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As the presidential election campaign heats up, both Vice President Kamala Harris and former President Donald Trump have disclosed some details of their plans for the economy. Both candidates’ plans are short on details, but each has a record behind them to infer how they’d flesh them out.
The Weekend Brief spoke to Nobel Prize-winning economist Joseph Stiglitz, who is known for his work on imbalances in the market and economic inequality, to get his admittedly partisan view on the competing plans.
This interview has been condensed and lightly edited for clarity.
Quartz: What’s your overall take on the two candidates’ economic programs?
Joseph Stiglitz: I think Harris’ program is impressively good, especially at this stage. If there’s a Democratic House and Senate, with enough of a majority to get her programs through, then I’m very optimistic that it will be extraordinarily good for the economy. On the other hand, if Trump were actually able to get his agenda through, it would be a disaster.
Quartz: You’re certainly not mincing words.
Stiglitz: Harris has been a very steady hand with a set of well-talked-through proposals from the Biden administration. Trump every other day changes his mind about something. It’s a moving target, but I think we have a pretty good sense of where he is. If I were to begin with the issues that seem to be uppermost on the mind of a lot of voters, according to the polls — the cost of living, inflation — Trump’s signal initiatives would exacerbate inflation significantly. He’s proposed 50%, or sometimes even more, tariffs on China, and Americans, particularly lower- and middle-income Americans, depend on access to Chinese goods. In apparel, appliances and even hidden in our pharmaceuticals, in our cell phones, everywhere there are lots of Chinese inputs and those those tariffs would create a significant increase in the cost of living, it would be a shock to the economy, and that inflation, in turn, would lead the Fed to raise interest rates.
Most economists are uncomfortable with unilaterally imposed tariffs. But there is one argument for it, which is that we need to de-risk, and we are overly dependent for so many things on China. So the Biden-Harris proposal for a 10% tariff is an important signal to the market: “You’d better think about diversifying your supply chain.” And that, I would call good economic management. Unfortunately, firms don’t always respond quickly to that, and it’s important that the administration send some signals to those who haven’t grasped the change in geopolitics. Good economic policy is balancing multiple concerns, and that kind of balancing is what distinguishes Harris from Trump. The 10% is an appropriate balance. Fifty percent from where we are today, you risk significant inflation, just at a time when we are successfully disinflating the economy from the post-pandemic episode of inflation. So in the current context, Trump’s proposals are particularly bad.
Will Harris’ plan solve the problems?
Quartz: I want to ask about some of the specific things that Harris says she’ll do to improve the life of the middle class: $25,000 down payment assistance on first homes, building 3 million homes, raising taxes on corporations, and trying to take on price gouging. Would they work? Would they solve the problems the economy is facing? Would they help the middle class and the underclass?
Joseph Stiglitz: The bundle as a whole is moving in the right direction. Yes, there are discussions that you could have about each of the specifics. But those are cumulative problems that have been unattended for 30 years, and so you’re not going to be able to solve them overnight. These are not magic bullets, but they are significant moves in the right direction.
Quartz: Harris’ campaign against price-gouging: So far it’s been short on specifics, and ridiculed by conservatives, but it seems she is trying to hit back at a real structural problem in the American economy: the dominance of oligopolies. A lot of your work has focused on market imbalances. What’s your take?
Stiglitz: One of the weaknesses in the U.S. economy over the past 20 years has been a significant growth in market power, and that increase in market power reduces innovation increases inequality, and lowers real wages of ordinary Americans. That’s been one aspect of [the Biden-Harris] economic policy that will make a difference. It’s not going to happen overnight, these are long-term fights in the courts [where] Trump appointees have made it more difficult. But if there were enough Democratic support in Congress, they could pass new legislation to make our economy more competitive, more dynamic.
It’s about trust-busting and preventing anti-competitive practices. One example of Harris’ action is bringing down the prices of pharmaceuticals.
Second, if you look through their housing program, two things they’ve done illustrate how government can make a difference. The construction industry is a very dispersed industry like agriculture was in the 19th century, and economic theory says dispersed industries will underinvest in innovation because you don’t have the competition that [fosters] innovation. Harris is promoting innovation in housing, so cost per square foot would go down. That would make housing more affordable. Another thing that she’s raised is a general point that economists are just beginning to grasp, that you can have market power in small markets. If hedge funds buy a large fraction of the rental housing in a city, they can use that to exercise market power, and so they may own a very small fraction of the economy’s total housing stock, but in particular places, they can have market power. Why would they go into these sectors, [when] housing is something really hard to manage, and not a natural industry for somebody on Wall Street? Well, there is an answer: If you have enough market power in a sub-market, even if you’re inefficient in management, you are really efficient in rent extortion.
Macro tax policies
Quartz: What’s your take on the candidates’ macro tax policies?
Stiglitz: The 2017 [Trump tax cut] was an enormous tax cut for the millionaires, and actually a tax increase when it was fully implemented for a large fraction of Americans. What we need to do is restore tax justice, increase the taxes on the billionaires who can obviously afford it, and help address some of the big problems of inequality that we have, like child poverty. Before Biden’s post-pandemic recovery plan took effect, it went down to something like 10 to 12% and now it’s going up again because the Republicans refused to support a renewal.
Quartz: When you look at the Trump arguments that billionaires are the job creators, corporations are the innovators, or that the national debt is too high, how do you evaluate that from an economist’s perspective?
Stiglitz: When you talk about investments in innovation, those expenditures are deductible, so [raising corporate taxes] doesn’t discourage those. It’s only an attack on monopoly profits. In fact, I would go the other way. I would say the lower taxes on corporations, which the multinationals can take advantage of through tax avoidance, actually have discouraged real innovation. No. The remarkable thing about America, we say we’re an innovation economy, things are going really well, but net productivity growth has been slower than it was in the decades after World War Two. Innovation is actually lower than it was, and I believe an important part of the reason for that is the reduction in competition. And the reduction in competition, in part, is related to the ability of the large corporations to avoid taxes. So we have a two-tier system where the big guys escape taxation and the little guys don’t. And that’s one of the things that I think Harris would restore some balance to.
Quartz: In other words, large corporations can extract profits because of the current tax rules, and then they don’t need to invest as much in innovation to maintain their markets, they just extract profits and leave consumers with higher prices and a less satisfying experience?
Stiglitz: Exactly, in fact, [very large corporations] can make more money by increasing their after-tax profits with tax shenanigans than they can by investing in real innovation. Though it’s fair to say they have been very innovative in tax evasion and in devising ways to take advantage of the tax code. So I think a lot of those arguments just don’t make any sense. There was no increase in investment as a result of lowering the corporate tax rate from 28% to 21%. All that happened was share buybacks increased to almost a trillion dollars. That helps the incumbent and new firms are being diminished.
Budget-busting
Quartz: What about Trump’s argument that Harris’s plan would bust the budget and raise the national debt?
Stiglitz: The tax increases on the billionaires that Harris proposes and on the corporations, will actually raise enough revenue. There may have to be some additional things, the closing loopholes, like the step-up basis. What Trump is proposing, which is extending his tax cuts when they expire in 2025 and making them deeper, would make a huge hole in the deficit. Remember the reason why they expired in 2025 when they initially did the tax cut in 2017? [That] was because the deficit created by the tax bill was so large that even Republicans wouldn’t vote for it.
Quartz: The way the Democrats describe it, the Trump plan would exacerbate inequality and wipe out the middle class and the government programs that give the poor and the middle class a chance at the American Dream, and turn the U.S. into a banana republic (without the stretch khakis). What’s your take?
Stiglitz: That’s right. But it’s worse than that because it’s giving more scope to the rent-seekers, people like him, the people with market power, the people who can take advantage of others, rather than the people who are the real innovators, and the people who are really working hard. So it’s the irony of his policies is that while a lot of support for them may come from people who feel like the system has left them behind, his proposal will leave them even more behind.
Quartz: If you could decree what economic policy would be under the next administration, whoever it is, what are the biggest problems we need to fix, and what would your solutions be?
Stiglitz: In terms of structural problems: the lack of competition, both in the labor market and in the product market; housing, and particularly affordable housing in our cities. The market is really not adequately dealing with housing problems. Then there’s the green transition, it’s of first-order importance. It’s already impinging on our economy. Harris will push this, [while] Trump will reverse what’s already been done. And then one of the most important, in all its dimensions, inequality of opportunity in health and income and wealth [is a] major source of societal divide, and Harris will be working to reduce that. Trump will be working to increase it. We need more equal access to healthcare, lower drug prices, [and an end to] childhood poverty.
Finally, the source of our economic growth over the last 250 years has been science, technology, learning, our universities. Trump has waged an assault against our universities, against science. I don’t know what his vision of a dynamic economy is, without science, without technology. I think his vision is for more real estate developers like him, trying to exploit small contractors, and that’s not the way to shared economic prosperity.
—Peter Green, Weekend Brief writer