The Journal. - Harris, Trump and the Inflation Election

Episode Date: November 4, 2024

Tomorrow is election day, and both Vice President Kamala Harris and former president Donald Trump have campaigned on bringing down inflation. WSJ’s Nick Timiraos breaks down how both candidates’ plans will impact everyday costs. Further Listening: -Why Trump and Harris Aren’t Talking About the $1.8 Trillion Deficit  -Red, White and Who? Playlist  Further Reading: -Economists Warn of New Inflation Hazards After Election  -Inflation Continues Its Bumpy Decline With Mixed September Reading  Learn more about your ad choices. Visit megaphone.fm/adchoices

This year's election has touched on a lot of different issues. But there's one thing the candidates can't seem to stop talking about. Listen, I know prices are too high still. You know prices are too high still. We have an inflation crisis. I will take on the high costs that matter most to most Americans. This is inflation. This is what's happened. A loaf of bread cost 50% more today than it did before the pandemic.

Baby formula is up 30%. Flour is up 38%. Ground beef is up almost 50%. Eggs are up 46%. And many items are up at much higher rates than that. And voters are talking about it too. One thing we learned over the last few years is that people really hate inflation and so of course it's going to be a salient political issue.

That's our colleague Nick Timmeros, chief economics correspondent. After two years of rising prices, the rate of inflation has slowed down dramatically. But the country is still on edge, and the government hasn't declared victory yet. Both candidates agree that inflation is a problem, but when you look at their actual plans, are either of them good for inflation? They both take different approaches, let's put it that way, they both take different approaches. Let's put it that way. They both take different approaches to dealing with inflation.

And economists have questions about both of them, but really more about one of them in terms of whether that's going to create more risks for inflation going forward. Welcome to The Journal, our show about money, business, and power. I'm Ryan Knudson. It's Monday, November 4th. Coming up on the show, who's better for inflation, Harris or Trump? tomorrow. powerful backing of American Express. Terms and conditions apply. Visit amex.ca slash business platinum. Inflation hit 9.1% in 2022 after the economic rollercoaster of the COVID-19 pandemic. And while prices are still higher than they were a few years ago, the actual rate of inflation has come down significantly to 2.4%, which

is close to the Federal Reserve's target. So let's talk about each of the candidates and their economic plans and what that might mean for inflation. What would a Trump presidency mean for inflation? Donald Trump has said that he will bring inflation all the way back down, that he will defeat inflation. Under my plan, incomes will skyrocket, inflation will vanish completely, jobs will come roaring back. But a number of the policies that he's proposing could actually work in the other direction.

There are three reasons why most economists think Trump's policies could contribute to inflation. The first has to do with his tariffs. To me, the most beautiful word in the dictionary is tariff. So Trump put a bunch of tariffs on China during his first term, and the economy stayed pretty strong and inflation stayed pretty low. So what would be different this time? That's 100% true. I mean, it may have increased the prices of certain items,

but we didn't see any increase in inflation. In fact, inflation was low, quite low in 2018 and 2019. The concern I hear from economists where you would say, well, what's different right now? What's different is we just went through this, we have this recent memory of high prices. Businesses, which maybe five years ago didn't think they could push price increases

along to their customers have now discovered, hey, we can do this, we can raise our prices more and people will accept those prices. And so the worry would be, not only might these tariffs be bigger and bolder than before, but you're doing it in an environment, you know, you just shook up that soda bottle. The economy feels sort of fragile right now. Yeah, there's a different zeitgeist.

And so you don't know what is going to happen if you do something like this right after we had this experience of very high inflation. The other thing that's different about Trump's tariffs this time around is their scale and scope. During his first term, Trump's tariffs were more targeted, going after specific products that were made in China, like washing machines or solar panels. This time, Trump wants tariffs across the board, meaning any foreign product brought into the US would get taxed, anywhere from 10 to 20 percent. And stuff coming in from China would face a 60 percent tariff. Donald Trump says that he is going to be charging these countries this tax.

We're doing tariffs on other countries. Other countries are going to finally, after 75 years, pay us back for all that we've done for the world. But is that actually how it works? No, countries don't pay the tax. The businesses pay the tax. And businesses have said if their products or the goods that they use to produce their products are hit with tariffs they will pass that along to the consumer. And if businesses pass the cost of those tariffs on to consumers then

prices go up. In other words, inflation. More aggressive tariffs could also risk kicking off a trade war. For example, if Trump slaps a 60% tariff on Chinese goods, China might retaliate. And if Trump strikes back, it could cause a tit-for-tat where prices just keep going up and up. The second Trump idea that could raise inflation has to do with his stance on the Federal Reserve and interest rates. Interest rates are stance on the Federal Reserve and interest rates. Interest rates are set by the Federal Reserve, and throughout history,

the Fed has been an independent government agency that sets rates based solely on economic data and not politics. But Trump wants more control. I feel the president should have at least say in there. Yeah, I feel that strongly. I think that, in my case, I made a lot of money. I was very successful, And if Trump gets more influence over the Fed, he's signaled he wants to lower interest rates.

On the one hand, lower rates can be good for the economy. It makes it cheaper to take out loans and encourages people to spend money. But on the other hand? If you have lower interest rates and you have stronger growth, you might expect higher inflation. The last thing that could cause inflation to go up under Trump is something that, at its face, doesn't seem like it would have much to do with inflation. And that's Trump's plans for immigration. We will seal the border. We will

stop the invasion immediately. We will begin the largest deportation operation in the history of our country because we have no choice. The Trump campaign says deporting immigrants would be more job openings for American workers. Most economists say not so fast. Immigrants don't necessarily compete with Americans for many jobs. And tighter labor markets can be inflationary. There are a number of industries that rely heavily on migrant workers. You know, you think construction, agriculture, manufacturing, mining. A couple years ago there were a lot of concerns about labor shortages,

right, and immigration was one of the things that helped bring some of the pressure off of wage markets, off of labor markets, to, you know, help bring inflation back to more normal levels. If you're shrinking the labor force, there's a trade-off there. And the trade-off being that if you deport people from the country, you have fewer workers here, and if there are fewer workers, then you might have to raise wages to attract those workers. And if you're paying people more money,

then you have to raise prices, and then you can get inflation. Yes, it's supply and demand. Wages could go up, or you could just see businesses cut back production. I can't find the workers I need, so I'm not going to produce as much. So if this business can't find people due to the job and they simply cut back their production, there could be legal, marketing, professional services, white collar jobs that

also suffer downstream because we're just producing less, right? The economy shrinks. So, based on the conversations that you've had with economists and experts on this, what's the verdict on Trump's plans in terms of how it could affect inflation? It really depends on who you ask. The campaign says there was no inflation last time. Our tax cuts will boost growth So whatever short-term hit we take from some of these other policies on tariffs and immigration

Well, the economy will do okay because we'll lower taxes and we'll get growth. Other economists, including some who worked for other Republican presidents, are more worried. They see embers of inflation still hot. Yes, things have cooled off a bit, but if you poke those embers, you do all these things at once, that's creating another set of shocks. And so there's more risk of inflation. The Trump campaign also says it'll get lower inflation by cutting regulations in the energy sector, thus leading to lower production costs.

Coming up, what a Kamala Harris' economic agenda. First of all, what is Harris' record as part of the Biden administration on inflation? Well, you know, her record on inflation, she shares Joe Biden's record, which is that we had very high inflation for a couple of years after the pandemic. Both the Biden administration and the Trump administration pumped a lot of money into the economy in response to the pandemic. But Nick says there were a lot of other factors that caused inflation to jump. What happened in 2021 was that you had very strong demand, thanks to the spending, thanks to low interest rates from the Fed that heated up the economy. Demand was incredibly strong and it ran headlong into supply chains that were completely discombobulated and a labor

market that was just wrecked by the pandemic. That generated inflation. So, former President Donald Trump has been blaming Kamala Harris and Joe Biden for the inflation that the U.S. has experienced. How true is that? It depends on who you ask. You know, if you hadn't had the fiscal stimulus, maybe inflation would have been lower. You've seen high inflation almost everywhere in the world. Many countries have had high inflation, countries that were very rigorous in fighting the pandemic, countries that were more lax, countries that spent a lot of money, countries that didn't. So some of this might have happened anyway. Some of it might have been exacerbated by the Biden stimulus.

And economists will be fighting about that for the next 50 years. Regardless of how high inflation got, it has come down. So Kamala Harris is seen as sort of the status quo candidate, and that could be read either way. You know, we had high inflation under Biden, and so there's some people who are worried, more worried about inflation under Harris. But inflation has come down quite a lot. So being the status quo candidate in that situation is not a bad thing. So what's the high level assessment of what her presidency and her policies might mean for inflation?

It's hard to tell. And it's hard to tell because she's not proposing things that are quite so aggressive, like tariffs or deportations. A lot of her policies around inflation are more about, I would call it, she's playing defense on this issue. One tool Harris is planning to use to counter inflation, clamping down on alleged price gouging. Throughout her campaign, Harris has put a lot of the blame for high prices on corporations. I will enact the first ever federal ban on price gouging on groceries.

Harris says companies unfairly raised prices during the pandemic when they didn't really need to. So her idea is to ban companies from raising prices on food and groceries during emergencies. Thirty seven states already have laws like this on the books. There's a pretty robust debate over the causes of inflation, including price gouging. Have markups been obscene? That's sort of what you're suggesting is that businesses are taking bigger markups than they should have.

If demand is very strong and the ability to supply, let's say cars, right, car production has slowed down in the pandemic, but people really wanted to buy cars. We gave them stimulus checks and that's what people go spend money on when they get their check. Were car companies taking advantage of that or were they just, you know, we have a market economy and the price is the mechanism. So I think there's still a lot of debate about whether corporate greed was responsible for inflation. In the same way that economists strongly dislike tariffs, they also don't like price gouging bans either. Well, you distort the price signal, right? I mean, what we found in a lot of cases was that the cure to high prices were high prices,

right? When car prices went up, it told people, hey, go make more cars or go make more car parts. And so the increase in production was able to, after some period of time, fix that imbalance in the economy. One of the most significant places Americans are feeling inflation is housing. And Harris has a proposal for that. There's a serious housing shortage in many places. It's too difficult to build and it's driving prices up.

Obviously housing costs have gone up a great deal, first in the pandemic and then when interest rates went up, that made housing less affordable. So some of her proposals are designed to help first-time home buyers, younger would-be home buyers. My administration will provide first-time home buyers with $25,000 to help with the down payment on a new home. She has also proposed increasing the supply of homes. She's talked about how we need to build more housing and we need to cut the local red tape regulations that can make it harder to put up more housing.

Helpless makes sense of that policy because on the one hand, Kamala Harris says she wants to bring down the cost of housing by cutting red tape, increasing the supply of housing. She's talking about how she wants to build three million new homes in the U.S., which would bring the prices down if there's more supply. Prices come down, just natural economics 101. But at the same time, she's also saying that she wants to give a $25,000 down payment support for first-time buyers, which is a stimulus.

It puts more money in people's pockets to go out there and bid on houses. So how would those two things affect the price of housing and therefore the overall inflation? It's not clear that it would do a whole lot to bring inflation down. It's not clear that it would push it up either. And I think that's sort of the general takeaway

you hear from economists when they talk about Harris's proposals. These are things where if you do spend more money, you risk keeping inflation a little bit stickier. I'm not suggesting that you would have a new inflation shock. She's not proposing spending quite so dramatic as what we saw in the American rescue plan in 2021, but she is proposing spending money, you know, to boost the productive capacity of the economy. In the short run, as you're putting money into these programs, investing in the economy, that's going to boost demand, and it potentially keeps inflation a little

stickier. She's also proposed the $6,000 child tax credit, which is effectively a form of stimulus. It puts more money in people's pockets. What might that do for inflation? It could keep demand stronger than it otherwise would be. And if inflation hasn't come all the way back down, then there's a risk that consumption stays higher. People are spending more.

Businesses might have a little bit more pricing power. They don't have to reduce their prices as much as maybe they would have before. So there's a risk that you have a little bit sticky or a little bit slower decline in the inflation rate than you might've had otherwise. How important even is the president when it comes to inflation and the economy?

Boy, that's a big question. I mean, the way I think about it, the president probably gets more blame than they deserve when things are going poorly, and they probably get more credit than they deserve when things are going well. But it's a little bit like, I think of the president a little bit as the captain of a plane. If you set the plane off on a different course over some period of time, you can say, hey, wait, actually, we're flying, we're flying

in a completely different direction. You might not even be president anymore, but that is how presidents can affect the economy. I feel like a better analogy might be like a sailboat. Yeah. Because there's winds that you can't necessarily account for. Yeah, that's right. A sailing analogy is a good one here. You get hit by different winds and you get hit by crises. How are you going to respond to those crises? What choices are you going to make? You know, if a pandemic hits, if the banks are teetering on the brink of insolvency,

what judgments are you going to make in those moments? That's all for today, Monday, November 4th. The Journal is a co-production of Spotify and the Wall Street Journal. If you like our show, follow us on Spotify or wherever you get your podcasts. We're out every weekday afternoon. Thanks for listening. See you tomorrow.