After almost a month as the de facto Democrat presidential candidate, Kamala Harris has now entered the party’s national convention to be formalized as Donald Trump’s contender for the November election. During this month, she has told voters very little about her presidential policy plans, with one notable exception: her economic policy.
Harris has not published her economic agenda on her website, but she did unveil it in a speech late last week. Her points have been summarized by several news outlets, among which Yahoo News has the most accurate account. Among the dozen or so items on the list, we find promises to give away money to selected segments of the American public, such as “up to $25,000 in down payment support for more than 1 million first-time home buyers” and a pledge to add up to $1,500 to the Earned Income Tax Credit.
These traditional welfare state entitlement promises are by no means new to the Kamala Harris presidential campaign. For the better part of a century, politicians with a left-of-center ideological base have built election campaigns on promises to expand existing entitlement programs—or to create new ones.
This is also the reason why the Harris and Trump campaigns are locking horns over one of the highest-profile entitlement programs: the child tax credit. On the one hand, Donald Trump and his vice-presidential candidate, Senator J.D. Vance, want to expand the child tax credit above its current $2,000 level. On the other hand, Kamala Harris is proposing a $6,000 credit for families with newborn babies.
Every time an entitlement is expanded, more people become eligible for more benefits. This permanently raises the cost of the welfare state, which in turn creates a need for more tax revenue—an issue that candidates normally dismiss in either of two fashions:
- Right-of-center entitlement expansionists rely on growth-incentivizing tax reforms to grow the economy and therefore tax revenue;
- Left-of-center entitlement expansionists promise to ‘tax the rich’ and thereby finance their new spending.
In fairness to Trump, his welfare-state expansionism is limited predominantly to a possible expansion of the child tax credit. His Democrat competitor, on the other hand, adds her expanded child tax credit to a list of other pledges to grow entitlement spending.
So far, Kamala Harris comes across as a traditional American socialist. However, there is more; Harris is not satisfied with a bigger welfare state; she wants to take the entitlement concept in a direction that is almost unknown to America. Reports Yahoo News:
Combating “price gouging” on groceries and food by authorizing the Federal Trade Commission to impose large fines on grocery stores that impose “excessive” price hikes on customers. … Preventing corporate landlords from using algorithmic price-setting tools to increase rents by large margins.
These are two regulatory tools with the same purpose. Critics, who focus on the first one but seem to have missed out on the second, characterize this as ‘price controls.’ From Liz Wolfe in the libertarian publication, Reason:
Price controls have been disastrous whenever they’ve been implemented. Prices are signals, ways of communicating how much of a good is needed by consumers and how much ought to be produced. Interfering with these signals will create terrible shortages.
Except this is not what Kamala Harris has proposed. Liz Wolfe fails to understand a crucial difference, namely that between teleological and indicative economic planning:
- Under teleological planning, government fixes prices and quantities for the purpose of eliminating the free market;
- Under indicative planning, government uses primarily taxes and regulations to limit the scope of the free market.
Price controls imposed by government are teleological in nature. They would mean, e.g., that government tells grocery stores and supermarkets what price they can charge for a gallon of milk or a loaf of bread. Charging any other price is illegal. The Harris proposal is less invasive than that. It calls for a cap on price increases, allowing the free market to operate below that cap. Hence, her proposal is indicative, not teleological.
The difference between price controls and price caps may seem purely theoretical, but it is not. While price controls are 100 percent invasive and eliminate the free market, the Kamala Harris version can be invasive, but also be limited to a role as a purely political token gesture that makes no practical difference.
Let me be clear: neither price controls nor price caps are meaningful policy tools. The very fact that Kamala Harris brings up price caps is reason enough to not vote for her. Although the spectrum between the worst-case scenario and the ‘least worst’ alternative is quite significant, the very fact that she wants price caps means that she wants to create a government bureaucracy that could become invasive and therefore economically destructive. It all depends on how invasive the price cap will be: will it prevent retailers from selling their products at full cost coverage, as with electricity in California, or will they be able to go about their business as usual with a few over-paid bureaucrats exercising pointless oversight?
Again, the Harris idea about fighting ‘price gouging’ is bad, but her proposal for banning the use of “algorithmic price-setting tools” in determining rental leases is potentially a greater problem. Landlords with hundreds, even thousands, of apartments use algorithms as an efficiency tool to determine rent. Setting prices manually on all of them is significantly more costly than doing it algorithmically.
Critics of the use of algorithms in the home rental industry suggest that it has been a driving force behind rapidly rising costs for apartment leases in recent years. This is why the Harris campaign wants to ban the use of algorithm-based pricing, but in doing so they miss two points.
First, many local rental markets have been subject to a trend of landlord centralization. This is the case with both apartments and single-family home rentals. Such market concentration is in itself a strong driver of higher prices; under competition, sellers—in this case landlords—are forced to limit price increases in order to not lose demand—tenants—to lower-priced competitors.
It is entirely possible that market concentration has played a more important role than price algorithms in making it costlier to rent a home.
Second, if large landlords were forced to abandon algorithm-based pricing, they would have to expand their staff in order to manually price large amounts of rental units. With just a little bit of bad luck for critics of price algorithms, the increased cost of manual pricing will prohibit landlords from lowering rents.
However, the big problem with a ban on algorithms for home rental prices is not the direct effect—or lack thereof—on leases. The big problem here is instead that government begins to dictate pricing methodologies: a landlord is forbidden from setting prices in a certain way, and therefore forced to set them according to other criteria.
What are those criteria? Reasonably, they cannot be the same as those that are used in an algorithm, or else the ban would be meaningless. Can landlords take energy costs into account? If so, what weight in their pricing model are they allowed to give electricity?
More than the price caps that Kamala Harris proposes for groceries, the ban on rental-lease algorithms is a step toward teleological economic planning. It allows government to ban price setters—be it landlords or hairdressers or cell phone manufacturers—from, e.g., using higher taxes as a reason to raise prices.
The Democratic Party is about to nominate a radical socialist for president. It has been more than half a century since someone of her leftist caliber was in that position. Hopefully, just as George McGovern lost badly to Richard Nixon, Kamala Harris will lose against Donald Trump. His economic policies are far from the ideal as far as fiscal conservatism is concerned, but, at the same time, he is leaps and bounds better for the economy than she is.
