The Truth About High Prices

Americans are still upset about prices. Inflation fatigue appears to have metastasized into anger over the country’s long-standing, intractable affordability crisis . With good reason: Housing is more unaffordable than ever, by some measures at least; staffing problems are driving child-care prices up and causing widespread shortages; health-care costs are pushing families into debt and causing them to forgo care; and Americans are spending a larger share of their disposable income on food than they have in three decades .

Kamala Harris has accordingly made addressing the cost of living the centerpiece of her campaign’s new economic pitch to American voters. She has some good ideas, correctly focused on the financial health of middle- and low-income Americans. But there’s a big problem, as there would be with any candidate’s attempts to lower costs: The White House simply does not have great tools to bring prices down, and the tools it does have could make the cost of living worse before it gets better.

In recent days, Harris has unveiled proposals for a federal ban on price gouging on food and groceries, so that “big corporations can’t unfairly exploit consumers to run up excessive corporate profits”; an expansion of the child tax credit; an effort to cap out-of-pocket prescription-drug costs; and a range of housing policies, including $25,000 in assistance for first-time homebuyers, rules to make it harder for corporations to buy large numbers of homes , and a call to construct 3 million new housing units. Put it all together, and food should get cheaper, homes should become plentiful and more affordable, and health costs should come down—right?

[ Annie Lowrey: Americans are mad about all the wrong costs ]

Perhaps, in time. But crises that are decades in the making can’t be resolved in any president’s first 100 days. The prices of big-ticket necessities—housing, child care , out-of-pocket health costs—have been ticking up faster than the overall rate of inflation for many years. COVID took an existing trend and made it much worse. The pandemic scrambled the world’s supply chains and caused huge, if short-lived, spikes in the price of everything from gas to furniture to food. Stimulus payments led to increased consumer demand and rising wages, which further propped up consumer prices. To combat inflation, the Federal Reserve hiked interest rates, which made debt-financed purchases such as cars and homes more expensive. Finally, inflation came back to Earth, but the new price levels clearly still don’t feel normal to voters.

The White House and Congress are adept at creating demand, by pushing cash out to families and businesses or amping up the federal government’s own spending. Washington has tax cuts, tax credits, stimulus checks, unemployment-insurance payments, mortgage subsidies, student loans, direct-employment schemes, and so on to work with. But it has fewer options aimed at increasing the supply of goods normally provided by private companies. And doing so tends to be slow work that is inflationary in and of itself, particularly when financed with deficit spending. Pouring money into building new homes, for example, means bidding up the price of land and raw materials and juicing the labor market for construction workers.

The government has even fewer options when it comes to attacking prices directly. There wasn’t much the White House could do about the temporary burst of inflation caused by COVID, and there isn’t much the White House can do about high prices for consumer goods now. Imposing price caps could make shortages worse. And now that annual grocery inflation has dropped to just 1 percent, Harris’s price-gouging proposal seems less relevant.

Tackling the giant, underlying cost-of-living crisis is going to take years, if not decades. An expanded child tax credit should ease the child-care crunch, bringing supply in with billions in new cash. Housing is trickier. Excessive local restrictions have made it expensive, if not impossible, for builders to construct new units where homebuyers want them. (And existing homeowners benefit from high home values, giving them an enormous incentive to block construction when they can.) At the same time, high interest rates are keeping sellers locked in place . Harris’s housing proposals will help the situation only if builders are allowed to build.

Some of the most compelling policies offered by the Harris campaign—those aimed at increasing competition, bolstering price transparency, and reducing corporate concentration—are the hardest to make the case for in plain English. America’s excessive health-care costs are in large part the product of hospitals and medical groups that control so much of their local market that patients and insurers have no choice but to pay whatever price they set. That is a more complicated story than “corporate greed,” and no simple policy change will immediately untangle it.

[ Chris Beam: Welcome to pricing hell ]

The impact of Donald Trump’s economic proposals is easier to game out: Some would do nothing to address the country’s affordability crisis, and some would make it worse. Trump has proposed eliminating taxes on tips and Social Security benefits. This sounds great , but it’s a giveaway to businesses and wealthy Americans that would do little for waiters, baristas, and hard-up seniors. Most tipped workers don’t pay much, if any, income tax to begin with, and the change could create a loophole encouraging, say, hedge-fund managers to reconstitute their earnings as tips. (Harris has likewise pledged to eliminate taxes on tips.) Trump’s Social Security proposal would likewise aid rich retirees, not poor ones: If you rely on Social Security checks to make ends meet, you almost by definition don’t make enough income from other sources to be paying income taxes. Trump has also promised mass deportation (which would raise prices by causing huge shortages in immigrant-heavy workforces, including in agriculture, child care, and construction), steep across-the-board tariffs (that is, raising the price of all imported consumer goods), and increased oil and gas production (which might help at the margins; prices are set mainly on the global markets).

Regardless of who is elected in November, the cost-of-living crisis will be with us for a long while. Harris is promising voters relief from high prices. If she wins, what she will need from voters is time.