WSJ Your Money Briefing - Your Money, Your Vote: How Harris and Trump Plan to Tackle Inflation

Episode Date: September 15, 2024

In the first episode of our new series “Your Money, Your Vote," we tackle one of the hottest topics in the 2024 election: inflation and the economy. With rising prices top of mind for voters, we break down the facts on inflation and how former President Donald Trump’s and Vice President Kamala Harris’s economic proposals could impact your personal finances. Sign up for the WSJ's free Markets A.M. newsletter.  Learn more about your ad choices. Visit megaphone.fm/adchoices

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The 2024 presidential campaign is brimming with history. Kamala Harris is the nation's first female and first black vice president. She's also the first person of Indian descent to hold the office. Harris shot to the top of the ticket when President Joe Biden ended his presidential run in July. Former President Donald Trump, meanwhile, is seeking to become the first president in more than 100 years to be re-elected after a defeat. He's also the first to be impeached twice and the first to be convicted of a felony. But while a Harris or Trump victory might add new pages to presidential history, there's a prevailing question that's as old as the nation itself. What will the election mean for your money?

Welcome to our special series, Your Money, Your Vote. Over the next four Sundays, we'll examine how a Harris or Trump administration is likely to affect your personal finances, so you're better informed when it's time to cast your vote. We'll discuss what plans the candidates have laid out to tackle the economy, taxes, student debt, and the cost of health care. Today we'll start with inflation. We went to Bryant Park in New York

City and caught some people on a coffee or lunch break. They're planning to vote in the upcoming election. So we asked them how they're feeling about the economy and prices going into November. I'm worried about the power of the dollar and how far my hard work in my 20s will allow me to have a happier life later on in life. I would love to see taxes come down, inflation to come down, housing prices to be more in line with how much people are making. The price of groceries has gone up a lot.

In my neighborhood, four years ago, five years ago, we used to buy like a dozen eggs for a dollar. Now it's like five dollars. Everything is so expensive. The inflation rate has come down, but Americans are still feeling the pinch. Both candidates have talked about it. We believe in a future where we lower the cost of living for America's families. We will rapidly drive prices down and make America affordable again.

To help us better understand their economic policies and how they plan to tackle inflation, let's bring in Greg Ip. He's the Wall Street Journal's chief economics commentator. Greg, why has inflation been such a hot topic of discussion since the start of the election season? If you ask people what bothers them most about the economy right now, indeed what bothers them most period, they'll often say it's inflation. And it's really not a surprise why.

Inflation reached a peak of 9% a few years ago, and it's come down from that, but it's still high. And even though the rate of increase in prices has slowed, prices are still dramatically higher by around 20% than when Biden took office in early 2021. And people still feel it. They go to the grocery store, they go to the restaurant and prices are much, much higher than they remember them being for a very long time. What caused the rate of inflation to come down so much from the recent peak? Well, you have to go all the way back to 2020 and 2021 to ask what caused

inflation to go up so much in the first place. And it was really like the old story goes, supply and demand. So we had a situation where supply was really constrained by the unusual patterns of demand that followed the pandemic. Plus millions of people left the labor force because they retired or they were worried about the virus. And so there were labor shortages everywhere. So you take a situation where a lot of companies

have a limited ability to supply goods and services, and then you pour on all this demand from federal stimulus and low interest rates and pent up saving from people who weren't spending while they were locked down. And it was that collision of supply and demand that created the very high inflation rates. And then in 2022, Russia invaded Ukraine and that basically had knock on effects on the prices of oil and natural gas all around the world. Why did the inflation rates subsequently come down? It's because a lot of the supply chains with time managed to work themselves out.

So for example, there was a shortage of semiconductors, which was making it difficult to make cars. That shortage is now over. And as a result, automobile sales and automobile production is up and the prices are coming down. Before we get into each candidate's specific plans, what are some of the measures or actions that a president can actually take to tame inflation? It's very difficult for a president to affect the inflation rate very much.

And that's because the inflation rate is really the function of these two gigantic macroeconomic forces supply and demand. The presidents have very little influence on either of those things, except in emergencies or unusual circumstances like we had a few years ago. And when it comes to inflation,

the single most important actor isn't the president at all, it's the Federal Reserve. And the Federal Reserve, under most parties and most presidents, has committed itself to keeping inflation down around 2%. So where do the 2024 presidential candidates stand on tackling inflation and the economy? And how effective will their policies be?

We'll be back with Greg Ip after the break. At Pennzoil, we have one job. Pioneering a motor oil so advanced, you don't have to think about your motor oil. Instead, you can think about how your engine sounds, how your stomach feels as the RPMs build, how your wheels hug the curves, and how, with the Pennzoil Platinum Up to 15-Year, 800,000-kilometer protection guarantee, your adventures will be many.

Pennzoil, Long May We Drive, available at your local Canadian tire. Enrollment required. Keep your receipts. Other conditions applied. See pennzoil.ca slash warranty for full details. Vice President Kamala Harris and former President Donald Trump have made inflation a focal point of their campaigns, even though inflation has come down compared to a year ago. I asked WSJ's Greg Ip to lay out the candidates' plans

for containing inflation, starting with Trump. His most direct proposal is to essentially stimulate drilling for oil and gas in the United States. We will drill, baby, drill. The US is right now the world's number one oil producer, one of the very largest natural gas producers. And since some of that oil and gas comes out of land that is basically controlled by the federal government, it's like in the offshore continental shelf,

the Gulf of Mexico, where it's on federal land, in theory, the federal government can increase or decrease the supply of land available for drilling. But those things take a long time to take effect. You're talking about years between when land becomes available and when an oil well might actually start to generate oil. And more to the point, the inclination of an American company to produce more oil in the United States

is mostly a function of the price of oil on world markets. You kind of need oil prices and gasoline prices to go up to get a lot of US production. And when those prices go down, you tend to have less US production. So there's only very limited effect that the president can have on inflation through oil and gas policy. So ironically, you would need inflation on some level for the drilling policy to work. That's right, yes. To save the economy first we must destroy it. What was his record when it came to the economy in his first term?

So first of all, Trump inherited a very strong economy from Barack Obama. Unemployment was low and falling. Inflation was very low. Interest rates were very low. So this was an awfully nice time to take over the economy. And then one of the first things that he and the Republican Congress did was they enacted an extremely large tax cut. So individuals had their taxes cut, corporations had their taxes cut. So this was very good for the stock market and it was very good for spending. And so the year 2018 was a very good year for the economy. Now, whether that was sustainable, we'll never know.

In theory, it probably was not sustainable because a lot of that tax cut was financed with deficits. And in the end, deficits do crowd out private investment and push up interest rates. How has the Biden administration handled the economy over the past four years? You can look at the first year of the Biden-Harris administration as been one of sort of missteps in that they decided

to enact all this fiscal stimulus on the view that the economy was lacking demand and there weren't enough jobs for workers to go around, which after all was the experience after the financial crisis in 2008, 2009. But unfortunately they misdiagnosed the problem. We didn't really have a lack of demand. We had a lack of supply and the workers who weren't working,

it wasn't because they couldn't find a job, it's because they didn't want to work because they were worried about getting sick. And so they put in all this demand into an economy that had too little supply, and the result was inflation that was higher than it otherwise would have been. That said, there was a positive side to all that stimulus,

which is that the unemployment rate came down very low. It was below 4% for a very long time. It's now crept up above 4% and people are a little bit worried that the labor market is cooling off. But it's still the case that over the full course of the Biden-Harris administration, the job market has been extremely tight

and particularly beneficial to people at the low end. People, for example, who don't have college degrees, people who have disabilities, people who have historically often been the last to benefit from a strong job market. Those people have done reasonably well under the Biden-Harris administration. Trump has also mentioned the strategy of imposing tariffs as high as 20% on imports. What effect would that have on the economy and on prices?

So Trump has talked more often about a 10% across the board tariff. He did recently mention 20%, but the number he normally says is 10% plus 60% on China. So the United States imports a lot of things. The first superficial effect would be to raise all those prices. But the final effect is perhaps not quite so simple because there might be offsetting things. For one thing, Trump may choose to negotiate

with some of these countries and the result of those negotiations could be the tariffs don't go up as much or possibly not at all. Sometimes there's offsetting effects. For example, the dollar might go up and if the dollar goes up that tends to reduce import prices and that might also offset the effect of the tariff. Finally, some companies depend on the US market so much is that they may choose to lower their prices such that even once the tariff is added the price to the American consumer does not go up very much.

But I think most economists think that yes, you would see some pass through to consumer prices from those tariffs. Now on to Democratic presidential nominee, Vice President Kamala Harris. What are the main points of the economic plan that she's laid out? So she has laid out a number of plans. She's offered subsidies that would help parents with children, for example, they would get larger child tax credits. People are interested in buying for example. They would get larger child tax credits. People are interested in buying a house.

They would get a homebuyer's credit. Now that tends to contribute to demand. It doesn't contribute to supply. So it doesn't really solve the fundamental inflation problem. She has, however, offered subsidies to people to build affordable homes. Maybe that, with time, would help the housing situation. And then more vaguely, she's talked about like a crackdown on price gouging. And unfortunately, it's very hard to determine

exactly what effect this would be because she hasn't defined price gouging and she hasn't defined what exactly new powers she's talking about. Her campaign has noted that some states have laws against raising prices a certain amount when there's been a natural disaster like a hurricane, maybe Harris is simply talking about

some of the federal equivalent to that. But if so, then it would probably only take effect in extremely narrow circumstances and really wouldn't have a noticeable impact on the overall inflation rate. What are the biggest differences between the Trump and the Harris approaches to tackling inflation.

If you listen to Trump at least, his is a more hands-off approach where he talks about deregulation and increasing supply of oil and gas. If you listen to Kamala Harris, it's a more of a hands-on approach, basically subsidizing important purchases and income for low- and middle-class families. When Harris talks about price gouging, she mentions food and grocery prices specifically. Prices for everyday things like groceries are still too high. You know it and I know it. Trump has also been talking about food prices a lot.

So Greg, what's driven up the cost of food so much? Most of the independent studies have concluded that the reason food prices have gone up a lot and they've gone up around the same rate as overall inflation is because the raw materials for food like meat, fruit, vegetables, processing, the labor that goes into the factories that make the food, the labor in the stores that sell the food, all those things have gone up. So to a great extent, the rise in the price of food reflects the rise in the cost of producing and distributing food.

Now, on top of that, it is also the case that grocery chain profit margins have expanded a bit. So it's not crazy to say that one reason prices are higher is that profits are higher. Now, is there something that the government could do about that to reduce those profit margins and help consumers? That's much harder to determine.

The government is looking into mergers of grocery chains with an eye to preventing the sorts of concentration that might push up profit margins and prices. But let's say in a best of all possible worlds that you were able to like undo all of the increase in profit margins that's occurred in the last few years, you're talking at at most half to 1% on the price of groceries,

not something you're likely to notice. Harris has also talked about lowering housing costs. How does she plan to do that? She has proposed, for example, a subsidy to builders and developers to build more starter level homes. So in theory, that could encourage them to build more of the smaller homes

that are increasingly scarce these days. She's talked about a home buyer tax credit of $25,000. Now, this would reduce the all-in cost for somebody out there buying a home, but because it would also add to housing demand, it might actually have the effect of raising housing prices. There are smaller things that they could do. For example, the Biden administration, of which Vice President Harris is part,

has talked about finding unused federal land and turning that over to developers for building low-income housing. And finally, the Biden administration has proposed legislation to cap rent increases at 5% for large corporate landlords. This would require legislation, so it's unclear if that would happen.

Vice President Harris has endorsed that same idea. But it should be noted that it's unclear that this would have any effect, because there's actually been a huge surge in supply of multi-family apartment units in the last years too. What are some ways everyday households could see the effects of some of these economic policies if enacted? Inflation tends to be a slow moving force, the last few years accepted. If we

have, for example, a President Trump whose tariffs and other plans tend to add to inflation pressure, the average household would indeed see a higher cost of living than they otherwise would over the next few years and possibly slightly higher interest rates as a result. But of course, as we've discussed the devil's in the details, we don't know precisely what type of terrorist structure would actually emerge from a Trump administration. Vice President Harris doesn't have any specific plans that would bear directly on inflation. But again inflation is primarily a consequence of like large forces in the economy. For example if there's a global

recession we would expect the price of oil to fall and that would lead to lower inflation for everybody. But obviously that is not something over which either candidate has any control. Inflation eats away at how far your money goes, but what about how much you take home in the first place? Join us next Sunday when WSJ reporters Richard Rubin and Laura Saunders will be with us to lay out each candidate's tax policy and how they'll affect your bottom line. And that's it for part one of this special series of Your Money Briefing. Your Money, Your Vote.

This episode was produced by Ariana Osborne. I'm your host, JR Whalen. Sound designed by Jessica Fenton. Jessica wrote our theme music. Our supervising producer is Melanie Roy. Aisha Al-Muslim was our development producer. Scott Salloway and Chris Zinsley are our deputy editors. And Falana Patterson is The Wall Street Journal's head of news audio.

Thanks for listening.