Price signals and virtue signals

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It's a divisive election year, but all of us still have some things in common. Since the pandemic began, inflation has devalued the dollar by more than a fifth. Food and housing are more expensive than ever. And people know that it doesn't have to be that way.

Spending restraint, coupled with sound monetary policy, can keep inflation in check for the long term.

Food price relief can come from scrapping farm subsidies and the corn-wasting ethanol program. Liberalizing trucking regulations can help, as can repealing the Jones Act shipping law. These reforms would help food and other products move more quickly to where people need them, and at more affordable prices.

Housing prices will go down if supply goes up. That means easing back on zoning restrictions and years-long environmental reviews and permit odysseys. It means giving NIMBYs and anti-building activists fewer veto points in the process. Removing tariffs on lumber and steel can save thousands of dollars on each new home built.

The trouble is that many of these solutions are either politically impossible, as in ending farm subsidies, or there just isn't much of a role for the federal government, as in reforming local-level zoning regulations.

For federal officials in an election year, that will not do. They need to show voters that they care. So they turn instead to other policies that signal caring, but in practice would raise prices.

Donald Trump has pledged to raise tariffs again if he wins. Most people know this is a bad idea, though few people in his party have the guts to tell him.

Kamala Harris has proposed price controls to deal with grocery and housing prices, with special emphasis on punishing price gougers who are making huge profits.

For reference, the stock market averages an 8 percent annual return. The industry average for grocery store profits is between 1 and 3 percent. There is not a lot of room for price gouging when profit margins are that small.

The blame for high grocery prices belongs elsewhere, such as on an overspending Congress and bad Federal Reserve policy causing inflation, and a panoply of regulations that restrict competition and raise prices.

President Biden proposed rent controls to contain housing costs before he dropped out of the campaign. Harris has continued the theme, despite abundant evidence that rent controls backfire, including in vice presidential nominee Tim Walz's backyard of St. Paul, Minnesota.

Biden, and presumably Harris, have latched onto two trendy ideas: antitrust and AI. The Justice Department might soon be suing RealPage, which uses AI technology to automatically browse real estate comparables in various markets and generate suggested rents for landlords. This, the government argues, is collusion and price fixing, which are against antitrust laws.

Most people outside of electoral politics are skeptical. As usual, a better solution to making housing more affordable is to build more of it. Instead of taking down shadowy corporate villains, policymakers should remove obstacles to building more housing.

If people know these policies will not work as advertised, then why do politicians keep advertising them? One reason is virtue signaling. Politicians need to signal that they know about voters' problems, that they care, and that they want to do something about it. The content of the message is less important than people seeing that a message is being sent.

Another reason is story bias. People remember stories better than they do data or arguments. It takes effort to read a graph and gauge its reliability. It takes at least as much effort to follow an argument's logic chain and see if it makes sense.

But stories resonate. They have good guys and bad guys battling each other. They have names and faces and backstories that we can cheer and boo. A story about price gouging has an easy corporate villain, and a convenient hero in the politician.

Stories for better cable news soundbites rather than risking angering potential voters in swing states or encouraging people to spend hours attending city council meetings and working with local officials to open up their town's zoning restrictions.

Blaming others also makes better campaign rhetoric than a politician admitting their mistakes and promising to do better next time.

My price gouging paper from CEI's #NeverNeeded series is here. For an inspiring economics story, CEI's I, Pencil video is here. A Mark Levin segment featuring I, Pencil is here.