He cleared it by a wide margin, giving an energetic speech that was also full of important reminders that the choice in November is not between 81-year-old current Biden and a younger version of himself, but between Biden and Donald Trump—a racist, sexist, xenophobe who would undermine democracy at home and abroad, whose signal achievements as President were tax cuts for the wealthy and the packing of a reactionary Supreme Court, and who has been indicted on more criminal charges than years Biden has been alive.

Although I share the generally enthusiastic reaction of other Democrats to Biden’s State of the Union, I come not to praise his support for Ukraine, public works, reproductive rights, clean energy, progressive taxation, and more—much as I agree with what the President said about those subjects. In this column, I shall focus on a brief interlude in Biden’s remarks when he went after shrinkflation.

Here is what the President said on a topic that one might not have thought sufficiently important to find its way into a State of the Union address (slightly rearranged for readability):

the snack companies think you won’t notice if they . . . put a hell of a lot . . . fewer chips in . . . the same size bag. No, I’m not joking. It’s called “shrink-flation.” Pass Bobby Casey’s bill and stop this. I really mean it. You probably all saw that commercial on Snickers bars. And you get . . . charged the same amount, and you got about, I don’t know, 10 percent fewer Snickers in it.

Pennsylvania Senator Robert Casey’s bill (passage of which the President urged) was introduced late last month. It would obligate the Federal Trade Commission (FTC) to enact regulations forbidding shrinkflation as an unfair or deceptive practice.

Is that a good idea? Generally, yes. If a company sells a package of twelve gizmos for six dollars in 2023 and then sells the identically-sized package for the same price but with only ten gizmos in 2024, the company has effectively raised its price from fifty cents per gizmo to sixty cents per gizmo—a twenty percent price hike—while hoping to fool customers into thinking that the price has not increased. That is indeed a deceptive practice—one which the FTC arguably already has the statutory authority to forbid.

However, even though the FTC is currently headed by Biden appointee and modern-day trust-buster Lina Khan, the commission as a whole has a mixed-party membership and is thus independent of direct presidential supervision. Thus, legislation may be needed to ensure that the FTC uses its authority to combat shrinkflation.

So why do I have a problem with the President targeting shrinkflation? I don’t in general, but the examples he chose to illustrate the phenomenon reflect a recurring problem with consumerist populism.

We Would Be Better Off With Fewer Candies and Chips

Both of President Biden’s examples of shrinkflation involve junk-food: chips and candies. As an aside, we might note that Mars, which makes Snickers bars, denies that it has engaged in shrinkflation, although even if the denial is true of Snickers, it appears to be false more broadly. Last year, Mars admitted to have shrinkflated another of its brands, the Galaxy bar. In any event, Biden’s broader point is correct: various companies have indeed engaged in shrinkflation.

Is shrinkflation necessarily bad? If you’re paying the same amount for a smaller quantity of a useful product and are thereby misled, sure, that’s a harm to you as a consumer. Indeed, shrinkflation is even harmful if the consumer is not deceived. Assuming that consumers have steady demand for some product, shrinkflation means more packaging per unit size of product, which will generate more waste and thus do more environmental damage.

But are you really harmed if companies deceive you into purchasing and thus eating fewer chips and candy than you otherwise might? Given the well-established link between being overweight or obese and numerous diseases, maybe we as consumers benefit from shrinkflation when it comes to chips and candy.

To be sure, on libertarian grounds, one might think that consumers themselves should be free to choose whether to absorb the incremental health risks from eating more junk food. Or one might think that a general prohibition on deceptive marketing via shrinkflation should not include a carveout based on a determination of what products are harmful.

Indeed, one might even think that substituting honesty about price increases for shrinkflation would lead to the consumption of less junk food. A consumer who purchases a four-dollar bag not realizing that it contains only two-thirds as many chips as the bag they purchased a year earlier still eats a bag of chips; by contrast, a consumer who sees a six-dollar price tag on a bag of chips that formerly sold for four dollars might forgo the purchase entirely. Economics has long taught that, other things being equal, higher prices reduce demand.

Accordingly, I cannot say with certainty that the application of a new FTC ban on shrinkflation would be harmful, even with respect to junk food. It is nonetheless unfortunate that the President chose to highlight the consumption of junk food as a kind of unalloyed good.

The High Cost of Lower Prices

President Biden embedded his discussion of shrinkflation in a portion of his address that discussed consumer protection more broadly. As he has before, he criticized “junk fees”—a term the White House uses to describe unexpected add-on fees that undercut transparency in pricing. Biden touted proposals “to make cable, travel, utilities, and online ticket sellers tell [consumers] the total price up front so there are no surprises.”

President Biden was right to tout honest prices, which make markets function more effectively, even if they undercut corporate profits. Yet despite seeking transparency in the prices companies charge consumers for goods and services, the President and Congress do not appear to trust the American people to understand that sometimes it is in our collective interest to pay higher prices.

One of the signature legislative achievements of the Biden administration was deliberately mislabeled the Inflation Reduction Act (IRA), even though it was not designed to have much impact on inflation (which was reduced chiefly through Federal Reserve monetary policy and the easing of supply-chain disruptions caused by the COVID-19 pandemic). Rather, the IRA was fundamentally an appropriation of funds to support a transition away from fossil fuels and towards clean energy. That urgently needed transition would be hastened by higher prices for fossil fuels.

Nonetheless, when gasoline prices spiked in 2022, President Biden sought to bring them down by releasing oil from the Strategic Petroleum Reserve and proposing that Congress provide a three-month federal gas tax holiday. Yet, viewed from the perspective of the long-term interest of the nation and the planet, oil prices are too low, not too high. European countries impose much higher gas taxes than the United States does, with the predictable and desirable result that Europeans drive less and, when they do drive, they do so in smaller, more fuel-efficient vehicles.

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With the White House now promoting transparency for the sake of consumers, it is a bit embarrassing that even its own website seems to acknowledge that the Inflation Reduction Act is a mislabeled climate law. The very first sentence on the relevant page describes the IRA as “the most significant action Congress has taken on clean energy and climate change in the nation’s history.” Inflation is not even mentioned.

Such inconsistency is tolerable in the interest of combating the existential threat of climate change. More problematic is the fear on the part of President Biden and other politicians of telling the American public that if we don’t want to absorb the enormous costs associated with the most catastrophic climate paths, we need to see higher prices for fossil fuels. And if that fear is based in the reality that Americans are too shortsighted to see that cheap gas is harmful—and the further reality that any call for higher gasoline prices or taxes will activate demagogues—then maybe we cannot be trusted to make sound decisions about purchasing chips and candy either.

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