From Rich Newman - Yahoo Finance:
Kamala Harris arrived bearing gifts.
Less than a month after replacing President Joe Biden as the Democratic presidential candidate, the vice president offered a list of government giveaways as the foundation of her so-called economic plan. To differentiate herself from Biden, Harris wants to lower the cost of food and housing in particular, which have been sore spots for voters during the last three years.
It’s ironic in the extreme that some of her plans, if enacted, would likely have the opposite effect, by raising costs rather than lowering them. The same goes for some of Republican nominee Donald Trump’s promises, which would leave Americans worse off. “It’s like the greatest hits of terrible economic policies I learned about in graduate school,” economist Allison Schrager lamented on Aug. 19.
Sober policy analysts fault politicians for pandering to voters with harebrained schemes that fail the laugh test. Thing is, it works — and all the insiders know it. There’s so much policy double-talk in political campaigns that simple pandering works better than complex truth-telling. In the end, many voters simply go with whomever they think lies the least or at least lies with the best intent.
Intent is in the eye of the beholder, but rationality can be evaluated. So here are some of the dumbest proposals, from both sides, that are nonetheless popular.
The economics are straightforward: When governments set prices, the natural response from producers is to keep supplies tight in order to protect profit margins. Lower supply either means higher prices, or shortages, as shoppers begin to horde stuff they may not be able to find later. Harris is actually wrong to say she’s pitching the first ever ban on price gouging. President Richard Nixon enacted price controls in 1971 and they worked exactly as economic theory predicts. “Ranchers stopped shipping their cattle to the market, farmers drowned their chickens,” Daniel Yergin and Joseph Stanislaw explained in their book, “The Commanding Heights.” Nixon canceled his price-control scheme in 1973.
A huge homeowner subsidy. Harris also wants a $25,000 subsidy for first-time homeowners. If you’re wondering what could go wrong, all you have to do is look at what happened when the government sent out three rounds of stimulus checks and trillions of dollars of other forms of stimulus during the COVID epidemic: Inflation soared from 2% to 9%. There were other factors, but it’s well understood by now that putting tons of cash in people’s pockets turbocharges spending, leads to scarcity, and gives producers newfound power to raise prices.
Again, the economics are straightforward. More money for people to buy homes will boost demand, and if supply stays the same, prices will go up. There’s just no way around this uncomfortable reality.
Devalue the dollar. Trump wants a weaker dollar because it would make US exports cheaper overseas and, in theory, boost US production. The flip side is that imports would be more expensive for American consumers, which, again, would hurt lower-income people the most. We’re just getting over a three-year bout of inflation. Why would anybody want to make stuff more expensive than necessary?
Presidential meddling with the Federal Reserve. Trump likes low interest rates and thinks the president should have a say in the Fed’s policy decisions. Anybody who feels burned by the high cost of borrowing these days might agree with him. But Trump’s desire to meddle with the Fed could produce far worse outcomes than we already have.
There’s a Nixon precedent here too. Nixon persuaded Fed Chair Arthur Burns to lower rates prior to his 1972 reelection bid to stimulate the economy. It did. But the cost was inflation that hit 9.6% and took nearly a decade to bring down, a far worse scenario than we’ve gone through during the last three years. If Trump had his way, rates would be low, inflation be damned. That’s three inflationary policies in a row for Trump.
The candidates do have a few good ideas sprinkled amid the lousy ones. Harris wants to increase the supply of housing, which is the real way to bring prices down and get more people into homes. The only trouble with that is that federal policy can’t do a lot to influence restrictive zoning laws that are mostly local.
Trump, for his part, wants to cut regulations, which would make businesses more productive if he targeted the most outdated rules without compromising safety or environmental protection. But the rational stuff is boring. It takes nutty ideas to really get some attention.
Some of the most popular campaign ideas are also the dumbest
Kamala Harris arrived bearing gifts.
Less than a month after replacing President Joe Biden as the Democratic presidential candidate, the vice president offered a list of government giveaways as the foundation of her so-called economic plan. To differentiate herself from Biden, Harris wants to lower the cost of food and housing in particular, which have been sore spots for voters during the last three years.
It’s ironic in the extreme that some of her plans, if enacted, would likely have the opposite effect, by raising costs rather than lowering them. The same goes for some of Republican nominee Donald Trump’s promises, which would leave Americans worse off. “It’s like the greatest hits of terrible economic policies I learned about in graduate school,” economist Allison Schrager lamented on Aug. 19.
Sober policy analysts fault politicians for pandering to voters with harebrained schemes that fail the laugh test. Thing is, it works — and all the insiders know it. There’s so much policy double-talk in political campaigns that simple pandering works better than complex truth-telling. In the end, many voters simply go with whomever they think lies the least or at least lies with the best intent.
Intent is in the eye of the beholder, but rationality can be evaluated. So here are some of the dumbest proposals, from both sides, that are nonetheless popular.
Kamala Harris
Fixing food prices. Harris proposes a “first-ever federal ban on price gouging on food and groceries,” which is her response to uncomfortably high food inflation. Well, there’s a reason this would be the first-ever such effort: It’s a terrible, unworkable idea that consumers would hate if it ever happened.The economics are straightforward: When governments set prices, the natural response from producers is to keep supplies tight in order to protect profit margins. Lower supply either means higher prices, or shortages, as shoppers begin to horde stuff they may not be able to find later. Harris is actually wrong to say she’s pitching the first ever ban on price gouging. President Richard Nixon enacted price controls in 1971 and they worked exactly as economic theory predicts. “Ranchers stopped shipping their cattle to the market, farmers drowned their chickens,” Daniel Yergin and Joseph Stanislaw explained in their book, “The Commanding Heights.” Nixon canceled his price-control scheme in 1973.
A huge homeowner subsidy. Harris also wants a $25,000 subsidy for first-time homeowners. If you’re wondering what could go wrong, all you have to do is look at what happened when the government sent out three rounds of stimulus checks and trillions of dollars of other forms of stimulus during the COVID epidemic: Inflation soared from 2% to 9%. There were other factors, but it’s well understood by now that putting tons of cash in people’s pockets turbocharges spending, leads to scarcity, and gives producers newfound power to raise prices.
Again, the economics are straightforward. More money for people to buy homes will boost demand, and if supply stays the same, prices will go up. There’s just no way around this uncomfortable reality.
Donald Trump
More tariffs. If you told voters your plan was to raise their taxes by $1,700 per year, you’d never get elected. Yet Trump’s plan to boost tariffs on imports would do just that, according to the Peterson Institute for International Economics. Trump says other countries pay the tariffs, which is a blatant lie. He also says tariffs help boost domestic industries, which is dubious at best. Tariffs are a tax on Americans, and a bad one, at that, because they hurt lower-income consumers more than higher-income ones.Devalue the dollar. Trump wants a weaker dollar because it would make US exports cheaper overseas and, in theory, boost US production. The flip side is that imports would be more expensive for American consumers, which, again, would hurt lower-income people the most. We’re just getting over a three-year bout of inflation. Why would anybody want to make stuff more expensive than necessary?
Presidential meddling with the Federal Reserve. Trump likes low interest rates and thinks the president should have a say in the Fed’s policy decisions. Anybody who feels burned by the high cost of borrowing these days might agree with him. But Trump’s desire to meddle with the Fed could produce far worse outcomes than we already have.
There’s a Nixon precedent here too. Nixon persuaded Fed Chair Arthur Burns to lower rates prior to his 1972 reelection bid to stimulate the economy. It did. But the cost was inflation that hit 9.6% and took nearly a decade to bring down, a far worse scenario than we’ve gone through during the last three years. If Trump had his way, rates would be low, inflation be damned. That’s three inflationary policies in a row for Trump.
The candidates do have a few good ideas sprinkled amid the lousy ones. Harris wants to increase the supply of housing, which is the real way to bring prices down and get more people into homes. The only trouble with that is that federal policy can’t do a lot to influence restrictive zoning laws that are mostly local.
Trump, for his part, wants to cut regulations, which would make businesses more productive if he targeted the most outdated rules without compromising safety or environmental protection. But the rational stuff is boring. It takes nutty ideas to really get some attention.
