Editor's Note: This column is co-authored by Timothy Nash, Glenn Moots, and Rep. Lisa McClain.
In her economic plan announced last Friday, Vice President Kamala Harris rejected the insights of Milton Friedman. Among her most notable departures from Friedman’s wisdom is her promise to a) attack inflation by banning price gouging on groceries while b) creating 3 million new homes and subsidizing their purchase with a government-funded $25,000 gift to first-time home buyers.
Vice President Harris and President Biden have clearly failed in their 3.5 year battle with inflation and Harris should revisit Dr. Friedman’s tenets. Friedman won his 1976 Nobel Prize in economics for demonstrating how fiscal policy (government spending) and monetary policy (the Federal Reserve or FED) caused economic expansions and contractions. He famously opined: “Inflation is always and everywhere a monetary phenomenon, in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output [of goods, services and/or assets].”
According to the Federal Reserve’s M2 metric there has been a 50% increase in the money supply after 2020. While some of the increase is owed to spending during the COVID-19 pandemic, the Biden-Harris team added to it with reckless spending such as the ironically titled “Inflation Reduction Act.”
Biden cannot pass the buck from his policies to the FED. Friedman died in 2006, of course, but candidate Biden knew that Friedman’s ghost haunted his economic plans. Biden therefore tried to intimidate the FED’s Chairman Powell even before being elected. In April 2020, Biden told Politico, “Milton Friedman isn’t running the show anymore.” In September 2019 Biden asked a group of reporters, “When did Milton Friedman die and become king?”
Biden’s thumb on the monetary policy scale drove price inflation on an annualized basis from 1.4% in January 2021 to 9.1% by the summer of 2022. Though the FED and Biden’s Treasury Department asserted that higher prices were transitory, even economic advisors from the Obama-Biden administration, luminaries like Larry Summers to Steven Rattner, argued that the inflation was not transitory. By March 2022, the FED woke up, but the damage was done: higher prices and higher interest rates for automobiles, home mortgages, and credit cards crushed consumer purchasing power.
While Biden-Harris asked Americans to believe in a pipe dream economy not fed by real growth, consumers saw prices rise 20.25% from January 2021 to date, according to the Bureau of Labor Statistics Inflation Calculator. Growth and wages have not kept pace: average American wages adjusted for inflation declined by at least 2% over the same period. By contrast, real wages grew by roughly 6% with inflation only 7.8% over the whole four years of the Trump administration.
Price Controls on Groceries?
Dr. Friedman demonstrated that the only cure for a runaway increase in the money supply is a faster increase in production, emphatic that government must not manage that increase. He joked that “if the federal government was ever placed in control of the Sahara Desert, within five years there would be a sand shortage.” Harris is mesmerized by a mirage that the government rather than the free-market can out-produce inflationary pressures.
Her mirage includes price controls under the guise of punishing “price gouging.” Jonathan Miltimore’s demonstrates how such controls brought down the Babylon and the Greek and Roman Empires, caused mass starvation in the British colony of India, and catalyzed the French Revolution. More recently, President Nixon’s 1970s price controls caused hours-long gas lines, and Communist price controls forced shortages on millions. In 1989, during travels to China and Poland one of us (Tim) personally witnessed the shortage of food, toilet paper, and other household staples in Beijing and Krakow.
Political leaders promise price controls because they are ignorant of basic economics or to seek political gain, but in doing so they disrupt the best means of information for producers and consumers. Prices send signals to regulate supply: what should be produced and how much, where it should be sold, and how much investment should go into production. Prices also regulate demand, telling consumers to increase or decrease consumption. The most important signal is sent to entrepreneurs who gauge the demand for invention. Would the great tech innovations of the last half-century such as the cell phone have been launched if the government dictated how much profit could be made on them?
In the case of grocery prices, Harris’s fake villain, the average retail profit margin is already only 1.6%, less than the return on a passive money market account. Does Harris hope to drive grocery profits even closer to zero and signal grocery producers and retailers to give up altogether? Why won’t 2026 Boston or New York resemble 1989 Krakow and Beijing?
Creating 3 million affordable homes?
Harris’s promise to increase the stock of housing is also a mirage. According to the American Action Forum and the Budget Committee of the US House of Representatives, the first 39 months of the Biden administration increased regulatory costs ($1.37T) by more than four times the cost under President Obama ($303.1B) and almost forty-five times the cost under President Trump ($30.1B) in the same 39-month period. Vice President Harris, who cast tie-breaking votes for regulatory measures under Biden, will unlikely deregulate the creation of new homes.
Even if builders could absorb regulatory burdens (and current housing starts suggest otherwise) how can new housing withstand Harris’s de facto open border allowing ten million illegal migrant crossings with no plan to end these crossings?
A $25,000 handout for first-time home buyers?
Vice President Harris’s proposed $25,000 gift to first time home buyers demonstrates how easy it is to be well-intentioned with other peoples’ money while concealing the predictable consequences. Just as “student loan forgiveness” had non-college graduates and older Americans subsidizing young Americans with high earning potential, existing homeowners — including those whose savings or frugality enabled homeownership — will subsidize these handouts along with everyone else shouldering Washington’s $35 trillion debt and annual $2 trillion deficits. The relief from this wealth redistribution will likewise be a mirage; the one certain result will be higher prices, especially for starter homes that first-time homebuyers want most.
Conclusion
We join the bipartisan critique, including the National Review calling Harris’s plan “economically illiterate,” The Atlantic calling it “economically dumb” or The Washington Post’s editorial board calling it a gimmick. Though Harris has been compared to Obama, Obama administration economist and Harvard faculty member Jason Furman told the NY Times that Harris’s plan “is not sensible policy.” The consensus demonstrates that Friedman was right. His ghost may have haunted Biden, but it can still enlighten Harris.
Dr. Timothy G. Nash is director of the McNair Center for the Advancement of Free Enterprise and Entrepreneurship at Northwood University. Dr. Glenn Moots is Political Science and Philosophy Professor and a McNair Scholar at Northwood University. The Honorable Lisa C. McClain is a U.S. Representative from Michigan’s 9th Congressional District and Secretary of the House Republican Conference.