Kamala Harris, as a presidential candidate, is putting the cost of living at the heart of her campaign. With inflation having reached a four-decade high during her tenure as vice-president, Harris is keen to address this pressing issue. Her strategy focuses on “lower costs for American families,” a message she reiterated at the Democratic National Convention on August 22nd. However, while her motivations are clear, many experts argue that her economic plan could be self-defeating, ultimately driving up costs rather than reducing them.
Housing: A Mixed Approach
Housing is a central focus of Harris’s plan. She proposes the construction of three million new homes over the next four years and wants to streamline the permit-issuing process and provide federal funding to local governments, targeting $40 billion. Given America’s estimated housing shortage of between four and seven million homes, this move appears to be a step in the right direction. However, Harris’s plan lacks detail and faces significant implementation challenges. The responsibility would largely fall on local governments to find solutions, which could complicate and delay progress.
Moreover, some of her other proposals might contradict her housing supply goals. Harris has criticized Wall Street investors for buying and marking up homes, even though they own less than 1% of America’s single-family homes and are involved in building new homes. Furthermore, her plan to offer first-time homebuyers $25,000 towards down payments might inadvertently increase housing demand without addressing supply constraints, potentially driving up prices.
Groceries and Price-Gouging: A Misguided Solution
Harris’s grocery plan has drawn sharp criticism, particularly her proposal to ban price-gouging on food. While it may not bring back the price controls seen under President Richard Nixon, the rationale behind this proposal is questionable. Critics argue that the idea that companies caused inflation during the COVID-19 pandemic by exploiting shortages is not supported by evidence. Researchers from the Federal Reserve found no signs of higher markups at the aggregate level that would suggest pricing decisions drove inflation. Higher prices during this period signaled firms to increase production and encouraged consumers to reduce demand—natural market responses that helped stabilize the economy.
Medical Costs and Price Caps: A Double-Edged Sword
Harris’s plan to reduce medical costs includes capping insulin prices at $35 a month and out-of-pocket prescription drug expenses at $2,000 a year. While well-intentioned, price caps can lead to unintended consequences, such as supply shortages and reduced innovation. Similar measures implemented by the Biden administration have led to concerns about rising insurance premiums. Harris’s proposal to work with states to cancel medical debts is commendable, but it fails to address the root cause of high healthcare costs, potentially leading to a cycle where debts accumulate again.
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Tax Cuts and Fiscal Concerns
Harris also plans targeted tax cuts, such as expanding the child tax credit and the earned-income tax credit, which aim to support low- and middle-income families. While these measures can help reduce poverty, they also come with significant fiscal implications. America’s budget deficit is running at 7% of GDP, and the national debt continues to rise. Harris’s tax proposals are unlikely to generate enough revenue to cover the cost of her economic agenda, potentially adding $1.4 trillion to the deficit over the next decade.
A Less Damaging Alternative
Harris’s economic plans, while flawed, are still seen as less damaging than those proposed by her potential opponents. She opposes broad tariff increases, which her opponents favor, and her proposals largely consist of adjustments to existing policies rather than radical changes. Nonetheless, her embrace of industrial policy and some aspects of anti-globalization suggests a cautious move away from the free-market principles that have traditionally driven American economic growth.
Conclusion
Kamala Harris’s cost-of-living plan reflects a genuine concern for the economic well-being of American families. However, the potential for unintended consequences, such as increased prices and a growing deficit, suggests that her approach may fall short of its goals. In an era where long-term planning and sound economic policies are essential, Harris’s strategy may ultimately do more harm than good. As America grapples with inflation and economic uncertainty, a nuanced approach that balances immediate relief with sustainable growth is needed to truly improve the cost of living.
