Kamala Harris arrived bearing gifts.
Less than a month after taking over from President Joe Biden as the Democratic presidential nominee, Vice President Harris laid out a list of government aid measures as the cornerstone of her so-called economic plan. To differentiate herself from Biden, Harris wants to lower the cost of food and housing, two areas that have been a sticking point for voters over the past three years.
The great irony is that parts of her plan, if enacted, would likely have the opposite effect of raising costs rather than lowering them, as would some of Republican candidate Donald Trump’s campaign promises, putting Americans at a disadvantage. “It’s like the biggest blowback of all the terrible economic policy I learned about in grad school,” economist Allison Schrager lamented on August 19.
Sober policy analysts accuse politicians of pandering to voters and hatching laughably outlandish schemes. But it works, and everyone involved knows it. There is so much policy duplicity in political campaigns that simple pandering is more effective than complex truth-telling. In the end, most voters just vote for whoever they believe will lie the least, or at least with the best intentions.
Intentions are in the eye of the beholder, but rationality can be appreciated, so here are some of the most ridiculous proposals from both sides that are still popular.
Kamala Harris
Fix Food Prices. Harris is proposing “the first-ever federal ban on unreasonable price gouging of food and grocery items.” This is her response to uncomfortably high food inflation. Now, there’s a reason this is a first: it’s a horribly unworkable idea that consumers would hate if it were implemented.
The economics are simple: When the government sets prices, producers naturally tighten supply to protect their profit margins. Less supply leads to higher prices or shortages, as shoppers start stockpiling what they might not be able to find later. Harris is actually wrong in advocating the first-ever ban on price gouging. President Richard Nixon imposed price controls in 1971, and they worked exactly as economic theory would predict. “Ranchers stopped taking their cattle to market, and farmers drowned their chickens,” Daniel Yergin and Joseph Stanislaw explain in their book The Commanding Heights. Nixon ended his price-control program in 1973.
Democratic presidential candidates Kamala Harris, right, and Vice President Doug Emhoff wave as they board Air Force Two at Pittsburgh International Airport, Sunday, Aug. 18, 2024. (AP Photo/Julia Nickinson) (The Associated Press)
Huge homeowner subsidies. Harris also wants $25,000 subsidies for first-time homebuyers. If you wonder what could go wrong, look at what happened when the government handed out three rounds of stimulus checks and trillions of dollars of other stimulus packages during the COVID-19 pandemic. Inflation soared from 2% to 9%. There were other factors, but it’s now well understood that putting a lot of cash in people’s pockets creates a spending boom, leading to shortages and giving producers new power to raise prices.
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Again, economics is simple: More money to buy homes increases demand, which, given the same supply, leads to higher prices. There’s no way around this unpleasant reality.
Donald Trump
Raising tariffs. You’d never get elected if you told voters you planned to raise taxes by $1,700 a year. But Trump’s plan to raise tariffs on imports would do just that, according to the Peterson Institute for International Economics. Trump says other countries will pay the tariffs, which is a patent lie. He also says tariffs help develop domestic industry, which is dubious at best. Tariffs are a tax on Americans, and a bad tax, because they hit lower-income consumers more than higher-income consumers.
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Devalue the dollar. Trump wants a weaker dollar because it makes American exports cheaper abroad, which would theoretically increase American production. The flip side is that imports would be more expensive for American consumers, which again would hit lower-income people the hardest. We’re just coming out of three years of inflation. Why would anyone want to make things more expensive than they have to be?
Republican presidential candidate and former president Donald Trump speaks during a campaign rally at Mohegan Sun Arena at Casey Plaza in Wilkes-Barre, Pennsylvania, Saturday, Aug. 17, 2024. (Photo by Associated Press/Carolyn Custer) (The Associated Press)
Presidential interference with the Federal Reserve. Trump likes low interest rates and believes the president should have a say in Federal Reserve policymaking. Anyone who has been hurt by high borrowing costs recently might agree with him. But Trump’s desire to interfere with the Federal Reserve could end up doing even worse than it already does.
Here again, there is the Nixon precedent. Prior to his reelection in 1972, Nixon persuaded Fed Chairman Arthur Burns to cut interest rates as a way to stimulate the economy. And he succeeded. But it came at the cost of inflation that reached 9.6% and took nearly a decade to contain, a far worse scenario than we have seen over the past three years. If Trump has his way, interest rates will be low and inflation will not be an issue. It will be Trump’s third consecutive inflationary policy.
The candidates’ ideas are peppered with some good ones. Harris wants to increase the supply of housing, which is the real way to bring down housing prices and make homes affordable for more people. The only problem is that federal policy has little impact on what are primarily local, restrictive zoning laws.
Trump, on the other hand, wants to cut regulations, and targeting the most outdated rules without compromising safety or environmental protections would make companies more productive. But rational talk is boring. You need crazy ideas to really grab attention.
Rick Newman is a senior columnist for Yahoo Finance. Follow him on X. Follow.
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