Kamalanomics: Not Just Stupid, But Insane

Fighting The Wrong Battle In the Wrong War With The Wrong Weapons

We should acknowledge a certain risk in assessing the economic agenda of a Presidential candidate from a single speech. When it comes to economics especially, the spoken word is the worst mode of communications—there are simply too many little details.

However, given that we have only her North Carolina rally speech last Friday for details of her economic agenda, that is the detail from which we must assess “Kamalanomics”—and from which we must conclude that her economic agenda and the economic team which helped her assemble it is somewhere between stupid and insane.

Kamalanomics recalls the worst of Nixonomics when the data argues for Reaganomics. She prefers government to “control” prices vis-a-vis Nixon’s New Economic Policy instead of Ronald Reagan’s approach of deregulating and generally getting government out of the way.

I am going to depart from my usual custom when presenting the “official” economic data and take it at face value. My purpose here is to assess the data in terms of the messaging in her speech, and in terms of the messaging she could have, and be able to back it up with actual presumably credible numbers.

While politicians always claim to not want to focus on the past, and on Friday Kamala Harris was no different, even average politicians understand that the past is what we have to chart the future.

While she took the obligatory victory lap over “16 million new jobs” and inflation being below 3%, she made the odd immediate transition to the high cost of living. While she touched briefly on job creation as part of her “opportunity economy”, she kept returning to the cost of living—which as I detailed previously led her to propose a most Nixonian solution of price controls.

Kamala Harris Rediscovers Richard Nixon

What is bizarre about the focus on costs is that, on its face, the inflation data is where a Presidential hopeful wants it to be. That much is obvious just by looking at the year on year percent changes in the Consumer Price Index from the start of the Biden-Harris Administration until the most recent numbers for July.

If the political objective is to get inflation under control, the CPI says that inflation already is under control. Even food price inflation has fallen below both headline and core inflation, after being above both for nearly eighteen months.

From the political perspective, this is the selling point. This is a message of “we’ve weathered inflation and have it under control”. For readers of a certain age, this would be “Morning in America”.

Instead, she proceeded to knock the supports out from underneath that message by highlighting overall cost changes.

A loaf of bread cost 50% more today than it did before the pandemic. Ground beef is up almost 50%.

She even pulled out the worst numbers from the worst subindex. Overall, the CPI shows food prices to have risen 21% during the Biden-Harris Administration, “core consumer prices” (less food and energy) have risen 17.9%, and headline prices (the CPI) have risen 19.4%.

This is an odd metric for her to highlight, because it invites comparison with the Trump Administration’s price changes, which were about half of what has been experienced during the Biden-Harris Administration (9% overall rise in food prices, 7.9% in “core” consumer prices, 7.5% in consumer prices overall).

Donald Trump’s numbers include the dislocations of the 2020 Pandemic Panic and related recession. Even with the lockdowns, food prices rose only 3.6% during the final year of Trump’s term.

Does Kamala Harris not understand that the Biden-Harris numbers are, for all intents and purposes, her numbers? This is the record of what amounts to “her” administration. Short of turning on Joe Biden completely and blaming him for the hyperinflation of 2022, she owns this. The costs on which she wants everyone to focus rose while she was in office!

Even on energy prices, the hyperinflation occurred while she and Joe Biden were at the wheel—but that hyperinflation gave way to energy price deflation and for the past six months a measure of price stability.

That there is broad price stability in energy markets is something that can be shown, and quite easily by examining oil prices from January 2021 until now.

A similar claim can be made about gasoline prices.

Energy prices are much higher now than at the start of the Biden-Harris Admnistration, but at those higher levels they are less volatile than they have been.

Overall, energy prices are up 32.9% since the start of the Biden-Harris Administration, but that includes a decrease in energy prices from their June 2022 peak, when they were up 58% from January 2021.

In terms of messaging about prices, the official data supports a clear “the worst is over” theme (hence the reference to Reagan’s 1984 slogan “It’s morning in America”).

This is not an economic situation that even suggests price controls. The time when price controls would have targeted an actual problem would have been in 2022. Not that they would have worked, but the point of price controls is to rein in out of control inflation. With food price inflation at 2.2%—just above the Federal Reserves “Holy Grail” number of 2%, food price inflation is no longer out of control.

Even on housing, Kamala Harris is about two years out of sync. By literally every inflation metric, housing prices are well on their way towards stabilizing.

The shelter price inflation subindices within the CPI peaked around January of 2023.

That the housing metrics peaked 6-7 months after headline inflation is as it should be, as the nature of the Rent of Primary Residence and Owners Equivalent Rent of Residence metrics are lagging indices. Because people encounter price changes in rental costs only when they resign a lease, not everyone encounters rising housing costs at the same time.

The Zillow Observed Rent Index (ZORI) is a more forward looking metric, however, and even it shows shelter price inflation peaking in early 2022.

That hyperinflation has passed in housing does not mean that housing is now cheap. On the contrary, the Rent of Primary Residence and Owners' Equivalent Rent of Residence have risen 22.3% and 22% since January of 2021, respectively.

The Zillow index has risen 30%.

Still, these increases are historical increases. As with food costs, the economic concern in a political context are likely future costs—where are the prices going to be. So long as the inflaton rates are stable or declining, and especially if they are down near the Holy Grail threshold of 2% year on year, housing prices may be fairly described as stable—high, but stable. There is a qualitative difference between prices being “high” and prices being “stable”.

Harris seems oblivious to this, as her “solution” to rents is rent control:

And we will do that together. We will do that together, and we will make sure those homes actually go to working and middle class Americans, not just investors, because, you know, some corporate landlords, some of them buy dozens, if not hundreds of houses and apartments. Then they turn them around and rent them out at extremely high prices. And it can make it impossible then for regular people to be able to buy or even rent a home. Some corporate landlords collude with each other to set artificially high rental prices, often using algorithms in price fixing software to do it.

It's anticompetitive, and it drives up costs. I will fight for a law that cracks down on these practices.

Nixonomics comes to real estate.

Even for homebuyers, the data shows that home prices are no longer skyrocketing as they were in 2022. Year on year percentage rises in the Case-Shiller Home Price Index peaked in March of 2022.

Even the past year’s increase in volatility is showing signs of easing once more.

Still, the easing volatility means prices are still very much higher than they were, as the Case-Shiller Index is up 36.8% since the start of the Biden-Harris Administration.

Incentives for first-time homebuyers not only won’t bring prices down, it will reawaken price volatility and inflation, pushing home prices back up again. Yet that is what Kamala Harris is proposing to do—inject more volatility into a market that neither needs nor wants it.

What Harris’ proposals of assistance on downpayments ignores is the contribution high interest rates make to overall home prices. It is not merely that home prices have shot up during the Biden-Harris Administration, interest rates have risen, and in particular mortgage rates have skyrocketed.

For both the 15-year and 30-year mortgage, rates have more than doubled. That is not only an increase in the overall price of a home, but an increase in the monthly payment as well, one that cannot be ameliorated by extending the term of the loan.

Kamala Harris does not even use the term “interest rates” in her speech. For someone presumably worried about costs being too high, the cost of capital to consumers—i.e., credit card and similar rates—might as well not exist for her.

Even Larry Summers recognizes that interest rates are the “cost” of money, and warrant greater consideration in any assessment of consumer prices and inflation.

The Not-So-Hidden Costs Of Inflation

Kamala Harris’ proposed tax credit for first-time home buyers does nothing to address the ongoing cost associated with high mortgage rates.

At the same time, Harris overlooked a key economic metric that is lagging: wages.

The reality of the Biden-Harris Administration is that wage growth has been deteriorating steadily, something easily seen when we overlay year on year percent changes in wages with prices.

As a consequence of this, real incomes have effectively fallen, as the rise in wages has not kept pace with the rise in prices.

What Kamala ignored on Friday is that it does not matter that food prices are up 21% since January 2021. What matters is that food prices are up 6.2% more than the wages used to buy food. With only a 14.8% rise in overall wages, hyperinflation has left consumers’ wallets in a very uncomfortable place.

Housing costs show the same problem, only worse.

With both her price control scheme and her tax credits for first time home-buyers, Kamala Harris is targeting a dynamic that subsided at least a year ago. Inflation and price volatility are, at least for now, settling down.

The lack of wage growth, however, is a problem that is current and relevant today.

If you’re thinking “but Kamala didn’t talk about wages on Friday”, you are thinking correctly—and this is also part of the lunacy of her economic agenda: she’s targeting problems that functionally no longer exist and ignoring problems that very much do exist.

The lack of wage growth highlights another problem Kamala ignored—even by the “official” data, job growth has been getting steadily softer throughout the Biden-Harris Administration. That is obvious just by looking at the slowing growth in total payroll size for the US.

Even the Household Survey’s Employment Level shows softening growth over time.

Together, these data point to a growing crisis in jobs. Since early 2022 the Household Survey Employment Level has shown a much slower growth trend than payroll size.

Not only does this call into question Kamala Harris’ 16 million jobs figure, but it indicates there is a real slowdown in actual hiring that has been getting steadily worse over time.

If you’re thinking “I don’t recall Kamala talking about jobs either on Friday”, again, you are correct. She didn’t.

In one sense it is once again amazing that she’s not, because in terms of overall job growth Hispanics and Blacks have led the way.

Hispanic employment is up 14% during the Biden-Harris Administration, and Black employment is up 9.7%. You would think a Democratic Presidential candidate and sitting Vice President would want to brag about that result.

However, there is a very awkward reality in the more recent data: Black employment levels have not risen significantly early spring of last year, when Black and Hispanic employment trends bifurcated.

In a party that places a premium on racial identification, stagnating Black employment is not a good look. Yet it is also a messaging opportunity, and a chance to refocus on actual job creation.

Even when we step back and look at the broader demographics, we see that unemployment levels have been climbing since January of last year.

From Janauary 2021 through Janauary 2023, unemployment in the US dropped by 43.9%—which is a good number. Unfortunately, since January of 2023, unemployment levels in this country have risen by 25.2%, and that is not a good number.

This is a growing structural problem, as evidenced by the growing number of people not in the labor force.

By March of 2022, the number of people not in the labor force had dropped by 1.6% since the start of the Biden-Harris Admnistration. Since March of 2022, the ranks of those not in the labor force have grown by 1%.

Both unemployment and dropping out of the labor force are long term trends at this point, as they have extended for more than a year (more than two years for labor force participation).

Wages and jobs — two economic agenda talking point on which she could have focused but which she completely ignored.

As readers of this Substack are surely aware, I have long argued that labor markets in this country were never as tight as the Biden-Harris Administration made them out to be. For quite some time I have made the argument that labor markets in this country are increasingly toxic.

Tight Labor Markets?

The incremental growth of the number of people not in the labor force, rising unemployment, softening jobs numbers, and underperforming wage growth are all signs that labor markets are not nearly as robust as the prevailing narrative wants everyone to believe. They are signs of a growing crisis of labor in this country—and one to which Kamala Harris is completely oblivious judging by her North Carolina speech.

This is a criticisim that can be leveled against the entire Democratic Party as well, as the “jobs” section of their just-approved 2024 platform to re-elect Joe Biden (no, that is not a typo!) says virtually nothing about job creation. Their jobs agenda moving forward consists of:

• Pro-union legislation in the form of the Protecting the Right to Organize (PRO) Act and the Public Service Freedom to Negotiate Act.

• Labor standards through “Buy American” rules for government contracts.

• Increased funding for the Occupational Safety and Health Administration.

Even within the Keynesian economic framework Democratic politicians especially adore, these are not measures calibrated to increase employment. At best they help defend existing employment and possibly slow job loss.

The “Investment” section of the Democrats 2024 platform speaks only of what’s already been done by the Biden-Harris Administration. It proposes no new infrastructure spending or government “investment” in the economy of any kind. Ditto the lip service the party platform pays to small business. Lots of patting of hands on backs, but no new initiatives.

Even for the Keynesian economist, this makes no sense: the Keynesian solution for the worsening employment outlook in this country is more “investment” and more spending on items such as infrastructure. Yes, such programs end up with lots of “bridges to nowhere”, but that’s what Keynesian initiatives generally produce in order to generate jobs. A Keynesian interpretation of the jobs data would support such an economic focus—but Kamala Harris is ignoring the data completely.

For the non-Keynesian such as myself, the data argues for a more Reaganomics-style messaging: trim regulations and reduce business taxes to spur business activity and thus hiring. Harris slammed the door on such thinking with a frontal assault on Donald Trump over corporate taxes:

He plans to give billionaires massive tax cuts year after year, and he plans to cut corporate taxes by over a trillion dollars, even as they pull in record profits. And that's on top of the $2 trillion tax cut he already signed into law when he was president, which, by the way, overwhelmingly went to the wealthiest Americans and corporations and exploded the national deficit. You know, I think that if you want to know who someone cares about, look who they fight for.

Ironically, the tax cuts which have come to be associated with “Reaganomics” were also a feature of the Revenue Act of 1971, in which Congress and President Nixon cut business and individual taxes. Harris is not only embracing the worst of Nixonomics, by rejecting Reaganomic thinking she’s also turning her back on the best Nixonomic thinking.

By Monday, Kamala Harris’ campaign confirmed these suspicions, by calling for raising corporate tax rates to 28%. As Americans for Tax Reform has noted, her endorsement of the Biden-Harris budget for fiscal 2025 also includes raising personal tax rates—and thus the tax rates on small businesses—to 39%.

It is worth noting that a 2017 paper by the Tax Foundation argues that labor ultimately bears the cost of business taxation.

Over the last few decades, economists have used empirical studies to estimate the degree to which the corporate tax falls on labor and capital, in part by noting an inverse correlation between corporate taxes and wages and employment. These studies appear to show that labor bears between 50 percent and 100 percent of the burden of the corporate income tax, with 70 percent or higher the most likely outcome

If the Tax Foundation’s meta-assessment of empirical research is at all accurate, Kamala Harris is proposing to stick workers who are already struggling with declining comes and softening employment with some very large costs.

What is far less problematic and far more certain is that Kamala Harris wants to burden the US economy with the highest tax rates in the world.

Even if there were good arguments in general for higher tax rates, even within the Keynesian rubric tax increases are not done when employment is getting squishy and uncertain. Yet that is exactly what Kamala Harris has pledged to do.

As a general rule, when politicians make promises on the economy, very little of what they promise to do is actually economically useful, and most of it tends to be at least somewhat economically counterproductive. Every President’s economic agenda has been flawed in some regard since the founding of the Republic.

Yet it takes a special sort of cluelessness to assemble an economic agenda that is not only counterproductive in its own right, but targets economic problems that have since subsided while ignoring economic problems which are starting to flair up. It takes a staggering amount of economic illiteracy to be so completely unaware of what is happening within her own Administration as to propose ideas which completely ignore the visible weaknesses emerging within the country's economy.

Kamala Harris rolled out her economic agenda by promising to fight the wrong battle in the wrong war with the wrong weapons. With one speech she demonstrated that she has not one single clue what is actually happening within this country’s economy.

Kamala Harris’ economic achievment here truly is remarkable. To assemble that much stupid and that much lunacy in a single speech is a skill all on its own. Unfortunately for Kamala Harris, it is a skill nobody needs.