KAMALA HARRIS AND THE ECONOMY
August 27, 2024
The Definition of Inflation: The classic cause of inflation is when there is too much money chasing too few goods.
THE BIDEN/HARRIS ADMINISTRATION
What happened early in the Biden/Harris administration?
What happened as a result?
Gasoline prices topped $5.00/a gallon and inflation soared to 9%, the highest in 40 years.
How was the inflation curbed, and what are the consequences?
The Federal Reserve increased interest rates to dampen the excessive money in the economy. Consumers and sellers throughout the economy made millions of buy and sell decisions to achieve a balance between demand and supply resulting in a 20% price increase on average, but very variant on a product-by-product basis, particularly on food. It appears that the demand/supply balance is now stabilizing somewhat, as is the rate of inflation.
But, as a result, the national debt has increased from $28 trillion to $35 trillion, a net $7 trillion or 25%. Annual interest payments on the debt have increased by $1 trillion. Total income tax revenue in 2023 was $2.6 trillion from both individual and corporate sources. Interest payments on the debt is now 45% of income tax revenue which is an unsustainable situation. Additionally, the credit rating of the United States Government was downgraded as a result.
THE HARRIS ADMINISTRATION
The Harris Administration Economic Plan to Date
The Harris Economic Plan to date has two major Components
Price Controls are a bad idea.
Price controls have been used throughout modern history and have ultimately resulted in shortages every time, including in the Nixon administration in the 1970s. They were quickly abandoned. In the socialist and communist regimes in Russia and China they lead to massive famine. In Cuba and Venezuela, they led to bread lines and a massive decline of their economies and standard of living.
Why do price controls fail?
In a free market economy, void of government intervention, prices are set by supply and demand wherein the sellers set the price, and the consumer changes it via how much they purchase at that price – price too high they don’t buy it, price too low demand increases and the consumer purchases until the price gets too high. That ebb and flow goes across the entire economy on a continuous basis on all products, most particularly food and other grocery products. That ebb and flow stops when the government intervenes and sets the price. Let me provide an example of how that will lead to bare shelves.
Let’s take a typical child’s breakfast: cereal and toast. A chief component of cereal and toast is wheat. Wheat grains are pulverized to make flour (and then bread) and cereal flakes. The stubble of wheat fields is also used for cattle forage to increase nutrition of cattle feed.
The typical wheat farm is family-owned and operated. Their operating costs include gasoline to plow the field, seed, fertilizer (which typically is chemically based and produced utilizing natural gas), a custom cutter to harvest the wheat bristles and transport them to a local dealer. [Custom cutters are rental concerns that go from farm to farm with huge combines which do the harvesting]. So, fossil fuels to plow, harvest and transport their product as well as to fertilize it are a large part of their costs. Their annual economic success or failure is very dependent on their crop yields – e.g., on the weather, the nutrient condition of their soil, and timing of planting and harvest – plus the pricing of wheat.
Now the government comes in and sets the price for cereal and bread. That fundamentally puts a cap on the price of wheat. Then the government restricts the production of fossil fuels through executive action and/or regulation forcing fossil fuels prices to increase which significantly raises the costs of the wheat farmer as the ebb and flow between the seller and buyer has been cut off. That situation is not for just one wheat farmer but virtually all wheat farmers.
The farmer, whose margins are low, may be able to survive one or two downward years, but eventually will quit growing wheat because he/she can’t make any money doing it. The same things would happen if they had a year or two of bad weather, because the pricing is fixed and is not flexed because of conditions. When enough wheat farmers “give up the ghost” the grocery shelves start to empty of cereal and baked goods.
If price controls had existed at the start of the Biden/Harris administration by now most wheat farmers would be out of business facing 20% inflation without the capability to raise the price of wheat.
This phenomenon will not only happen for wheat-based products, but for virtually every product in the grocery store over time.
This is the reason price controls are a bad idea.
August 27, 2024
The Definition of Inflation: The classic cause of inflation is when there is too much money chasing too few goods.
THE BIDEN/HARRIS ADMINISTRATION
What happened early in the Biden/Harris administration?
- Drilling for oil and natural gas was constrained via executive order and regulation.
- The supply of goods was limited as the world was coming out of the pandemic and inventories were low plus ships carrying foreign goods were sitting off ports in the West Coast because the U.S. was unable to unload all of them.
- Vice President Harris cast the tie-breaking Senate vote for the $1.9 trillion American Rescue Plan which was following the $2.2 trillion CARES Act by the Trump Administration passed a year earlier. The objective of both was Covid relief. But that pumped a huge amount of money into the U.S. economy.
- In 2022 two additional large government spending bills were passed. The first was the $370 billion Infrastructure Act followed by the $788 billion Inflation Reduction Act (which primarily funded climate change initiatives). Again, Vice President Harris cast the tie breaking vote for the Inflation Reduction Act.
What happened as a result?
Gasoline prices topped $5.00/a gallon and inflation soared to 9%, the highest in 40 years.
How was the inflation curbed, and what are the consequences?
The Federal Reserve increased interest rates to dampen the excessive money in the economy. Consumers and sellers throughout the economy made millions of buy and sell decisions to achieve a balance between demand and supply resulting in a 20% price increase on average, but very variant on a product-by-product basis, particularly on food. It appears that the demand/supply balance is now stabilizing somewhat, as is the rate of inflation.
But, as a result, the national debt has increased from $28 trillion to $35 trillion, a net $7 trillion or 25%. Annual interest payments on the debt have increased by $1 trillion. Total income tax revenue in 2023 was $2.6 trillion from both individual and corporate sources. Interest payments on the debt is now 45% of income tax revenue which is an unsustainable situation. Additionally, the credit rating of the United States Government was downgraded as a result.
THE HARRIS ADMINISTRATION
The Harris Administration Economic Plan to Date
The Harris Economic Plan to date has two major Components
- A $25,000 down-payment assistance for “eligible” first time buyers for an estimated four million households over for years, a tax break for builders who construct homes for first-time home buyers and a $40 billion fund to help local governments find solutions to the lack of housing supply. More money interjected into the economy by the government over and above that of necessity.
- Price Controls on groceries.
- Yet, nothing on debt or annual deficit reductions, which is the major problem facing the country. [Note: A key part of the solution has to be economic growth and that most likely will not occur unless we unleash the power of our fossil fuel resources].
Price Controls are a bad idea.
Price controls have been used throughout modern history and have ultimately resulted in shortages every time, including in the Nixon administration in the 1970s. They were quickly abandoned. In the socialist and communist regimes in Russia and China they lead to massive famine. In Cuba and Venezuela, they led to bread lines and a massive decline of their economies and standard of living.
Why do price controls fail?
In a free market economy, void of government intervention, prices are set by supply and demand wherein the sellers set the price, and the consumer changes it via how much they purchase at that price – price too high they don’t buy it, price too low demand increases and the consumer purchases until the price gets too high. That ebb and flow goes across the entire economy on a continuous basis on all products, most particularly food and other grocery products. That ebb and flow stops when the government intervenes and sets the price. Let me provide an example of how that will lead to bare shelves.
Let’s take a typical child’s breakfast: cereal and toast. A chief component of cereal and toast is wheat. Wheat grains are pulverized to make flour (and then bread) and cereal flakes. The stubble of wheat fields is also used for cattle forage to increase nutrition of cattle feed.
The typical wheat farm is family-owned and operated. Their operating costs include gasoline to plow the field, seed, fertilizer (which typically is chemically based and produced utilizing natural gas), a custom cutter to harvest the wheat bristles and transport them to a local dealer. [Custom cutters are rental concerns that go from farm to farm with huge combines which do the harvesting]. So, fossil fuels to plow, harvest and transport their product as well as to fertilize it are a large part of their costs. Their annual economic success or failure is very dependent on their crop yields – e.g., on the weather, the nutrient condition of their soil, and timing of planting and harvest – plus the pricing of wheat.
Now the government comes in and sets the price for cereal and bread. That fundamentally puts a cap on the price of wheat. Then the government restricts the production of fossil fuels through executive action and/or regulation forcing fossil fuels prices to increase which significantly raises the costs of the wheat farmer as the ebb and flow between the seller and buyer has been cut off. That situation is not for just one wheat farmer but virtually all wheat farmers.
The farmer, whose margins are low, may be able to survive one or two downward years, but eventually will quit growing wheat because he/she can’t make any money doing it. The same things would happen if they had a year or two of bad weather, because the pricing is fixed and is not flexed because of conditions. When enough wheat farmers “give up the ghost” the grocery shelves start to empty of cereal and baked goods.
If price controls had existed at the start of the Biden/Harris administration by now most wheat farmers would be out of business facing 20% inflation without the capability to raise the price of wheat.
This phenomenon will not only happen for wheat-based products, but for virtually every product in the grocery store over time.
This is the reason price controls are a bad idea.
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