If the last 50 years of American politics have proven one thing, it’s that voters hate inflation. And if it’s proven another, it’s that politicians who seek to capitalize on that hatred propose unproductive, unworkable, and unaffordable policies to counter rising prices.
The same is true of Vice President Kamala Harris.
In the weeks since she ascended to the top of the Democratic presidential nomination, Harris has unveiled a series of policies that she portrays as ways to lower the cost of living for middle-class Americans. Those measures include a vague but potentially sweeping federal ban on price gouging on food and groceries and a subsidy of up to $25,000 for qualified first-time home buyers.
In other words, price controls and subsidies. History shows that these kinds of policies, which attempt to control market outcomes through top-down government control, rarely work. And in many cases they can lead to price increases and shortages – the exact opposite of what Harris promises.
Harris is not wrong, however, to point out the high cost of living, especially for middle-class essentials like healthcare, housing and education. Even if inflation eases somewhat, there is indeed an affordability crisis.
Yet this crisis has failed to resolve, or has even worsened, despite a long series of government interventions. Americans deserve a policy agenda that credibly aims to address the government-created market distortions that have so exacerbated the crisis.
It’s easy to see why Harris has focused her economic agenda on middle-class affordability. Throughout Joe Biden’s presidency, Americans have consistently ranked inflation and the economy as top policy priorities, giving Harris’ Republican rival, former President Donald Trump, an edge on economic issues. (If nothing else, her agenda and messaging have proven she can read the mood — or at least the polls.)
During the election campaign, Trump tried to exploit this advantage, claiming that he had left Biden an economic “miracle” that the Democratic administration had squandered, while glossing over the economic turmoil he himself had caused in the pandemic year of 2020.
Harris’ proposals, however, leave a lot to be desired. Just think of her proposal to ban excessive prices in the food retail sector.
In the best case, it is completely unnecessary: Food price inflation has fallen dramatically from its peak, and grocery store profit margins are already slim – net margins were only 1.6 percent in 2023.
Its proponents argue that it is simply a more aggressive form of antitrust enforcement that is effectively ineffective outside of rare emergencies.
The Harris camp has declined to provide details on how this policy would work, suggesting it may be more of a strategy to send messages than a concrete policy to be implemented.
But at its core, this plan is very similar to other plans to impose price caps by executive order. And after years of pandemic, in which supposed emergency measures became quasi-permanent, it’s easy to see how such a policy could prove in practice to be a de facto series of federal price controls spanning the entire economy.
Harris would not be the first president to introduce a comprehensive system of price controls in response to rising inflation.
In the summer of 1971, President Richard Nixon issued an executive order imposing a 90-day freeze on wage and price increases. opened as a means of curbing inflation, particularly in food. Nixon’s temporary wage and price controls were not quite comparable to what Harris proposes, but they offer a lesson in the effectiveness of even the most aggressive government efforts to limit price increases.
In the years following Nixon’s decree, Americans stood in long lines at gas stations and had to pay with time instead of cash. There were shortages of essential goods like steel, which slowed the economy and made life unbearable for the middle class. Inflation was also out of control.
In the late 1970s, annual inflation rose to 12 percent under President Jimmy Carter. In an October 1980 debate with his Republican opponent Ronald Reagan, Carter said: defended his economic record, noting that inflation had come down from its peak. He praised his achievements in job creation, energy independence and industrial production. And he said: “We asked the American people to make sacrifices and they did very well.” American voters were not happy about this sacrifice. Reagan won the election easily on the grounds that he would bring inflation under control.
Or consider Harris’ plan to give first-time buyers up to $25,000 in grants toward the down payment on a new home. That may sound like a welcome boost for cash-strapped homebuyers, but such an infusion of cash is likely to drive up home prices as many buyers will have more money to spend.
In fact, this is more or less what has happened over the past two decades in another sector – higher education. National reviewby Jim Geraghty NotesThe total amount of student aid has increased significantly since 2002. Students now have much more access to financial resources. However, the result is not that higher education has become more affordable: universities have increased tuition fees. almost twice as high as the inflation rate in the same period.
Numerous tax credits, special loans and subsidies have not exactly improved the lives of prospective students from the crisis-hit middle class: In fact, they have made the underlying product more expensive – to such an extent that the Biden administration has tried to cancel hundreds of billions of dollars in student loan debt in recent years.
To be fair, Harris is also trying to increase the housing supply. She has proposed by using tax credits worth $40 billion to spur construction of 3 million new homes and rental apartments that, she says, “will be affordable for the middle class.” But Biden’s efforts to boost production of computer chips and electric vehicle charging stations with federal subsidies and tax incentives show that this kind of project is easier said than done: One of the largest recipients of CHIPS funds, a new semiconductor factory in Arizona by Taiwan Semiconductor Manufacturing Company, has been plagued by delays, labor disputes and cost overruns. Despite $7.5 billion in federal funds earmarked for the construction of half a million new electric vehicle charging stations, only seven were built As of June.
What is remarkable about Harris’ agenda is, among other things, how much it agrees with Bidenomicsalthough she avoided the word. But as Biden has found, it’s easy to legislate tax incentives. Building things in the real world is hard.
This is exactly the problem that Harris – or any entrepreneurial politician who wants to help the middle class – should solve.
Harris is on the safest footing when she talks about removing red tape and other obstacles to housing. What is needed, however, is a whole-of-government effort to remove more red tape to a thriving, dynamic economy and to allow market mechanisms to operate in sectors where they have long been suppressed.
Aside from pandemic-era food price spikes, the causes of America’s affordability crisis lie in three sectors: housing, health care and education.
Not coincidentally, these are three areas where government intervention – subsidies, tax breaks, regulations and government programs – has been strongest for decades. And by and large, this intervention has actually increased.
It’s not just that student aid has increased. Much of America’s health care spending already goes through government programs like Medicare and Medicaid. The Affordable Care Act, passed in 2010, was intended to make health insurance affordable for the middle class. But when Biden took office in 2020, even Democrats complained that health insurance was too expensive. Since then, the law’s subsidies have been expanded, in part to benefit higher-income households, at a cost of tens of billions annually. The mortgage interest deduction already subsidizes homeownership, favoring today’s increasingly wealthy homeowners.
A real affordability program would have to address the root causes of these dysfunctional markets: the huge, entrenched government programs and special interests that have kept them running and growing for decades. It would have to start with the government admitting its policy mistakes and promising to fix them, rather than piling up new interventions designed to cover up the problems created by previous interventions.
Any politician with enough guts could take on this issue. The message would be simple: the government has made many mistakes, and instead of making new ones, the first step is to fix the old ones.
Unfortunately, Harris’ opponent is also out to exacerbate these problems. Although he attacks Harris on inflation, Trump is pushing for a comprehensive tariff that would complement the levies he imposed as president and, in most economists’ view, raise prices across the economy. In fact, Harris is on solid economic ground when she criticizes Trump’s plan, which she describes as “effectively a national sales tax on everyday products and basic necessities.”
Like so many politicians before him, Trump is pursuing a harmful economic idea with an even more harmful extension of that same idea. History repeats itself, and we are all paying the price.
