On the menu today: The “good vibes” for Kamala Harris and Tim Walz come to an end, as Harris, after nearly a month of being the Democratic nominee, finally is forced to offer some policy proposals, and they’re some statist doozies — price controls for food, throwing money at people to increase demand for housing — as well as a giant tax cut for home builders. Meanwhile, Joe Biden goes before the cameras and backs a foreign-policy proposal that the U.S. National Security Council and State Department oppose. Grandpa gets confused, you know.
Kamala Harris’s $90 Billion Tax Cut for Home Builders
Before we dissect Kamala Harris’s vague, bare-bones plan to making housing more affordable, let’s look at how the federal government has tackled the high cost of higher education.
The U.S. government’s approach to expensive tuition costs has been to underwrite and offer more and more loans and grants. Adjusted for inflation, the total aid (tax benefits, federal loans, Pell grants, state grants, etc.) was $119 billion in 2002, skyrocketed to $248 billion in 2010 — there was a lot of interest in going back to school during the Great Recession — and gradually slid, year by year, to $177 billion in 2022 (still a 48 percent increase over the 2002 baseline).
When the federal government and state governments keep putting more money in the hands of students, there’s no downward pressure on prices. Colleges and universities can increase the cost of tuition at twice the rate of inflation because beleaguered parents and students will keep finding some way to pay for it, even if it means graduates start out post-college life in deeper and deeper debt.
After all, despite the fact that the Supreme Court struck down Biden’s initial student-debt-relief plan, Biden has still canceled $168 billion in student debt so far this year — transferring those costs from the borrowers to the U.S. taxpayer.
To lower prices, you need to increase supply, reduce demand, or, ideally, do both.
Demand for higher education will be reduced significantly quite soon, although a little late for this year’s high-school seniors. Because of the Great Recession, the number of kids born between 2008 and 2011 decreased dramatically. Those kids turn 18 between 2026 and 2029, which means colleges will be getting a lot fewer applications in those years. Over a four-year period, the number of 18-year-olds will decrease by 15 percent, making for roughly 576,000 fewer college students across the U.S. Apparently, some colleges intend to make up the gap by admitting more international students, particularly students from China.
As long as the demand remains high, whether the students are coming from Boston or Beijing, there’s no need for an institution of higher education to reduce prices or keep them from increasing faster than the rate of inflation.
The same laws of supply and demand apply to housing. When a lot of people want to buy houses and there aren’t many houses for sale, prices go up. When not many people want to buy houses and lots of houses are for sale, prices go down.
To give Vice President Kamala Harris a molecule of credit, she says she does want to increase the supply of housing; she’s called for building 3 million new housing units, which is more than the 2 million new housing units Joe Biden has called for the U.S. to build.
The U.S. builds about 1.4 million to 1.6 million new “privately-owned housing units” each year. But the president can’t just order construction companies to build twice as many houses in the coming year. One part of Harris’s plan is to offer expanded tax credits to home builders:
The campaign said Harris would propose a new tax incentive for companies that build homes for first-time buyers, but aides didn’t provide details on the plan, which would also require congressional approval. The plan echoes a proposal put forward by Mark Zandi and Jim Parrott, an economist and a housing finance analyst, respectively, who are advising the campaign on the issue.
(Remember, a tax deduction is something you subtract from the amount of taxes you owe; a tax credit is something the government will give you, even if it exceeds the amount of taxes you owe.)
On paper, this seems like good news, although note that an equally accurate headline would be, “Harris proposes cutting the taxes on home-building construction companies and real-estate developers by $90 billion over ten years in order to generate more starter homes.” Tax cuts for big companies are bad, unless those companies are doing something the Democrats want.
Harris’s nascent plan also includes “a $25,000 subsidy for first-time homebuyers.” This is subsidizing demand, which is the opposite of what you want to do if you want prices to come down.
Putting $25,000 of taxpayer money in the pocket of every first-time home buyer is like throwing more money at prospective college students, which just encourages the colleges to keep hiking tuition. If Harris’s proposal is enacted, you’re going to see housing prices go up, probably about $25,000 per home, because buyers have more money in their pocket.
Coming Soon: The Harris Administration Price Controls and Bread Lines
An absolute chef’s-kiss headline on this column from the Washington Post’s Catherine Rampell: “When your opponent calls you ‘communist,’ maybe don’t propose price controls?”
Folks on the right wondered when the gushing coverage of Kamala Harris–Tim Walz vibes would end. Well, here it is! Rampell:
What are these “clear rules of the road” or the thresholds that determine when a price or profit level becomes “excessive”? The memo doesn’t say, and the campaign did not answer questions I sent seeking clarification. . . .
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. Some 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. (There’s a reason narrower “price gouging” laws that exist in some U.S. states are rarely invoked.) At worst, it might accidentally raise prices.
That’s because, among other things, the legislation would ban companies from offering lower prices to a big customer such as Costco than to Joe’s Corner Store, which means quantity discounts are in trouble. Worse, it would require public companies to publish detailed internal data about costs, margins, contracts and their future pricing strategies. Posting cost and pricing plans publicly is a fantastic way for companies to collude to keep prices higher — all facilitated by the government.
Jeff Stein of the Washington Post: “In a statement released late Wednesday night, the Harris campaign said that if elected, she would push for the ‘first-ever federal ban’ on food price hikes, with sweeping new powers for federal authorities.”
First, there’s no evidence that your higher grocery bill is because grocery-store chains are gouging you: “In 2023, profit margins in the grocery industry hit 1.6 percent — the lowest level since it was 1 percent in 2019 — as total expenses increased, FMI found. The industry’s slowed same-store sales growth of 2.1% last year was driven by inflation.” How is anybody price-gouging with a 1.6 percent profit margin?
You’ll want to read Noah Rothman, Dominic Pino, and Veronique de Rugy on this.
Rampell makes a point I made on yesterday’s Three Martini Lunch podcast, which is that price-fixing is, you know, illegal. So, if it’s going on, prosecute that! (Once again, the vice president is telling us what she’ll do if she’s elected president, even though she’s already in office! If the high prices Americans have paid for the past three years really are a result of greedy corporations price-gouging, Harris is admitting that the Biden administration has utterly failed in its law-enforcement duties.)
I looked around; I found two recent federal convictions in cases for price-gouging, both for N95 masks; one in Chicago in June 2023, the other Boston in August 2023. State enforcement has been a mixed bag; the American Bar Association noted in an August 2022 report, “Most substantiated consumer tips resulted in businesses correcting the prices they charged and providing refunds voluntarily.”
ADDENDUM: Checking in with the guy who allegedly runs the executive branch of the U.S. government. During President Biden’s brief availability with reporters yesterday, he said:
Q: What’s your message for Maduro? What’s your message for Maduro?
What’s your message for Maduro? Do you support new elections in Venezuela?
THE PRESIDENT: I do.
After Venezuelan dictator Nicholas Maduro already cheated his way to “victory” in one election, why would the U.S. agree to play along with another charade? Well, apparently the U.S. government does not:
The White House on Thursday walked back President Joe Biden’s apparent suggestion that Venezuela hold a new election after the comment prompted questions about the US position on a July vote that it has consistently said Nicolas Maduro’s regime rigged. . . .
A spokesperson for the White House’s National Security Council said Biden intended to speak to the absurdity of Venezuelan President Maduro failing to come clean after claiming victory in the July 28 vote, with data suggesting that opposition candidate Edmundo González prevailed.
Once again, Joe Biden does not speak on behalf the Biden administration. He’s just a batty old man living in the retirement home at 1600 Pennsylvania Avenue.