In her first economic policy speech as the 2024 Democratic presidential nominee, Kamala Harris rightly criticized Donald Trump for favoring steep tariffs, saying her Republican opponent "wants to impose what is, in effect, a national sales tax on everyday products and basic necessities that we import from other countries." But in the same speech, Harris pitched a half-baked idea that is just as economically dubious, promising to crack down on "price gouging" by the grocery industry.

That proposal is so misguided that it provoked undisguised skepticism from mainstream news outlets such as CNN, the Associated Press, The New York Times, and The Washington Post, along with criticism by Democratic economists. It showed that Harris joins Trump in pushing populist prescriptions that would hurt consumers in the name of sticking it to supposed economic villains.

"If your opponent claims you're a 'communist,'" Post columnist Catherine Rampell suggested, "maybe don't start with an economic agenda that can (accurately) be labeled as federal price controls." Harvard economist Jason Furman, who chaired President Barack Obama's Council of Economic Advisers, was equally scathing.

"This is not sensible policy, and I think the biggest hope is that it ends up being a lot of rhetoric and no reality," Furman told the Times. "There's no upside here, and there is some downside."

That downside stems from any attempt to override market signals by dictating prices. High prices allocate goods to consumers who derive the greatest value from them, encourage producers to expand supply, and spur competition that helps bring prices down.

Without those signals, you get hoarding and shortages. This is not some airy-fairy theory; it reflects bitter experience since ancient times with interventions like the one Harris proposes.

Consider what happened when President Richard Nixon imposed wage and price controls in the 1970s. "Ranchers stopped shipping their cattle to the market, farmers drowned their chickens, and consumers emptied the shelves of supermarkets," Daniel Yergin and Joseph Stanislaw note in their 1998 book on the rise of free markets.

Or consider what happened more recently with eggs. Thanks to avian flu, Furman noted, "egg prices went up last year" because "there weren't as many eggs," but the high prices encouraged "more egg production." If federal regulators had tried to suppress egg prices, they would have short-circuited that market response.

Harris, of course, says she would target only unjustified price increases, the kind that amount to "illegal price gouging" by "opportunistic companies." But as she emphasizes, there currently is no such thing under federal law, and any attempt to define it would be plagued by subjectivity and a lack of relevant knowledge.

The fact that Harris pins the sharp grocery price inflation of recent years on corporate greed suggests that her judgment about such matters cannot be trusted. Economists generally rate other factors—including the war in Ukraine as well as pandemic-related supply disruptions, shifts in consumer demand, and stimulus spending—as much more important.

High profits, in any event, are another important signal that encourages investment and competition. By forbidding "excessive profits," Harris' proposed price policing would undermine the motivation they provide.

According to the most recent numbers, the annual inflation rate dropped below 3 percent as of July. With inflation cooling, this might seem like a strange time for Harris to resuscitate an idea that was already proving disastrous thousands of years ago. But as the Times notes, her message "polls well with swing voters."

The broad tariffs that Trump favors, which Harris condemns as "a national sales tax" that would "devastate Americans," also poll well in the abstract. But they are popular only until voters consider the consequences.

In a recent Cato Institute survey, for example, 62 percent of respondents favored a tariff on "imported blue jeans," but that number plummeted when they were asked to imagine the resulting price increases. Harris likewise is counting on voters who like what she says but do not contemplate what it would mean in practice.

© Copyright 2024 by Creators Syndicate Inc.

The post Kamala Harris' 'Price Gouging' Ban: A New Idea That Has Failed for Thousands of Years appeared first on Reason.com.

In this week's The Reason Roundtable, editors Peter Suderman, Katherine Mangu-Ward, and Nick Gillespie welcome special guest Ben Dreyfuss onto the pod ahead of this week's Democratic National Convention in Chicago to talk about Kamala Harris' truly terrible economic policy proposals.

02:48—Dreyfuss' YIMBY conversion thanks to Reason

13:20—Harris drops some lousy economic policy ideas.

32:37—The DNC begins.

44:25—Weekly Listener Question

53:33—Tariffs are timeless.

1:03:32—This week's cultural recommendations

Mentioned in this podcast:

"Kamala Harris' Dishonest and Stupid Price Control Proposal," by J.D. Tuccille

"DNC Readies for Protesters," by Liz Wolfe

"Harris' Economic Illiteracy," by Liz Wolfe

"Harris Joins the FTC's Food Fight Against Kroger-Albertsons Merger," by C. Jarrett Dieterle

"The times demand serious economic ideas. Harris supplies gimmicks." by the Washington Post editorial board

The price tag of @KamalaHarris's big, bold economic plan? According to penny pinchers at @BudgetHawks, a mere $1.7 to $2 trillion over the next decade. Given that gross debt is $35 trillion, maybe it's time to tap the brakes a bit?https://t.co/qA5wFJleLw pic.twitter.com/q80MwxoRD9

— Nick Gillespie (@nickgillespie) August 16, 2024

"When your opponent calls you 'communist,' maybe don't propose price controls?" Catherine Rampell

"How did Doug Emhoff hear Biden was out? After taking a SoulCycle class in WeHo. Without his phone," by Kevin Rector

"Database Nation: The Upside of 'Zero Privacy,'" by Declan Mccullagh

"Alien: Romulus Is a Slick, Empty Franchise Pastiche," by Peter Suderman

The Calm Down Substack by Ben Dreyfuss

https://x.com/nickgillespie/status/1824430467191312525

"Sing for Change Obama"

Upcoming Events:

• "Is the American Dream Alive?" A Free Press debate with Katherine Mangu-Ward on Tuesday, September 10 in Washington, D.C.
• "Reason Speakeasy: Kat Timpf & Nick Gillespie" on Wednesday, September 11 in New York

Send your questions to [email protected]. Be sure to include your social media handle and the correct pronunciation of your name.

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Audio production by Ian Keyser; assistant production by Hunt Beaty.

Music: "Angeline," by The Brothers Steve

• Video Editor: Ian Keyser
• Producer: Hunt Beaty

The post Why Libertarians Hate Kamala Harris' Economic Platform appeared first on Reason.com.

At a Republican presidential primary debate in January 2016, Sen. Marco Rubio (R–Fla.) succinctly explained why using tariffs as a foreign policy tool would backfire against Americans.

"We are all frustrated with what China is doing, but I think we need to be very careful with tariffs and here's why," Rubio said, directly challenging Donald Trump over his call for placing tariffs on goods imported from China.

"China doesn't pay the tariff. The buyer pays the tariff," Rubio explained. "If you send a tie or a shirt made in China into the United States, and an American goes to buy it in the store, and there is a tariff on it, [the tariff] gets passed on in the price to the consumer."

In an essay published this week at The American Conservative, Rubio argued for exactly the opposite. Trump's plan to place even more tariffs on China if elected to another term in the White House would be "good for the economy insofar as they counteract market inefficiencies created by adversarial trade practices," Rubio writes, adding that it will "prevent or reverse offshoring, preserving America's economic might and promoting domestic investment."

The economics of tariffs have not changed in the past eight years. Rubio has.

The once-independent-minded senator from Florida has recently gone all-in on nationalist economics—presumably in an attempt to flatter Trump, a man Rubio once called a "dangerous con man." The senator has authored other essays recently advocating for industrial policy (he supports the "right" kind of industrial policy, which would of course be very different from the wrong kind of industrial policy President Joe Biden is pursuing, even though it's unclear how they would actually differ) and has publicly pushed back at critics who have called out his economic fallacies.

But the current version of Rubio is bound to lose this debate with his 2016 alter ego, who has the facts firmly on his side.

Indeed, just as Rubio predicted in 2016, the tariffs imposed by former President Donald Trump have been overwhelmingly paid by American businesses and consumers. Those groups "bore nearly the full cost of these tariffs because import prices increased at the same rate as the tariffs," the U.S. International Trade Commission (ITC) found in its five-year review of Trump's tariff policies. While Trump's tariffs on steel and aluminum spurred a small increase in domestic production of those metals, the ITC found, the downstream costs of the tariffs swamped the modest benefits.

Other studies found similar results. Here's one authored by economists at the Federal Reserve, Princeton University, and Columbia University that found Trump's tariffs cost U.S. consumers $3 billion per month. Here's a study by economists at the University of Chicago that found Trump's tariffs on washing machines hiked consumer costs by more than $1.5 billion. A study from Moody's Investor Service that found American consumers paid roughly 93 percent of the tariff costs. Other studies have come to similar conclusions.

In his American Conservative essay, Rubio tellingly doesn't attempt to offer evidence to contradict these well-established facts. Instead, he flippantly declares that the "'experts' got it wrong" and adds that "economists simplistically declare 'The policy is very bad. Tariffs make consumers poorer. They shrink the economy.'"

Perhaps the economists say those things because they are true and because the past six years have confirmed as much. It's fine to be skeptical of experts, but Rubio is the one making simplistic declarations here.

And if tariffs were the solution to anything, wouldn't there be evidence to support that claim by now? Rubio is engaging in a rhetorical trick more commonly used by progressives by suggesting that the lack of evidence in favor of a government policy isn't indicative of failure but only means that it hasn't been tried hard enough. Conservatives used to roll their eyes at that tactic.

Perhaps Rubio will parlay all these mental gymnastics and pro-Trump sycophancy into a vice presidential nomination or some other plum gig. For now, however, he's provided a perfectly pathetic illustration of the current state of the Republican Party, which has abandoned principle and reality to swoon for Trump's silly notions about what makes countries prosperous.

"The best thing we can do to protect ourselves against China economically is to make our economy stronger," Rubio said during that same GOP primary debate in 2016, adding that the best way to boost economic growth would be to cut taxes on American businesses and consumers.

Eight years later, Rubio is advocating for raising taxes on Americans in order to combat China. It makes no sense and we know that Rubio knows better, even if he no longer has the cojones to say so.

The post Marco Rubio Used To Know How Tariffs Work. What Happened? appeared first on Reason.com.

Another Tax Day has come and gone, and most Americans believe they pay too much. One recent poll revealed that 56 percent say they pay more than their fair share. Unfortunately, I fear this is just the beginning considering the insane level of debt Washington policymakers have accumulated over the years. With this in mind, here are some important facts about our tax system that you might not know.

The payroll tax is the heaviest burden for most taxpaying Americans, but the income tax is more visible and painful to a lot of people. While we are accustomed to it—and while it affects some Americans' decisions about how much to work, invest, or save—the income tax didn't exist for most of our country's life.

In 1895, the Supreme Court ruled against a direct tax on the incomes of American citizens and corporations, something that had been included in the previous year's Wilson-Gorman Tariff Act. The court found that such a tax violated the constitutional requirement that tax apportionments among the states be based on population. It took a constitutional amendment—the 16th—to eventually change that and pave the way for the modern income tax.

The very first Internal Revenue Service Form 1040, introduced in 1913 after the ratification of the 16th Amendment, was remarkably straightforward compared to what we know today. It was only four pages long, including instructions, and the top tax rate was 7 percent on incomes above $500,000, which is over $15 million in today's dollars. Some people were horrified by a 7 percent tax and warned that it could put us on a slippery slope to higher rates—maybe even above 10 percent (!)—imposed on a vast majority of people. They were called crazy for fearing such a thing.

And yet, as predicted by a few realists, the income tax rate not only increased, but the threshold at which it's applied went down. During the 1950s and the Eisenhower administration, the top marginal tax rate on incomes reached 91 percent for individuals. This rate applied to incomes over $200,000 (about $2 million today) for single filers and $400,000 (about $4 million today) for married couples filing jointly. These high taxes were part of a broader policy to manage post-war fiscal adjustments and fund federal programs. These rates also failed to raise as much money as you would think due to many loopholes in the tax code.

While the top marginal rate is much lower today, the income tax code remains remarkably complicated. Will McBride, a scholar at the Tax Foundation, recently wrote that "as of 2021, the U.S. income tax code was 4.3 million words long and growing. That's much longer, and presumably much more complicated, than tax codes found in other countries." There are several reasons for this.

First, many welfare programs are administered through the tax code. In recent testimony before the Senate Budget Committee, the Cato Institute's Chris Edwards wrote, "The tax code is an increasing mess. The number of official tax expenditures has risen from 53 in 1970 to 205 today, making IRS administration and enforcement ever more difficult. We know from experience that complex tax expenditures, such as the low-income housing tax credit and earned income tax credit, generate substantial errors and abuse."

In addition, contrary to common belief, the U.S. income tax system is actually quite progressive. According to the Tax Foundation, "though the top 1 percent of taxpayers earn 19.7 percent of total adjusted gross income, they pay 37.3 percent of all income taxes. Just 3 percent of taxes are paid by the lowest half of income earners." Maintaining this progressivity through all kinds of tax provisions increases the complexity of the code.

This progressivity is generally ignored by those who argue that taxing the rich is the solution to reducing the burgeoning U.S. national debt. Soaking the rich, while perhaps appealing in its simplicity, misses the scale of the problem. Brian Riedl, a Manhattan Institute senior fellow, noted that if we were to confiscate 100 percent of the income of everyone making over $500,000 per year, it would fund the government for less than a year. This puts into perspective the enormity of the $34 trillion national debt versus the income of the rich.

Taxing the rich is a convenient distraction hiding the reality that if spending isn't cut, taxes will have to be raised on everyone, a lot. On this tax week, I suggest Congress starts cutting.

COPYRIGHT 2024 CREATORS.COM.

The post This Tax Week, Remember That the Federal Income Tax Is Relatively New appeared first on Reason.com.

Former President Donald Trump's decision to impose huge new tariffs on imported steel came with an explicit promise about resurrecting the American steel industry.

"We're bringing it all back," Trump told reporters in May 2018 as he ordered the placement of 25 percent tariffs on nearly all steel imported into the United States. In exchange for making steel prices "a little bit more expensive," Trump believed the tariffs would boost domestic production "like it used to be in the old days when we actually had steel," he said in August of that same year. And when campaigning for reelection a year later, he was eager to claim credit for taking the steel industry from "dead" to "thriving."

But nearly six years after those tariffs were announced, government data show that America's annual steel output has fallen below the level recorded in 2017—the last full year before Trump's tariffs were imposed.

America produced 80 million metric tons of raw steel in 2023, according to new data from the U.S. Geological Survey (USGS), which tracks the annual output of iron, steel, and other industrial commodities. That's down from 80.5 million metric tons of steel produced in 2022.

Both figures ring in below the 81.6 million metric tons that were poured out of American steel mills in 2017.

The USGS data show that Trump's tariffs may have helped goose domestic steel production in the first few years after they were implemented. Production rose to 86.6 million metric tons in 2018 and 87.8 million metric tons in 2019, before cratering in 2020 as a result of the COVID-19 pandemic. Production bounced back in 2021, as American steel mills produced 85.8 million metric tons of raw steel that year.

Those modest gains in the immediate aftermath of the tariffs seem to have faded away over the past two years—despite President Joe Biden's unwillingness to remove the Trump tariffs, which have hammered steel-consuming industries and have added to inflation.

That pattern—a short-term boost in production followed by a decline later—is exactly what economists would expect to happen after tariffs are imposed, wrote Ed Gresser, a former assistant U.S. trade representative and vice president and director for trade and global markets at the Progressive Policy Institute.

Gresser noted that large new tariffs typically create a four-stage chain of events: First, an increase in prices; then, a shift toward domestic production as buyers try to avoid paying the new tax; next, a decline in consumption by domestic industries that consume the tariffed product as they fall behind competitors elsewhere in the world; and finally, that decline in domestic demand rebounds onto the protected producers who see fewer orders for their products—in this case, steel.

When the Commerce Department formally announced Trump's tariffs in 2018, it waved away concerns about the last step in that process.

"If a reduction in imports can be combined with an increase in domestic steel demand" that would result from military and infrastructure spending, then the Trump tariffs "will enable U.S. steel mills to increase operations significantly in the short-term and improve the financial viability of the industry over the long-term," the department predicted.

That plainly hasn't happened. The short-term boost provided by the tariffs has faded and the artificially higher price of steel that American industries (and consumers) now must pay appears to be sapping demand for steel.

The two-year decline in steel output (during a period of robust economic growth, too) makes it easy to assess the Trump steel tariffs as their sixth birthday approaches. There is no need to weigh the benefits of the tariffs against their costs—even though the costs overwhelm the benefits—and no need to be distracted by the theoretical debates about how tariffs supposedly improve American national security.

Tariffs were supposed to resurrect the steel industry. Instead, America now produces less steel than it did before the tariffs were imposed. The debate is over. Trump's steel tariffs have failed.

The post American Steel Production Has Fallen to Pre-Tariff Levels appeared first on Reason.com.