Since I have criticized the Harris campaign as being too thin on policy I thought it only right to read the economic policy briefing put out by the campaign. While I agree with many of the aspirations in the document, I found the proposals alternately puzzling and dismaying. I think it helps if you understand some of the phrases used in it.
For example, “tax cut” seems to mean a transfer payment administered through the tax system. It seems to be an article of faith that price increases are caused by “price gouging”, something never actually defined. Scott Sumner and others have pointed out that the available evidence suggests that price increases have been driven by demand rather than supply shocks.
I’m skeptical that subsidizing down payments for first-time homeowners will actually increase the affordability of homes. Indeed, I think it might do the opposite. When you increase the willingness to pay, prices go up. That is axiomatic.
How can we increase how much we manufacture (not how much it costs: how much we manufacture) in the United States? I think the two greatest barriers are excessive regulation and China. For the last 30 years China has targeted one industry after another, dumping goods made without the environmntal, labor, health, safety, etc. regulations we have here and making it uneconomical to compete against them.
92% of new businesses are retail or services providers. Furthermore, (speaking as a former small business owner who filled out his own tax returns) net revenue tends to be quite small for startups, i.e. their taxes aren’t very high. Reducing paperwork might be a much stronger incentive. I don’t know whether subsidizing startups is actually an investment or not.
The editors of the Wall Street Journal are equally skeptical, dubbing Kamalanomics “Bidenomics II”, consisting largely of higher taxes, new and bigger entitlements, transfer payments, subsidies, more student loan forgiveness, more federal control of healthcare, industrial policy, price controls, union gifts, and green energy largesse.
The Fed has a goal of 2% inflation, which is supposed to support economic growth and (sorta) full employment, at least if you believe Keynes. They do this by manipulating the currency supply via interest rate changes. Continual price increases are therefore built-in. Whether you believe their immediate cause is demand or supply, the ultimate cause is the Fed’s interest policy.
The Fed’s policies are discussed almost every day on every business channel, so why the fundamental fact that the Fed causes inflation, and does so deliberately, seems to elude people, especially economic commentators, is a mystery.
How can we increase how much we manufacture … I think the two greatest barriers are excessive regulation and China. …
China is not the problem. America is. The US decided to de-industrialize, and no American wants to work or live around dirty and dangerous industries.
And, it is not just federal regulations. States and local regulations affect what can be built. Roads, building codes, permits, zoning, insurance requirements, etc. can stop or slow a project at the state or local level.
If a plant is built, it will be on the cheapest land, and in a few years, we will hear about discrimination. Or, the workers will move close to the plant, and therefore, closer to any potential accidents. So, the owners are trying to poison the children at the school built next to the refinery.
Even if you do not live close to a dirty and dangerous manufacturing plant, the dirty and dangerous materials need to be transported by your house and children’s school.
I do believe that it began at the top, but it has spread to the bottom. the only people willing to do these jobs are illegal immigrants, and as soon as they become legal, they will not do them, either.
Tariffs or any tax scheme will not work. This is different from Japan in the 1970-80’s with the auto industry. Post-WW2, Japan had organically rebuilt its manufacturing capacity, and if I recall correctly, they started following Drucker to produce high quality goods.
Just to pick an area, the section on price gouging notes that there are lots of good reasons prices would increase, then notes that Texas, Florida, New York and North Carolina have similar laws. In fact, the law seldom results in prosecutions.
Have read Sumner for a long time he is heterodox in his approach. He seems to believe that a shortage in supply (a negative shock) does not cause inflation if after the shortage there is a surge in supply (a positive shock). This certainly seems to be the case with gas prices and some for prices, however, he ignores the issue of sticky prices. Some costs go up and just dont come down.
Finally, Trump promised to cut credit card fees to 10%. I find it odd that people who are concerned about price controls like the WSJ, and probably you, when the proposed law has existed at the state level for 37 states for a while just ignore this kind fo blunt Nixonian price control.
Steve
I find myself in agreement with the WSJ. Shorter: its all free beer politics.
Bob Sykes touches on the inflation bias. The academic notion of inflation bias is that people will not withhold purchases because of anticipated lower prices. I’m dubious. People want things now. After all, they pay silly high credit card rates to buy now.
I’m largely in agreement with Tasty, although I think he underestimates the mercantilist policies and effects of the China’s of the world. Classic marketing pyramid: most people buy on price. If a government subsidizes…….
steve touches on price gouging. Always good for a laugh. I guess corporations just, from time to time, get greedy. Then go back to sleep for a while. And god forbid consumers would exhibit greedy tendencies – buying the lowest price items. Even if it puts your neighbor out of work. And…….
Never ending sticky prices are a fantasy. Staying ahead of cost increases is smart business. But markets work. We see so many businesses every day. Traditional prices and cost – that is, margins – have been reverting to norm for quite some time. Funny steve doesn’t look in the mirror. Health care costs. But, heh, a subsidized inductry………
Trump’s credit card policy is bad policy. Period. It won’t happen, but its still bad policy, unless you want to restrict credit.
Not impressed, its a slick handout to pass along to the faithful while those who want to see less talking points more substance will look else where.
You know what’s even better at figuring out what a Harris administration would do (and it’s results) then her “policy plan”; the record of the administration she was the 2nd most senior member for 4 years!
The same actually goes with Trump.
This is a rare election where voters don’t need to critically vet proposals because there is a governance record for each candidate.
Counter-argument: Harris is attempting to straddle running on Biden’s record and running away from it. She can’t do the latter without explaining how her views differ from his.
@Drew
I do not disagree with you, but “the horse has left the barn.” Every time I see a train derailment, refinery explosion, truck accident, etc., I see people acting as if these things can be eliminated.
I doubt that we hear about all the truck and train accidents in China moving chemicals and other materials to manufacturing plants. As soon as that manufacturing was re-shored, those accidents would be re-shored, as well.
I believe that automated manufacturing plants located in the US would be great, and if possible, I would support 1000% tariffs. I just do not see Americans allowing it to happen anywhere around them.
Nuclear power is expensive because it is safe, and it is safe because it is expensive. We can do things safely, but 100% safe is expensive, really expensive.
Then, we have power requirements, and windmills ain’t gonna cut it. We have idiots who do not understand energy transfers or storage. Their iPhone has a battery, and so, that must be how you store potential energy, always.
I am tired of fighting against “magic thinking”.
As I noted, the folks at Cato calculated that 1/3 of the increase in prices during our years of peak inflation went to profits, something you and Dave ignore. At any rate, the real point is the law is rarely invoked.
Health care is far from the only subsidized industry and the only one where prices are often sticky. However, note that attempts to address even one part of health care, drug costs, are opposed by conservatives.
Steve
Steve