Willful economic illiteracy

If you understand basic economics, the current race for the American presidency is probably driving you nuts.
Both the Democrat and Republican candidates seem economically illiterate. Almost everything they say about economics is dead wrong. But maybe "the law of supply and demand" doesn't matter when politicians are buying votes. It seems most American voters are so ignorant or selfish they can be bought with economic proposals that are terrible for their economy.
It's not the politicians who are economically illiterate. It's us.
Counter-productive
Both Kamala Harris and Donald Trump have been calling out real economic problems during their campaigns. However, both are proposing "solutions" that would make these problems worse. In many cases, directly worse.
Let's walk through their proposals point-by-point. It's easy to see their economic packages represent economic backwardness.
Kamala Harris
Harris has proposed to:
- Offer new homebuyers downpayment subsidies of $20,000, because home prices are so high. But subsidies increase demand, and put upward pressure on prices. This policy would cause home prices to rise even faster than they already are.
- Increase the childcare tax credit by $6000 per year, because childcare is so expensive. But a tax credit is another form of subsidy, and subsidies put upward pressure on prices. This policy would cause childcare prices to rise even faster than they already are.
- Impose price caps on groceries and food, to help fight inflation. But inflation was created by the government's excessive money creation, not grocery companies (which have notoriously small profit margins). Further, price caps tend to create shortages because buyers purchase more than they otherwise would, and sellers are not incentivized to produce more to compensate. This policy would create shortages without reducing inflation.
- Raise the corporate income tax rate to 28%, because the federal deficit is so large. But taxes are not paid by companies, they are paid by people. When corporate taxes rise, shareholders earn less and consumers pay higher prices. Retirees and working class people will be put under greater financial pressure. Further, it was only in 2017 at the United States reduced its corporate income tax rate from being the highest in the developed world, so raising them again risks continuing to encourage companies to relocate their headquarters outside the United States.
- Exempt tip income from taxation, because low-income workers are struggling. While this would benefit anyone who earns tips, it would harm everyone else. Tip earners would get to keep around $38 billion per year, and because the government is running a deficit it would need to increase borrowing by that same amount per year to make up the difference. We all bear the burden of paying that additional debt service, and suffering slower economic growth while we do.
Donald Trump
Trump has proposed to:
- Increase existing tariffs by 10%, because there is "unfair" business competition from abroad. While this would benefit American businesses that have foreign competition, it would harm American businesses that rely on foreign producers, as well as harming American consumers generally. Tariffs are taxes paid by the importer, which either needs to raise prices or earn less, and usually both. So not only will American import businesses be harmed, American consumers will pay higher prices on a smaller supply of goods.
- Cap credit card interest rates around 10%, because these rates tend to be painfully high. This is a price control. Price controls tend to create shortages. In this case, credit card companies would cancel the cards of higher-risk card holders, and they would probably be unable to find credit elsewhere. In other words, this policy would directly harm the people it is supposed to help – people who can't afford to pay off their balances every month.
- Cut taxes broadly, because taxes are so high. While tax cuts are great because they empower American citizens while de-empowering the government, we must keep in mind the United States is running a very large deficit. Tax cuts without spending cuts simply equals more government borrowing. That is a problem because increasing debt service is forecasted to effectively cripple the government incoming decades, and larger debt means slower economic growth.
- Exempt tip income from taxation, because taxes are high. Again, this means an immediate increase in deficit spending, more expensive debt service, and slower economic growth.
- Exempt overtime income from taxation, to give people more of an incentive to work and make it easier for companies to hire. Like exempting tips from income taxation, this means an immediate increase in deficit spending, more expensive debt service, and slower economic growth.
Authority
Even if these economic policy proposals were good ideas, the government would not have the right to implement most of them. The government does not have Constitutional authority to offer subsidies or tax incentives to special interests, or set prices for private companies. Just because the government has done some of these things in the past does not mean it ever had authority, or that we should continue pretending it did.
Our Constitution was created to protect our rights. Every time we empower politicians to violate its protections, it becomes weaker. Accepting bad economic proposals endangers our national peace.
Budget
The federal government is already running a huge deficit, meaning it must borrow money to operate. This borrowing crowds out private investment, makes the government much more expensive over time, reduces economic growth, and risks financially crippling the government within a few decades. More deficit spending is a bad idea. Yet that is exactly what both candidates are proposing.
Tax experts agree both candidates are pitching economic plans that would increase deficit spending. Trump's alma mater, The Wharton School, reports the Harris plan will increase primary deficits by $1.2 trillion over the next 10 years, and reports the Trump plan will increase primary deficits by $5.3 trillion over the same period. In other words, both candidates propose taking a bad situation and making it worse.
Our economy is our national powerhouse, the origin of our strength. As our government grows larger and more financially vulnerable, it risks taking down our whole economy. Accepting bad economic proposals endangers our national prosperity.
Conclusion
Every economic policy described above would do more harm than good. In fact, most of the policies would directly worsen the problem they are supposed to solve. Plus, they represent the government violating the Constitution, creating winners and losers from citizens who should be treated equal, and accelerating itself toward a catastrophic debt crisis. But none of this matters to the politicians.
These policies aren't designed to fix problems or improve the economy. They are designed to buy votes, regardless of their destructive consequences.
If we want a peaceful and prosperous future, we must reject these policies and the politicians that offer them.