At her speech on economic policy in Raleigh, N.C., this month, Kamala Harris uncorked a beautiful riff that slammed a certain policy proposal as nothing more than a “national sales tax” on the American public, one that would raise the price of “everyday products and basic necessities” and cost the typical family $3,900.
For once, a presidential candidate was speaking like an economist — or at least, a practical policymaker with a realist’s grasp of supply and demand.
The proposal she knocked was that of her opponent, Donald Trump — namely, a tariff of as much as 20 percent (and considerably higher on Chinese imports). Vice President Harris got it right: Tariffs are a tax, paid by American consumers. They make the country poorer. When Mr. Trump tried them, he created no new net jobs, and American consumers, including employers that depend on foreign steel, were stuck with higher prices, hurting homegrown industry.
Moreover, other nations retaliated against U.S. exports. In retrospect, America produced a little bit more in areas where it is less competitive, such as washing machines, and sold less of what it does best, such as soybeans. That nonsensical result is why Mr. Trump’s proposed tariff expansion remains one of the two worst ideas to surface in the campaign.
Unfortunately, the other one was unfurled in the same speech, and with equal violence to free market principles. Ms. Harris promised to seek federal authority to control food prices. Where she was hard-hitting and specific in describing Mr. Trump’s failed tariff policy, she was censorious and vague in pitching price controls. She wouldn’t go after all companies — only “bad actors” that “exploit crises” by “price gouging.”
Forget that her proposal addresses a problem that no longer exists (over the past year, food prices rose a mere 1 percent) and that supermarkets operate on notoriously thin margins. More dismaying was her seeming ignorance that price controls, almost without exception, have led to shortages, supply chain disruptions and eventually higher prices. When Ms. Harris pledged to crack down on “opportunistic” offenders and restrict “excessive corporate profits,” she seemed unaware that exploiting opportunities for profit is exactly what private enterprise is intended to foster (Henry Ford, Steve Jobs, Warren Buffett — opportunists all).
Tariffs and price controls are examples of the 2024 campaign’s decided turn toward economic populism, as if production derived from central commands rather than from thousands of businesses and millions of individuals acting to earn a living and maximize profits.
At the Democratic convention last week, Ms. Harris struck an assured note on foreign policy, pledging to maintain America’s global leadership, while barely touching economic issues. The Republican platform promised “the Greatest Economy in History” but was even thinner on detail. But the topic should, and presumably will, be on the menu at the candidates’ debate.
Ms. Harris had the right idea on providing incentives to housing builders —when markets fail to satisfy basic needs, a federal response is appropriate. But she coupled it with a crowd-pleasing plan to stop “predatory” Wall Street investment. Won’t less investment result in fewer homes? She also advances an imprudent suggestion of a $25,000 gift to first-time buyers to make housing more “affordable.” The underlying housing problem is scarcity; throwing money at the existing supply will only further raise prices. Moreover, 15 years past the Great Recession, government ought to be wary of enhancing access to mortgages for people who can’t afford them. The last time, that didn’t go well.
Given that both campaigns recognize that recent inflation was an economic trauma, it’s astonishing how blasé each seems about possibly reviving it.
Surely, a Federal Reserve that waited too long to raise interest rates was one cause. Mr. Trump’s solution is to turn the Fed into a political body (specifically, he wants to run policy out of the Oval Office). That might please the real estate industry, but not consumers and most other folks.
Another cause was huge government deficits, under both Mr. Trump and President Biden. With the national debt nearing a record as a share of the economy, the nonpartisan Committee for a Responsible Federal Budget notes, “We’re hearing shockingly little in the way of plans to turn things around.”
During the 1970s inflation, author Robert J. Samuelson noted, “All the programs of wage and price restraints actually made matters worse by obscuring the essential nature of inflation.” In the current campaign, the candidates seem to be in battle over who can be more profligate.
Ms. Harris’s “Agenda to Lower Costs for American Families”— actually an agenda to reallocate costs through expanded entitlements and tax credits — would increase deficits by an estimated $1.7 trillion to $2 trillion over the next decade. Mr. Trump has countered with a suggestion to end taxation of Social Security payments, which would increase deficits by approximately $1.7 trillion. He made matters worse by pledging to excuse tipped income, either a dubious attempt at industrial policy, encouraging restaurants as opposed to, say, home construction — or a brazen attempt to buy votes. Good enough for Mr. Trump, good enough for Ms. Harris — who adopted the idea.
Some of Ms. Harris’s spending plans are laudable, notably on child care, which will encourage work, and tax credits for low-enough incomes to counter poverty. But even good programs need to be paid for. And they should be weighed against the need to stabilize existing programs such as Social Security and Medicare. Neither campaign is proposing significant (and specific) spending cuts. How about eliminating child credits on higher incomes or erasing the mortgage deduction?
On the revenue side, Ms. Harris has proposed a significant hike in the corporate tax — a step toward fiscal restraint — but she has pledged not to raise taxes on individual incomes under $400,000, which would exempt 80 percent of taxable income. Mr. Trump simply wants to extend his income tax cuts — by far the most expensive budget buster by either candidate. Lastly, Mr. Trump’s proposal to drain the country of migrants could create sudden labor shortages and foster the kind of economic shock that revives inflation in a hurry.
Admittedly, forecasting presidential economic performance is a hazardous business. In 1929, the newly elected Herbert Hoover, a millionaire investor and highly regarded secretary of commerce, was considered the best-prepared economic steward since Alexander Hamilton. As president, he was a singular failure.
Richard Nixon, once famously anti-Communist, expanded the government and proposed a guaranteed income. He also imposed a disastrous wage and price freeze. And Jimmy Carter, often misperceived as an ultraliberal, initiated a generational shift toward deregulation. So maybe today’s campaign pitches are more performative than predictive.
Still, it’s worrisome to see the candidates talk down to voters. Ms. Harris and JD Vance, Mr. Trump’s running mate, evince a fashionable anti-corporatism and a blithe faith in industrial policy. But private enterprise — regulated and supplemented by responsible government, with ample safety nets — was how America became an unparalleled economic success.
Contrary to what is often supposed, median real wages have been rising over a period of more than three decades, although not in every interim, including after the Great Recession and during the worst of the recent inflation. Looked at over the long haul, according to Michael Strain, an economist with the American Enterprise Institute, wages haven’t been stagnating, although the tough periods can make it seem as though they are. Arkansas, one of the poorest states, today has a higher median household income than Germany does. The candidates might show a little more faith in how we got here.
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