In the real world, everyone instinctively knows this is impossible, that you cannot subsidize your way to rich, all while embracing the Toyota and Timex equivalent. Why?
To the extent Vice President Kamala Harris has an economic policy, it can perhaps best be summarized as a continuation of President Joe Biden’s subsidize everything approach, where in the government is effectively the citizens’ piggy bank, doling out more and more money on a constant basis, combined with new corporate controls on profits, meaning the government gives with one hand while ensuring companies don’t overtake with the other. CNN described the housing portion of these subsidies in August. “Vice President Kamala Harris plans to announce Friday what her campaign is describing as a four-year plan to lower housing costs, including $25,000 in down payment assistance for first-time homeowners and actions aimed at spurring the construction of new housing, including tax incentives for building starter homes.” The down payment applies to “working families who have paid rent on time for two years, with more generous support for first-time home buyers. The plan, which would be implemented during Harris’ first term, according to the campaign, would also provide a $10,000 tax credit for first-time home buyers, something Biden proposed earlier this year.” “Many Americans work hard at their jobs, save, and pay their rent on time month after month,” Vice President Harris said. “But they can’t save enough after paying their rent and other bills to save for a down payment—denying them a shot at owning a home and building wealth.” The Vice President also planned to provide subsidies to builders via tax credits with the goal of constructing some 3 million more housing units – if those units were sold to first time home buyers. “To spur construction, she would provide a first-ever tax incentive for builders who build starter homes sold to first-time buyers. She also would expand an existing tax incentive for building affordable rental housing,” CNN also reported. Vice President Harris plans to address small businesses and even families in a similar fashion. From CNN again, “Small businesses are currently granted a $5,000 deduction for expenses related to their first year of operation, according to the Congressional Research Service. Harris will propose raising that to $50,000, the official said, citing the average business’ outlays of $40,000 to get off the ground.” Similarly, she would subsidize small business loans by funding the banks, “a new fund of undisclosed size to allow the country’s smallest banks to cover interest costs on loans to new business.” Families, on the other hand, would receive child-tax credits based on the age of the child in question. As CBS News described it, “Harris is proposing that families with newborns would receive $6,000. The tax credit would be structured so that they would receive the tax credit in their child’s first year. For instance, a family that welcomed a child into their family in 2025 would receive the benefit for that tax year.” “That is a vital, vital year of critical development of a child,” she said at the time of the announcement. “And the cost can really add up, especially for young parents who need to buy diapers and clothes and a car seat and so much else.” Parents of older children would also receive increased credits, including $3,600 for children under six and $3,000 afterwards.
Fortunately or unfortunately, the corporate price control proposals are much less well defined. According to an 82-page economic plan released last month, “The bill will set rules of the road to make clear that big corporations can’t unfairly exploit consumers during times of crisis to run up excessive corporate profits on food and groceries.” As the Vice President sees it, such controls are necessary to combat inflation, which she believes is the result of corporate greed rather than the government’s irresponsible, profligatory economic policy. During a speech in August, CBS News noted, “Harris highlighted the surging cost of groceries, which have jumped 25% since January 2020, while noting that some food companies are at the same time enjoying record profits. Certain types of foods have seen even sharper spikes, with Harris pointing out a loaf of bread is now about 50% more expensive than prior to the COVID-19 pandemic. Specifically, Harris said she wants to target businesses that aren’t ‘playing by the rules’ by illegally hiking prices. She also noted that ensuring competition in the industry is essential to bringing down grocery costs for Americans.” Price gouging, of course, is very difficult to define in and of itself. The policy paper noted only companies who “unfairly exploit consumers during times of crisis to run up excessive corporate profits,” while CBS referred “ to a predatory practice when businesses charge excessively high prices on items that become scarce, such as after an extreme weather event, for example.” At the same time, most mainstream economists do not believe this is truly happening in the first place, or at least not on a scale that would drive prices up across the entire country. “There are lots of reasons for the high inflation we’ve suffered over the past several years, but aggressive or unfair pricing practices are at bottom of list of reasons [sic], if they’re on the list at all,” explained Mark Zandi, chief economist at Moody’s Analytics. “It may have been more of an issue back when supply chains were being disrupted by the pandemic, but today it’s hard to point to any significant, meaningful examples of price gouging.” The rapid increase in prices “is mostly a market outcome,” added Michael Strain, director of economic policy studies at the American Enterprise Institute, a conservative-leaning think tank. “Firms likely have seen some increase in their ability to increase the prices they charge, but I don’t see anything happening that I would describe as ‘price gouging’.”
Further, what the government would do even should specific instances of price gouging be found remains entirely unclear, which is merely one of the reasons it’s not surprising that the plan – and the subsidies for that matter – have been almost universally panned, even by left-leaning economists. As Catherine Rampell quipped in The Washington Post, “When your opponent calls you ‘communist,’ maybe don’t propose price controls?” In her view, it was hard to overstate the poorly conceived nature of the plan, “‘Price gouging’ is the focus of Vice President Kamala Harris’s economic agenda, her presidential campaign says. She’ll crack down on ‘excessive prices’ and ‘excessive corporate profits,’ particularly for groceries. So what level counts as ‘excessive,’ you might ask? TBD, but Harris will ban it. That’s the thing about price gouging: As has been said of hardcore pornography, you know it when you see it.” She continued, attributing a purely political purpose for the mishmash of mostly recycled ideas, “It’s not hard to figure out where this proposal came from. Voters want to blame someone for high grocery bills, and the presidential candidates have apparently decided the choices are either the Biden administration or corporate greed. Harris has chosen the latter.” Likewise, the progressive “explainer” website Vox.com, summarized the contradictions underlying the housing subsidy plan, “Vice President Kamala Harris wants to make housing more affordable — and to help more Americans build wealth by investing in real estate. These are the twin goals of the Democratic nominee’s recently unveiled housing agenda. And they are largely incompatible.” As they saw it, “To no small extent, Democrats must therefore choose between Harris’s two imperatives: Do they want to make housing more affordable, or ensure that investing in housing is a sound wealth-building strategy?” Others, perhaps needless to say, have rightly concluded that the plan would simply increase the cost of homes by $25,000 or prioritize new buyers at the expense of current homeowners, especially on the low end of the income scale.
Few, if any, have praised any of these plans, but neither have many considered the underlying philosophical implications, even assuming they are more workable in the short term than critics suggest. Namely, if the government can simply make housing more affordable by subsidizing the market, and make products more affordable by controlling companies, why limit it to $25,000 and “excessive” profits? Why not $50,000, $100,000, or even just buy everyone a starter home? On the corporate side of the end of the ledger, why limit our concerns to profits rather than their entire operation? If we’re going to subsidize the construction of homes, why not subsidize the manufacturing of everything and then simply give it away? Many would likely object to this on financial grounds, insisting the country is already almost $36 trillion in debt, therefore there must be some limit on any new spending and we might like to do such a thing, we simply can’t afford it. By this logic, we should at least in principle increase the new homeowner benefit to $50,000 and the child tax credit to $12,000, but we don’t have the money. There is, of course, some truth to that given our dire fiscal situation where the debt costs more each year than defense, but upon closer examination, we can ask why that is so when, to a large extent, politicians of both parties increasingly claim these investments are stimulative and ultimately increase government revenue even though they cost money up front. When asked how she would pay for the housing subsidy, for example, the Vice President promised a large “return on investment.” As she put it, the “return on investment in terms of what that would do and what it would pay for will be tremendous. We’ve seen it when we did it the first year of our administration. We reduced the child poverty rate by over 50%, so that’s a lot of the work and what we’re doing in terms of the tax credits, we know that there’s a great return on that investment. When we increase home ownership in America, what that means in terms of increasing the tax base, not to mention property tax base, what that means to fund schools, again return on investment. I think it’s a mistake for any person who talks about public policy to not critically evaluate how you measure the return on investment. When you are strengthening neighborhoods, strengthening communities, particularly the economy of those communities and investing in a broad based economy, everybody benefits and it pays for itself.”
This thinking is pretty straightforward, rather seductive to politicians of both parts, and not entirely inaccurate – at least to a small extent, in theory many times. If you give someone $6,000, $12,000, or even $24,000, there’s a good chance they’ll spend it. If they do, the government receives tax revenue, or at least some level of government does, and the company that provides the product earns more revenue and hopefully more profit which is likewise taxed. In addition, it’s also believed that, on the lower end of the economic scale, increasing income makes people less likely to receive welfare benefits and more likely to pay taxes. Given federal welfare spending is around $1.1 trillion, about 18% of the total, if no one was on welfare, the government would be that much richer, or at least running that much less of a deficit. Taking this thought in the other direction, if everyone on welfare now, approximately 65 million people, was making $100,000 per year, they’d be paying over $1.3 trillion per year in taxes for a net cost of around $4.1 trillion – excluding the impact on corporate taxes, when trillions of more dollars would be added to the GDP. While it certainly wouldn’t be free, the costs would be lower than they seemed on the surface, especially if the government took more control of businesses, limiting their profits. This might sound ridiculous – and to be clear, I agree it is – but if you consider that President Biden’s 2025 budget stood at a proposed $7.266 trillion, giving everyone $100,000 per year would cost “only” around $3.3 trillion more while increasing revenue. What’s a few trillion at this point, when a growing economy will pay for it as a “return on investment”? Needless to say, if you follow this logic as progressives do, there’s no reason to stop with $100,000 per year either. In fact, if you believe the government can subsidize everything, tax the result of those subsidies, and limit profits while printing money, there’s nothing that prevents you from promising a Ferrari in every driveway and a Rolex on every which, to update the old campaign slogan from the 1920’s which actually originated in France. Back in the real world, everyone instinctively knows this is impossible, that you cannot subsidize your way to rich, all while embracing the Toyota and Timex equivalent. Why? At the very least, it prompts an important question for those seeking to expand subsidies endlessly, how, precisely, did you arrive at $25,000 for a new home or $6,000 for a new child? What about those figures is so perfect that you didn’t choose others, either higher or lower? I assure you, an answer is unlikely to be forthcoming, forget a more philosophical analysis.
Confessions of a Conservative Atheist 