For months, Donald Trump’s opponents — first Joe Biden and now Kamala Harris — have claimed his policies in a potential second term would raise inflation. As one might expect, the corporate media have chimed in loudly on this issue for months as well.
Put aside the fact that Democrats’ own record of trillions of dollars in spending helped spark the current inflation, making it a bit rich for them to attack Trump’s proposals. It is nevertheless worth analyzing the Republican candidate’s plans to gauge their effects.
There’s no question Donald Trump’s economic policies are better than Kamala Harris’ (to the extent she has put any forward), but if he wins the election this week, these are areas he should reconsider.
Good: Energy Exploration, Rein in the Administrative State, Border Security
For much of the campaign, Trump has talked about how unleashing American energy — he has revived the mantra “Drill, baby, drill” — would help bring prices down. Given how transport costs get baked into practically every good sold, removing the current administration’s restrictions on energy exploration would help lower general inflation. And because energy prices operate in a spot marketplace — i.e., prices now are determined by the market’s opinion of future energy production — unshackling energy producers could have beneficial effects in relatively short order.
Likewise, removing or streamlining burdensome regulations will lower a source of added costs to businesses. In particular, many of the Biden-Harris administration’s climate-related regulations and mandates have had the effect of raising utility prices, such that eliminating these will magnify the positive effects of more energy exploration.
Then there’s the question of border security, which Trump detractors have claimed will raise prices. All else equal, a border crackdown — deporting illegal immigrants already here and/or taking actions to stem future migrant flows — could raise inflation by putting a squeeze on labor demand. The Congressional Budget Office’s analysis of the border mess earlier this year attempted to draw a line between the millions who have crossed the border during the Biden years and a return to economic growth following the pandemic.
Some might argue that forcing employers to give American workers a raise by taking away a ready supply of cheap foreign labor would constitute a positive development in and of itself. But even if such moves cause prices to rise — and in some labor-intensive industries, they might — others would call a modest bit of inflation a price worth paying to restore the rule of law and address a major national security risk along our southern border.
Needs Improvement: Indiscriminate Tariffs, Unpaid-for Giveaways, and Money Printing
Into a less positive bucket come proposals for across-the-board tariffs on imported goods. Rather than just imposing tariffs for discrete, specific reasons (e.g., national security) or against particular adversaries (e.g., China), Trump has mooted a tariff that would apply to all imported goods, whether from allies or adversaries. These tariffs would not only increase inflation, as companies raise prices to compensate for the new government levies, but they could prompt a global trade war, with other countries retaliating against American-made businesses and exports.
Over and above their economic effects, these tariffs send a defeatist message about the American economy. While targeted tariffs can address violations of trade agreements or abusive practices (e.g., intellectual property theft), across-the-board tariffs imposed on friend and foe alike send a very clear and negative message to countries around the world: Our companies and workers can’t compete in a fair fight against foreign entities, so we have to protect our businesses from competition.
Similarly, the various tax giveaways Trump has proposed — such as ending taxes on tips, ending taxation of Social Security income, and restoring an unlimited deduction for state and local taxes (SALT) paid — could accelerate inflation, unless Congress cuts spending elsewhere. Several of these ideas suffer from their own distinct questions of implementation — for instance, whether people would attempt to reclassify income as tips to avoid paying taxes, the effects on Social Security’s solvency, and whether some proposals could get through Congress. The SALT proposal has the particularly harmful effect of bailing out the tax-and-spend policies of blue-state politicians like Gov. Gavin Newsom, D-Calif., and the unions that fund them.
Washington is already running huge deficits, which politicians of both parties have shown little interest in addressing. Cutting taxes further might generate some economic growth — even if these proposals look more like preelection giveaways than a well-thought-out plan — but certainly not enough to recover all the lost revenue. And growing the deficit to nearly 10 percent of GDP wouldn’t just explode the debt further but do so in a way that makes a return to higher inflation more likely.
That leads to Trump’s most controversial proposal, to change the makeup of the Federal Reserve. Details have been scarce, but in general, it would give politicians like Trump a direct say in interest-rate policies.
I have previously criticized the Federal Reserve for its money-printing policies and the effects those policies have had on the economy over the past two decades. And there’s a legitimate debate to be had about the Fed’s lack of accountability and why it predicted neither the subprime mortgage crash of the late 2000s nor the prolonged bout of inflation after the Covid panic. But given Washington’s irresponsible fiscal track record of trillion-dollar deficits, including under President Trump, does anyone believe that any politician would conduct monetary policy in a more responsible manner than the Federal Reserve?
As a reminder: Donald Trump publicly endorsed quantitative easing (i.e., money-printing) back in April 2019. That was well before Covid hit, whereupon Jerome Powell and his colleagues restarted quantitative easing. Given that history, it is possible that Trump, who famously branded himself the “king of debt,” would look to fire up the printing presses again in a second term.
But we’ve seen how that movie ends for American families, and we shouldn’t come near to taking that risk. Whatever their many flaws, I prefer the Federal Reserve having jurisdiction over monetary policy primarily because I fear the alternative — incontinent and irresponsible Washington politicians who lack any pretext of fiscal discipline — even more.
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