Vice President Kamala Harris began laying out her economic agenda last week and will no doubt have more to say when she speaks at the Democratic National Convention on Thursday. Unsurprisingly, her program is evolving into Bidenomics 2.0 – which is largely a good thing. The emphasis on energy transition and broader economic opportunity is entirely correct. The question is whether her administration will seek to strengthen the first version or exacerbate its weaknesses.
The spending plans Harris has begun to outline are a more expansive version of President Joe Biden’s recent budget. They notably include much larger increases in the child tax credit (with a $6,000 exemption for newborns). As desirable as these and other new spending may be, they are not free, and there is no sign yet of how they will be funded.
Without Harris’ improvements, the administration’s budget envisioned deficits of nearly 5% of gross domestic product over the coming decade, with net national debt remaining well above 100% of GDP. That assumes higher taxes on corporations, robust economic growth, and no new economic downturns. It also assumes that most of Donald Trump’s 2017 tax cuts will expire at the end of next year. Yet Harris reiterates Biden’s promise that taxes will not rise for the vast majority of Americans (those earning less than $400,000). How will the additional costs be covered? No answer. Harris says she is committed to fiscal responsibility and plans to make the richest Americans and the largest corporations pay their “fair share.” In truth, without higher taxes, the national debt will continue to rise unsustainably for many middle-class households. She can oppose broad tax increases or be a fiscally responsible president – but with these new spending ambitions, she cannot honestly promise both.
In addition to fiscal excesses, the other major flaw in Bidenomics is a failure to recognize how market forces can amplify or cripple well-intentioned interventions. Harris is right to promise to increase housing supply, recognizing that the gap between supply and demand is the reason for rising home prices. Yet she also promises a $25,000 subsidy to first-time buyers—again, a more generous version of a proposal in Biden’s budget. Household costs aside, the problem is obvious: As demand exceeds supply, this new credit will mostly drive up prices and be recovered by sellers.
Another such mistake is her promise to “ban food and grocery price gouging nationwide for the first time.” Food prices have soared during the pandemic because of supply shortages and high demand fueled by public support, not because of “bad actors” in a highly competitive, low-margin industry. Price controls have been tried time and again in one country after another.
They fail without exception.
It must be stressed that Harris’ economic agenda, however flawed, would still be preferable to Trump’s – whether one takes his proposals literally or seriously. Harris, for example, has rightly attacked the former president’s idea of imposing sweeping new tariffs (“We’re going to put 10 to 20 percent tariffs on other countries that have ripped us off for years,” as he put it.)
This leads to higher consumer prices, lower growth and a deterioration in global relations.
Harris could more effectively underscore the threat Trump poses to American prosperity by championing fiscal responsibility, curbing her penchant for micromanagement, and recognizing the market economy as her ally in serving the public.
— Bloomberg Opinion
