The Supply-Side Progressive Candidate
After Kamala Harris picked Tim Walz as her vice-presidential candidate, I noted that she was appealing to moderates only in style, but not in substance. Her big policy speech just before the Democratic convention partly confirms that.
The Failed Trial Balloon
The headline item from the speech is this proposal:
I will work to pass the first-ever federal ban on price gouging on food. My plan will include new penalties for opportunistic companies that exploit crises and break the rules.
What does “price gouging” even mean, and what emergency are we currently in?
Harris talks about working to pass a federal price-gouging ban. The only one currently proposed, as far as I can tell, is sponsored by Elizabeth Warren. Its provisions apply under conditions “resulting from a natural disaster, failure or shortage of electric power or other source of energy, concerted labor action, lockout, civil disorder, war, military action, national or local emergency, public health emergency, or any other cause of an atypical disruption in such market.” None of these apply right now—unless one interprets “any other cause” so subjectively as to apply it at whim. Which presumably is the plan.
The actual effect of the law is summed up in this passage.
A person shall be presumed to be in violation [if]…regardless of the person’s position in a supply chain or distribution network, [he] sells or offers for sale a good or service at an excessive price compared to…the average price at which the good or service was sold or offered for sale by the person in the market during the 120-day period preceding such exceptional market shock.
Readers of Atlas Shrugged will find this reminiscent of the language of Directive 10-289, the fictional decree imposing economic dictatorship. What is similar is its invocation of a bogus national “emergency” and its frantic attempt to impose a stasis of prices (and all other economic activity) relative to a “base year.”
But this is not anywhere as sweeping in its scope, and crucially, it is not a directive. Don’t take that for granted. The last time she was trying to pander to her party’s left wing, back in 2020, Harris (along with Senator Warren) was very enamored with what she would do by executive order. Now she’s talking about working to pass legislation that will almost certainly not pass. (To do so would require a Democratic blowout in the Senate that is extremely unlikely to happen.) So this is political vaporware, like Donald Trump’s promise to build the wall. Its purpose is not to be implemented, but to pander to the left wing of the party.
To understand why this is happening, let’s go back to this idea of price gouging in the current “emergency.” The only emergency is that Democrats have discovered once again that inflation is apocalyptically unpopular with the American people. Inflation has receded to relatively normal levels, but two years ago, it spiked briefly to 9%—and voters still haven’t forgiven them for it. That is the only reason Democrats don’t have this election in the bag while the economy is otherwise doing so well.
We tried to warn them, but I guess Democrats will have to re-learn this lesson about inflation every couple of decades—then work hard to forget it in between.
This proposal from Harris is an attempt to forget even while it’s happening. It’s an appeal to the myth of “greedflation,” the notion that inflation is not the result of government policy but of the “greed” of businessmen, and it will end if we just crack down on it hard enough. This whole theory is an absurdity, of course. When inflation was low, did businesses not want to make a profit?
By the way, that link to the myth of “greedflation” is not necessarily to the best explanation of why this idea is wrong. It’s to an explanation from Matt Yglesias, who is solidly in the mainstream of the center left. Similarly, consider this response from another center-left columnist, the Washington Post’s Catherine Rampell.
It’s hard to exaggerate how bad this policy is. It is, in all but name, a sweeping set of government-enforced price controls across every industry, not only food. Supply and demand would no longer determine prices or profit levels. Far-off Washington bureaucrats would. The FTC would be able to tell, say, a Kroger in Ohio the acceptable price it can charge for milk.
At best, this would lead to shortages, black markets and hoarding, among other distortions seen previous times countries tried to limit price growth by fiat.
Everybody knows this is a bad idea. Probably Kamala Harris knows it is a bad idea. It is an exercise in pure pandering—populism for the left to match the populism of the right. But it has gone over with such a thud among the center-left intelligentsia that the Harris campaign is now trying to walk it back, claiming “that the idea is a targeted expansion of existing state powers rather than new government ‘price controls’ that would transform the US economy.”
I’m hoping that this was a trial balloon, and the campaign’s hasty retreat from the proposal indicates that the balloon crashed. Given the reception, I expect we’re not going to hear much about this between the convention and November—and probably not after that, either.
Then again, the Democrats’ urge to appease the far left is strong, and Harris has been more susceptible to it than Biden. So we’ll see what happens.
The Supply-Side Progressive Candidate
For me, though, the more interesting part of Harris’s policy speech was the section on housing—partly because it was not as bad, but was deficient in a different way. Pre-speech rumors had indicated that Harris would endorse national rent control. Like the “price-gouging” laws, this is the sort of thing that polls well with the general public and gets no more than 2% support from economists.
But she stopped short of that, only hinting that she might push for some kind of price-gouging style legislation. Here is the key passage, taken a bit at a time.
There’s a serious housing shortage in many places. It’s too difficult to build, and it’s driving prices up.
As president, I will work in partnership with industry to build the housing we need, both to rent and to buy. We will take down barriers and cut red tape, including at the state and local levels. And by the end of my first term, we will end America’s housing shortage by building 3 million new homes and rentals that are affordable for the middle class, and we will do that together.
This is very good. It recognizes that the problem with housing is, to borrow a phrase, on the supply side. We are suffering from a housing famine. And it talks about taking down “barriers…at the state and local levels,” an almost-but-not-quite-explicit reference to zoning laws that limit construction. (As an example, see a recent New York Times report on a decades-long legal battle to limit local restrictions that had the effect—undoubtedly deliberate—of pricing low-income black residents out of their suburban homes.)
The problem is central planning on the local level, complete with literal five-year plans in which city and county governments decide exactly how much construction they will deign to allow. It is not clear what can be done on the federal level about these state and local laws. Harris’s proposal apparently includes “a $40 billion innovation fund” to “empower”—i.e., bribe—“local governments to fund and support local solutions to build housing.” Maybe it will work, and a Democratic president exerting pressure on the blue states might accomplish something.
But then Harris follows with this.
And we will make sure those homes actually go to working- and middle-class Americans, not just investors. Because, you know, some corporate landlords—some of them buy dozens, if not hundreds, of houses and apartments. Then they turn them around and rent them out at extremely high prices, and it can make it impossible, then, for regular people to be able to buy or even rent a home.
Some corporate landlords collude with each other to set artificially high rental prices, often using algorithms and price-fixing software to do it. It’s anticompetitive, and it drives up costs. I will fight for a law that cracks down on these practices.
Rising rents and housing prices, like grocery prices, are an effect, not a cause. Rents are not going up because speculators are buying homes. Speculators are buying homes because rents are going up. This section of the speech is a relapse from the previous one. Harris briefly expressed a supply-side perspective—then lost sight of it.
This insistence that we’re going to build new homes, but not if icky corporations profit from it, is reminiscent of the contradiction of the “Supply Side Progressives,” who want America to build and grow but prefer only Big Government initiatives as the way to do it.
That is reinforced in the next passage, where she goes all the way back to a demand-side perspective.
We also know that as the price of housing has gone up, the size of down payments have gone up as well. Even if aspiring homeowners save for years, it often still is not enough.
So, in addition, while we work on the housing shortage, my administration will provide first-time homebuyers with $25,000 to help with the down payment on a new home.
This assistance will apparently take the form of special tax credits.
In recent comments on rising food spending, Max Tabarrok provides the most succinct explanation I’ve ever come across for the current policy on most of these issue. He talks about “the near-universal ‘restrict supply and subsidize demand’ strategy that governments undertake when regulating an industry.” Restrict supply and subsidize demand—and then complain that prices go up.
At least Harris it talking about loosening restrictions on supply, a little. But if she can’t do that, she will only make the problem worse by subsidizing demand, fueling the spiral of the Paradox of Subsidies: “Why do you subsidize something? To make it cheaper. What is the actual effect? To make it more expensive.”
The odd thing is the way Harris introduces the whole speech:
I will focus on cutting needless bureaucracy and unnecessary regulatory red tape and encouraging innovative technologies while protecting consumers and creating a stable business environment with consistent and transparent rules of the road.
She’s going to cut bureaucracy and protect consumers! We’re going to have vague price-gouging laws and a stable business environment with consistent rules! Harris is being a very typical politician and trying to have everything both ways.
So part of this speech is Harris flirting with the idea of quasi-communist price controls—but the other part is her trying to be the candidate of the Supply-Side Progressives, with a similar mixture of good and bad parts.
Economic Populism for the Right
For Harris’s price control trial balloon, we should blame Democrats, of course, and especially the party’s left wing. But we can also blame the voters, because this stuff is actually popular. Here’s a revealing passage from a Vox article on rent control.
From a campaign perspective, rent caps poll quite well. In one May survey published by Navigator, a Democratic-aligned research group, pollsters found most voters overwhelmingly support cracking down on rent-gouging by corporate landlords…. Measures to build more homes as a way to drive affordability were far less popular with voters, by contrast, than providing financial aid to renters and regulating rents.
But because this sort of thing polls well, it is also appealing to the populist right—which, I am sorry to say, has an equal disdain for the hard realities of economics.
For example, for all the Republican complaints about Harris’s anti-“gouging” measure being communist, Republicans imposed their own anti-gouging policy during the pandemic.
But there is a more direct parallel. Donald Trump’s version of economic populism for the right is tariffs. It fits the same pattern: a policy that polls well with his base but is rejected by virtually all economists.
Here’s a quick summary.
Donald Trump is campaigning for president on a vow to hike tariffs on foreign goods: 10 percent on all goods from all countries—or even 20 percent, as he has more recently suggested—topped by an extra-punitive rate of at least 60 percent on goods from China.
The Cato Institute seems the best place to go for an analysis of this, including a flow chart refuting Trump’s ridiculous assertion that Americans won’t pay for tariffs.
Or you could consider this cogent description of tariffs as a new “national sales tax.”
Now compare what Donald Trump plans to do. He wants to impose what is, in effect, a national sales tax on everyday products and basic necessities that we import from other countries.
That will devastate Americans. It will mean higher prices on just about every one of your daily needs: a Trump tax on gas, a Trump tax on food, a Trump tax on clothing, a Trump tax on over-the-counter medication.
And, you know, economists have done the math. Donald Trump’s plan would cost a typical family $3,900 a year. At this moment when everyday prices are too high, he will make them even higher.
Where is this from? It’s from Kamala Harris, in the very same policy speech I analyzed above.
It’s a curious situation. George Will refers to price controls and tariffs as “dueling Harris and Trump economic magic acts.” Yet at the same time, Republicans can accurately diagnose the economic idiocy of Democrats, and Democrats can accurately diagnose the economic idiocy of Republicans.
Combined with Trump’s plan for mass deportation, his proposed tariffs are an attempt to satisfy the xenophobic zeal of his nationalist base, at the price of crashing the entire economy.
Since today’s edition has been pretty grim reading, I thought you might need a bit of an antidote to pessimism. For that, I often turn to Pessimists Archive, so check out a recent post by Louis Anslow describing how the French initially freaked out over what is now their greatest icon: the Eiffel Tower.