Kamala Harris arrived with gifts.
Less than a month after replacing President Joe Biden as the Democratic presidential nominee, the vice president offered a list of government handouts as the basis of her so-called economic plan. To differentiate himself from Biden, Harris wants to lower the cost of food and housing in particular, which have been sore spots for voters over the past three years.
It is extremely ironic that some of her plans, if adopted, are likely to have the opposite effect, raising costs rather than lowering them. The same applies to some of the Republican candidate Donald Trump’s promises, which would put Americans at a disadvantage. “It’s like the greatest hits of terrible economic policies I learned about in graduate school,” lamented economist Allison Schrager on August 19.
More sober political analysts accuse politicians of pandering to voters with mindless schemes that fail the laugh test. The thing is, it works – and all the insiders know it. There is so much political double talk in political campaigns that simple hesitation works better than complex truth telling. In the end, many voters simply go with whoever they think is lying the least, or at least lying with the best intentions.
Intent is in the eye of the beholder, but rationality can be assessed. So here are some of the dumbest proposals, from both sides, that are popular nonetheless.
Kamala Harris
Determination of food prices. Harris proposes a “first-ever federal ban on food and grocery price fixing,” her response to uncomfortably high food inflation. Well, there’s a reason this would be the first such effort ever: It’s a terrible, useless idea that consumers would hate if it ever happened.
The economics are straightforward: when governments set prices, the natural reaction of producers is to keep supplies tight to protect profit margins. Lower supply means either higher prices or shortages as shoppers start hoarding things they might not be able to find later. Harris is actually wrong when she says she is pitching the first ever ban on price gouging. President Richard Nixon introduced price controls in 1971, and they worked exactly as economic theory predicted. “Ranches stopped sending their cattle to market, farmers drowned their chickens,” explained Daniel Yergin and Joseph Stanislaw in their book, “The Commanding Heights.” Nixon rescinded his price control scheme in 1973.
A huge home owner subsidy. Harris also wants a $25,000 grant for first-time homeowners. If you’re wondering what could go wrong, just look at what happened when the government sent three rounds of stimulus checks and trillions of dollars of other stimulus during the COVID epidemic: Inflation rose from 2% to 9% . There were other factors, but it is now well understood that putting tons of cash in people’s pockets increases 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 increase demand, and if supply stays the same, prices will rise. There is just no way around this unpleasant reality.
Donald Trump
More rates. If you told the voters that your plan was to raise their taxes by $1,700 a year, you would never get elected. Yet Trump’s plan to raise 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 industry, which is questionable at best. Tariffs are a tax on Americans, and a bad one because they hurt lower-income consumers more than higher-income consumers.
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Devalue the dollar. Trump wants a weaker dollar because it would make US exports cheaper abroad and, in theory, increase US production. The flip side is that imports would be more expensive for American consumers, which in turn would hurt lower income people the most. We are just coming off a three-year period of inflation. Why would anyone want to make things more expensive than necessary?
Presidential interference with the Federal Reserve. Trump likes low interest rates and believes the president should have influence over the Fed’s policy decisions. Anyone who feels burned by the high cost of borrowing these days can agree with him. But Trump’s desire to meddle with the Fed could yield far worse results than we already have.
There is also a Nixon precedent here. Nixon persuaded Fed Chairman Arthur Burns to lower interest rates ahead of his 1972 re-election bid to stimulate the economy. It did it. But the price was inflation, which hit 9.6% and took almost a decade to bring down, a far worse scenario than we have been through in the last three years. If Trump had his way, interest rates would be low, inflation be damned. That’s three inflationary policies in a row for Trump.
The candidates have a few good ideas sprinkled among the lousy ones. Harris wants to increase the supply of housing, which is the right way to bring down prices and get more people into housing. The only problem with that is that federal policy can do little to influence restrictive zoning laws that are mostly local.
Trump, for his part, wants to cut regulations, which would make companies more productive if he targeted the most outdated rules without compromising safety or environmental protection. But the rational things are boring. It takes cute ideas to really get any attention.
Rick Newman is a senior columnist for Yahoo Finance. Follow him on X at @rickjnewman.
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