Understanding Kamalanomics

It’s election season, which means that it is time not only for a relentless stream of attack ads, text messages, and cable news coverage but also for outlandish proposals and promises from candidates. As Vice President Kamala Harris seeks to outline her agenda in the early weeks of her bid as the Democratic candidate for the presidency, she’s gesturing toward what her economic policy might be should she be victorious in November. What would “Kamalanomics” look like?

Harris has pledged that one of her priorities would be to set caps on what could be charged at grocery stores and by food producers. Her campaign has said that a Harris administration would pursue “the first-ever federal ban on price gouging on food and groceries—setting clear rules of the road to make clear that big corporations can’t unfairly exploit consumers to run up excessive corporate profits on food and groceries.” There’s not much more detail about what this would look like in concrete terms, but it is natural to see this as part of a larger agenda to advance a kind of left-wing populism that has been characteristic of the last four years of the Biden administration. In his last State of the Union address, for example, President Joe Biden promised to pursue nationwide rent controls as part of efforts to combat rising housing prices.

The fallout from federal spending during the COVID-19 pandemic has continued in the form of loose fiscal policy over the last four years. Annual deficits have ballooned the national debt to historic highs, and domestic spending in the form of bailouts, handouts, and welfare subsidies have all coalesced to create painful inflationary results. All of this is in some sense just an exaggerated form of the larger trends since 2000. As Mark Perry, senior fellow emeritus at the American Enterprise Institute, notes in what might rightly be called the “most important chart of the century,” it is evident that inflation is greatest in areas where there is significant government intervention, such as higher education, housing, and healthcare, while areas like clothing and technology have seen costs steeply decrease.

In modern history, inflation is largely a tale of ever-increasing and expansive government intervention. Harris’ proposals to extend novel national price controls are misguided solutions to problems created by government policy and would only prolong the suffering and malaise experienced by so many Americans. They also reflect a flawed understanding of the role of prices in economic calculation and an arrogant disregard for the limits of human nature and government intervention.

Prices in a free economy do many things, but two of their most important and essential functions are to communicate information and thereby to provide incentives. Prices are complex and, in many ways, mysterious phenomena. But one thing we can say with some confidence is that price changes communicate shifts in demand relative to the available supply of a particular good or commodity. Assuming stable demand, an increase in the price of apples would signal some kind of constraint on the production side. Similarly, a decrease in the price of peaches might indicate a drop in demand or reduced expenses for producers.

When prices rise, that communicates a shift in that supply and demand dynamic and provides incentives for entrepreneurs and businesses to expand or initiate entry into the market for that product. Likewise, when prices fall, that provides incentives for producers to consider moving into other, more profitable areas where demand might be greater or competitive pressures less pronounced. Prices have things to teach those with ears to hear, and seeking to control prices through government dictates will only distort what prices communicate and corrupt what prices incentivize.

The problem with blaming inflation, which is not a perennial phenomenon, on something like corporate greed or selfishness is that these latter things are not novel vices. They are, in fact, characteristic of fallen humanity throughout history. As economics commentator Noah Smith rightly observes, “The reason it would be silly to blame inflation on greed is that companies are always greedy; if they could have raised prices this much back in 2019, they could have. Thus, corporate greed is a constant; inflation is not. There’s no chance of dealing with inflation by hectoring companies to want profits less.”

Markets aren’t perfect and neither are corporations. But that also means that governments and politicians aren’t perfect either. Too many of our mental models assume perfection on one side of the equation and radical evil on the other. The truth is much more complicated.

If we assume that most businesses are primarily going to seek to maximize profits, then we might also assume that campaigning politicians are going to seek to maximize their electability, often by floating outrageous schemes. The only thing worse than politicians making grandiose promises on the campaign trail is the futility of trying to fulfill them when they are elected to office. As bad as Kamalanomics might be in theory, it will undoubtedly be much worse in practice.