“Slumming it” is a slang expression describing the practice of young people from families of means visiting (or temporarily living in) impoverished areas to experience lifestyles foreign to their upbringing. The practice is often deemed exploitative, the expression offensive. Still, it may well be that slumming it (pardon the historical expression) played an important role in making the world rich.

Economic historians have told and tested a great many tales of how the world got rich — or specifically, how innovation surged in about 1760 in England, then elsewhere, and never let up. In the last few decades, Deirdre McCloskey has promoted a compelling, qualitative origin story broadly subversive to these.

McCloskey’s story is one of ideas and perspectives. Before institutional protections could arise, England had to first find a way to overcome strong moral prejudices against profiteering lifestyles. England somehow did. The damnable pursuit of wealth — when squinting just right — became the courageous spirit of commerce by about 1700.  

McCloskey’s epic effort is remarkable, but her “somehow” remains hazy. Dan Klein has admirably stepped up and suggested it may be found in Hugo Grotius’s philosophy of 1625. Grotius helped establish that commerce only had to be honest — not virtuous — to be acceptable. “Having a go” broke wide open.

I would like to suggest a different origin. Instead of philosophical tomes, it may have been salacious plays and vulgar urban dictionaries — a pop culture from the same era which derived from slumming it around London’s hawkers, slop sellers, and bunters.

A Story of Two Journeys

Two types of immigrants to the rapidly growing city of London are the protagonists of this economic story, both arriving due to legal conundrums.

Primogeniture was conundrum number one. Primogeniture required inheritance to go primarily to the first born. By the 1590s, following a post-plague baby boom, the elite landowners had a surplus of cadets (the younger siblings). Many cadets had to leave the countryside and go to vicious London to try to make their way through education or apprenticeship.  

Restrictions against vagrants and vagabonds was conundrum number two. Wandering theater troupes found their way of life in jeopardy so they came to set up permanent playhouses in metro London, the first occurring in 1576.

It is in England’s first “theatre district” (co-located with the marketplaces, alehouses, and brothels in the suburbs known as the Liberties) that our protagonists meet. The playwrights had to appeal to their given audience. They did so by writing tales of validation about this coterie of young cadets who were in the slums (and, yes, enjoying them) but who refused to be of the slums.

From Vicious to Gallant

These cadets were in a difficult social position. They yearned to return to the gentleman’s social status but to do so they needed to engage in those profiteering acts shunned by the gentleman. Playwrights came to their aid by portraying these young men as “Gallants.”

The Gallant was a new version of the traditional British outsider, the Trickster. Where Tricksters were deplorable in their carnal schemes, Gallants were appealing in their designs for love, honor, and money. They embodied their names of, say, Witgood and Possibility against lamentable elder elite such as Lucre and Hoard. More importantly, where prior Tricksters would be cast out when discovered, Gallants would always be forgiven and accepted into the social circle, their guile revalued as cleverness, their crimes as “human follies.”

For three decades, the “City Comedy” genre of the Gallant defined the London theater scene. Night after night it favorably recast the messy primordial stuff of McCloskey’s bourgeois virtues — ambition, opportunism, calculation, and the wily destruction which would in time become “creative destruction.” In addition, it authorized London’s “constant mingling of blood, class, and occupation” and deprecated its fuddy-duddy hierarchies and world views.

Whereas prominent men of science and letters, such as those in “Hartlib’s circle,” used reason to overcome mistrust of social change and experimentation, playwrights steered with what may have been the more powerful stuff of emotion, sympathy, and humor.

From Vulgar to Estimable

Evidence of this genre’s effect can be seen in the curiosity it created regarding the people of the slums and their slang — also known as cant, vulgar tongue, flash, and conny-catching. For the next two centuries, slang dictionaries became a popular purchase, a tantalizing sort of Fodor’s guidebook through the underbelly of London.  

These dictionaries credibly assisted a cultural transformation. First slang became fashionable. Then the dictionaries and their prose spinoffs began to tentatively characterize slang as that of “the people,” then to associate it with the emergent concept of British liberty, then to relish in its British free-spirit (via what must rightly be called an early form of gonzo journalism).

That spirit, it turns out, was foremost the hustle for money — or, I should say, the raising wind for ribben, rhino, cole, colliander, crap, crop, spans, quidds, ready, lowre, balsam, plate, prey, gelt, iron, mulch, gingerbread, dust, and darby. (Not to mention curles, shavings, pairings, and nigs, of course.)

Nothing is more represented in this lexicon than the pursuit of money — from the old professions of bully backs, pot coverts, cutpursers, cole fencers, Covent Garden Nuns, Fidlam Bens, jarke-men, and Figgers, to the new ones of gullgropers, impost takers, sealers, sleeping partners, Grub-street writers, duffers, and stock jobbers.  

By the eighteenth century, the great defenders of the market economy would make use of these familiar portraits of lowly markets — so prominent were these portraits in the public conscience. Bernard Mandeville would didactically assert that their private vices produced public benefits and, as an acerbic inversion, that the true speakers of criminal cant were traditional authorities. And Adam Smith would assert that the “higgling and bargaining of the market” was a natural and beneficial expression of a human propensity. We are all higglers; a philosophy of bourgeois equality had finally come into its own.

Conclusion

England, adhering to the Great Chain of Being, cast its detritus toward London. London cast back a provocative new pop culture. This pop culture helped society negotiate the ambiguity of hawker ethics and come to terms with the messiness of the emergent commercial order. It helped carefully determine where to cut Grotius’s honest commercial practices from unvirtuous cloth.

I propose, then, that the miracle of the modern economy owes as much to the accidental playhouse of 1576 as to the intentional jurisprudence of 1625 and the late-to-the-game Glorious Revolution in 1689. My proposal does not lend itself to a positivist research agenda, but I put it forward — in the spirit of Deirdre McCloskey — as a charge to read widely, explore deeply, and be willing to slum it a bit in the disciplines of others.

Modern capitalism has no virgin birth; of that one should be sure. And if it so happens that it received its just form, direction, and salvation through a slumming voyeurism, so be it. We would be strengthened in our defense of it to recognize how closely commerce once communed with sin and, in the minds of some, still does.

Consumer interests are paramount when making business decisions, but business growth is largely determined by the individuals at the helm of the organizations they serve. Some firms grow to serve a wider consumer base, some to be reactive to demand levels, some to be proactive regarding market trends, and some to be responsive to competitive pressures. Regardless of the ‘why’ of a firm’s growth, the ‘when’ and ‘how’ will impact (or impede) the efficacy of expansion. And sometimes the aspirations of business leaders don’t go according to plan — an acquisition can go awry, a business deal could go bust, or supply chain networks for scaling could shift. Moreover, a competitor, new technology, or a new situation could render a business obsolete. Uncertainties abound in the business realm, which is why most firms look to control what they can, when they can, and advance themselves when able. Google is a case in point.  

At the outset, Google had plans to be bought, not to be one of today’s biggest businesses receiving heat from the DOJ for its search engine prominence. In 1998, Google pitched itself to the premier search engine at that time, Yahoo, with a price tag of $1 million — but Yahoo declined. A year later, Google tried again and pitched itself to Excite, for $750,000. Once again, Google was turned down. (Excite was later bought by Ask Jeeves, now Ask.com).

Google pushed forward and prevailed, and by the start of the 2000s, Yahoo did an about-face and adopted Google as its own search engine provider, then sought to acquire Google for $3 billion. This time, Google said no; Google wanted $5 billion. What a difference a few years can make, paired with a determination to be the best. And, as fate would have it, Yahoo was later bought by Verizon in 2017 for just shy of $5 billion.

Google had some impressive milestones early on that helped it expand, thanks to internal ingenuity as well as external acquisition opportunities. Major initiatives included the 2004 start of Gmail, the 2005 launch of Google Maps, the 2005 purchase of Android, the 2006 acquisition of YouTube, the 2007 acquisition of DoubleClick, and the 2008 introduction of Google Chrome. Today, Google is a juggernaut. Google is to Gen Z what AOL was to Gen X.

Google’s growth is truly an impressive feat, and we have all benefited from its services — something we should remember while government agencies grill Google for its current market dominance in the search engine sector. The reason why Google has a dominant position when it comes to search is because it took steps to secure itself as the default. But the only way it could achieve default status was by deserving it (in addition to any dollars paid and contracts made). If consumers weren’t satisfied with Google Search, no amount of money could cover the cost for smart device providers to keep Google as the featured choice. Remember the backlash that ensued when Apple had its own map app installed as the default on iPhones in 2012. Had Apple Maps initially worked well, there wouldn’t have been an issue with it being featured over Google Maps, but that wasn’t the case. And, as The Guardian put it, Apple Maps was a $30 billion mistake. Apple had to relinquish its own app on its own smart devices and allow consumers to revert back to the better option they preferred — Google.

Google’s superior ability to provide relevant search results is a huge value for users. I know that if something unexpected happens and I need to get a loved one to a hospital, Google Search will find me the closest and best care providers and Google Maps will get me there — and this information is provided in an instant at no cost. Now some will say the cost is my data, which I say: go ahead, take my data, I want relevant search results and I like ads and promotions curated to my needs and interests. The last thing I want is to have my smart device ask me which app I prefer. I want the best one as the default, and if I learn of a better one, then I or the provider of my smart device will switch. And, the fact that Google is willing to pay for its default placement, even when it knows it is the best, demonstrates how vulnerable it is. 

If the government’s alphabet agencies could get out of the way of market mechanisms, an alternative brand or product could unseat Google’s monopolistic stance just as Google displaced Yahoo’s dominance in the early 2000s. Another supposed monopoly that toppled around the same time as Yahoo was Motorola. The 2007 launch of the iPhone took over Motorola’s superior and impressive market power position. A few years later, in 2012, Google bought Motorola, hoping to make a dent in the mobile sector and revive its status. That turned out to be a big mistake, and Google would later offload Motorola in a sale to Lenovo. 

Yes, Google has surpassed all in search but it has yet to make a mark in the smartphone space, or the messaging space (remember Google Wave, Google Talk, and Google Allo), or even the social media space (sorry Google+ and Google Buzz). Is it any wonder then that Google aims to safeguard its default search status on smart devices? 

Google competes in an international world of ideas, and there is no way of knowing which product or service may suddenly surpass Google’s own offerings. Actually, Apple Maps has recently relaunched in beta to have another go at Google Maps and, as for search, consumers are already toying around with new tools for their queries and questions thanks to AI advancements. Perplexity AI has been positioning itself to take on Google Search and now OpenAI is looking to topple Perplexity in the AI search race. Moreover, search engine startups with unicorn status due to venture capital investments, span the globe and show no signs of slowing down. The DOJ’s case against Google is a moot point and waste of taxpayer dollars.  

As stated earlier, Google is to Gen Z what AOL was to Gen X. And look at what came of AOL. During its heyday, there was no escaping AOL, which controlled more than 90 percent of the market for instant-messaging software. AOL was the undisputed default and its merger with Time Warner in 2001 was one of the largest corporate consolidations at that time. AOL and Time Warner together enabled control over all mass media and internet activity. Yet, the dotcom bubble burst, and the difficulty of managing such a massive organization hastened the megamerger’s demise. 

Clearly, even the best of the best don’t always know what is best in a dynamic marketplace. Government agencies and officials thinking they know better is truly absurd. The pervasive distaste coming from political elites for American firms who do well by their customers and do well to further their business growth is baffling, particularly when businesses like Google are a huge benefit to not only our economy but also our national security. It’s a shame that the DOJ isn’t on the same page as the Department of Defense, which contracts with Google Support Services (coincidentally, the Army uses Google Workspace and US Special Ops is looking to leverage Google Glass). 

Business leaders who continue to surpass global competitors and their capabilities, by taking risks and growing their firms, should be admired (not attacked) for their productivity and progress. And members on the Hill, who take more than they make for our economy, should realize that the bashing of big businesses will dull the dynamism this country is known for. Innovative entrepreneurs will start to shy away. Congress should Google the benefits of economic freedom and also search up how to curtail the gargantuan levels of government spending; the history of economic progress and federal budget restraints can shed light on the mismanagement we all see today. Without question, a bulging bureaucratic state is more costly for Americans than the growing success of our most innovative firms.

Things are rarely so bad that decisive action by government officials can’t make things worse.

In the current election, the Republicans are trying to outdo each other by proposing larger and more restrictive tariffs. The Democrats have just come out with a remarkably bad plan to outlaw “price gouging,” particularly for groceries.

Such proposals get more attention from politicians at election time, because to get votes you have to show you did something.  The fact that the right thing is to do nothing is hard for politicians to accept, because no one can claim credit for the market.

I’m not trying to make a partisan point, because as I noted above there are ill-advised proposals on both sides of the party divide.  And I’m not claiming markets are perfect. The problem is that asking voters what they want prices to be is a recipe for becoming…. well, Venezuela.

In 1981, about half of Venezuela’s population was living on the equivalent of $10 per day or less (the number for the US was less than 5 percent). That number was flat until 1992, the year that Hugo Chavez launched his unsuccessful coup attempt against the corrupt regime of President Carlos Andrés Pérez. Pérez was forcibly removed from office in 1993; officially, he was removed for embezzlement — which he did in fact do — but even more for showing a near-total inability to deal with social unrest over the collapse of the economic system, even with substantial oil revenues to fill government coffers.

Chavez was pardoned in 1994, and in 1998 he was elected to the Presidency. He immediately worked to deepen and expand the “Bolivarian Revolution,” focused on social welfare programs, nationalizing key industries, and “democratizing” the market system. As long as oil prices were high, and people were satisfied with essentially free electricity as a handout, the “Chavismo” regime was politically successful.

But Chavez died in 2013. His successors tightened and expanded the grip of their socialist philosophy, and GDP went into free fall. Where GDP per capita had been well over $18,000 US in 2013, today it has fallen to around $5,000, a decline of more than 70 percent for an oil-rich nation.

The situation eroded quickly, reaching an early head in the summer of 2015. Prices were skyrocketing because of inflation, caused by the government using newly printed money to pay off debts and make payroll. But the government had accused corporations that ran large grocery chains of “price-gouging.”

I remember reading about this at the time, and in a way I still can’t quite believe it, nearly ten years later. In July 2015, a massive police contingent raided a hoard of food and grocery products in Caracas. They found tons of food and groceries, which they then distributed for free to people in the street, thereby “liberating” the necessities from the hoarders.

The unbelievable part is that the “hoarder” was Empresas Polar, a giant grocery and food retail conglomerate. The “hoard” was a warehouse, a large distribution center where trucks delivered pallets of wholesale food items, and from which shipments went out to local retailers. It’s not really surprising that an enormous building designed to store food would have a lot of food in it.

But once the warehouses were raided, and the contents donated to the public, prices of food immediately tripled, or more, if food could be obtained at all. Groceries all closed, because their supply chains were cut off by the anti-gouging order. Seizing a warehouse full of food meant that a few thousand people got food for “free” for one day, but suppliers immediately tried to get their shipments sent elsewhere, before they could be “liberated” by the “representatives of the people” working for President Nicolas Maduro.

I should emphasize again that I am not trying to make a partisan point. Venezuela, at a time when it was having trouble feeding its population, also imposed very large tariffs on imported agricultural and other imports, thereby raising prices for consumers even further. But those policies pale in significance when compared to the price control fiasco.

Now, for the bad surprise: the US seems to be well on its way this summer, traveling down “The Road to Venezuela.” In a speech right here in my home town of Raleigh, North Carolina, Vice President Harris announced on August 16 that she would place controls on grocery prices.

As attorney general in California, I went after companies that illegally increased prices, including wholesalers that inflated the price of prescription medication and companies that conspired with competitors to keep prices of electronics high.  I won more than $1 billion for consumers.  (Applause.)

So, believe me, as president, I will go after the bad actors.  (Applause.)  And I will work to pass the first-ever federal ban on price gouging on food.

Problems with a federal law on “price-gouging” have been pointed out by others. That would require a benchmark of what the price should be, and a limit on how much grocers could charge. The proposal is also likely a violation of the Tenth Amendment, which reserves “police power” (which surely includes retail point-of-sale prices), to the states, rather than the federal government. On the other hand, interstate commerce might be expanded to encompass these kinds of sales, for large companies at least.

The real problem is the merits of price controls, rather than problems with enforcement. This description, from X (nee Twitter), spells out the generic step-by-step process, accurately identifying what happened in Venezuela and what could happen in the US.  

This article, in the New York Times points out unequivocally that there are good reasons to recognize that intentional price manipulation by grocery chains in the US played at most a minor role:

Consumer demand was very strong. Fed and congressional efforts to boost households and businesses during the pandemic, like the $1,400 payments for individuals Mr. Biden signed as part of the economic rescue plan early in 2021, fueled consumption.

“If prices are rising on average over time and profit margins expand, that might look like price gouging, but it’s actually indicative of a broad increase in demand,” said Joshua Hendrickson, an economist at the University of Mississippi who has written skeptically of claims that corporate behavior is driving prices higher. “Such broad increases tend to be the result of expansionary monetary or fiscal policy — or both.”

Ten years ago, Venezuela set out on a path to economic ruin and grave shortages of basic consumer goods, because of price controls on groceries and other products. Is the US really going to travel on the same road?

The Republican Party wages an internal battle while the US economy teeters on the edge of a potential recession, marked by a weakening labor market and volatile financial conditions. The debate within the party is not just over political leadership, but the very economic principles that will define the nation’s future. With inflation-adjusted wages down since January 2021 and savings rates at historic lows, a pro-growth economic agenda is urgently needed. 

Yet, some within the GOP or right-leaning groups are pushing for a dramatic shift away from the free-market capitalism that has historically driven American prosperity. The deviation threatens to undermine decades of economic success.

The “New Right,” represented by groups like American Compass, advocates for a return to big-government policies. Under the guise of a new form of conservatism, this faction argues for increased government intervention in the economy, protectionist measures, and the strengthening of monopoly labor unions.

Oren Cass, who leads American Compass, pushed this interventionist approach in his article “Free Trade’s Origin Myth” at Law & Liberty: 

“As the American people, and American policymakers, rediscover the importance of promoting domestic industry and protecting the domestic market, economists have a vital role to play in analyzing how best to accomplish the nation’s goals.”  

Cass claims these policies will benefit workers and domestic industries, yet history and economics tell us otherwise. The New Deal, Great Society, and more recent Obama-Biden policies, all rooted in similar principles, have repeatedly demonstrated the failure of such approaches to deliver sustainable economic growth.

This misguided movement threatens the free-market policies that have been the hallmark of much of GOP economic policy. American Compass and its allies call adherents to these principles “free-market fundamentalists,” suggesting that the time has come for the GOP to abandon the policies that have lifted millions of Americans out of poverty and spurred innovation and economic growth.

Consider the economic successes of the Trump administration during its first term — a period characterized by substantial deregulation and tax cuts. 

The American Action Forum calculates the final rule costs at the same point of the last three administrations. The latest through August 23 in the fourth year of each term had final rule costs of $311.7 billion for Obama and $1.67 trillion for Biden, while Trump had a decline of $100.6 billion. The cost of doing business was lower under Trump than the other two. According to the Competitive Enterprise Institute, there is always room for more cuts: the high costs of regulations currently top $2.1 trillion per year. 

The Tax Cuts and Jobs Act helped boost the economy by lowering tax rates, contributing to more incentives to work and invest. The Trump tax cuts and deregulation empowered more economic growth, more job creation, and greater income distribution, by allowing the private sector to thrive. Before the destructive pandemic-related lockdowns, real median household income increased by $5,000, wages increased by nearly 5 percent, and the poverty and unemployment rates reached their lowest in 50 years. 

These gains, however, are now at risk as key provisions of the tax cuts are set to expire in 2025, and the fiscal crisis driven by government overspending threatens to reverse this progress.

The GOP must resist the allure of the “New Right” and reaffirm its commitment to pro-growth policies that prioritize economic freedom and limited government. This begins with reducing government spending, which is essential to making the Trump tax cuts permanent and preventing a tax hike that would stifle economic recovery. Simplifying the tax code by eliminating special provisions that pick winners and losers would further enhance economic efficiency and equity.

In addition to tax reform, the GOP must focus on streamlining welfare programs and enforcing work requirements. These policies would reduce dependency on government assistance, encourage labor force participation, and strengthen families by promoting self-sufficiency. The economic benefits of such reforms are clear: a more robust labor market, higher productivity, and greater economic mobility.

Embracing free trade is likewise crucial for maintaining America’s competitive edge in the global economy. Protectionist measures, as advocated by the “New Right,” may offer short-term relief to specific industries but ultimately harm consumers, reduce innovation, and weaken the broader economy. On the other hand, free trade fosters competition that drives technological advancement and delivers lower prices and more consumer choices.

The GOP should also prioritize fostering innovation, particularly in the technology sector. The US can lead the next economic revolution by reducing regulatory barriers and promoting a pro-innovation environment, driving productivity and economic growth for decades.

The alternative — a retreat into the big-government policies championed by the “New Right” — would be disastrous. Higher tariffs, increased taxes, and greater government and union control over the economy would exacerbate economic stagnation, fuel inflation, and increase poverty. They echo the failed strategies of progressive leaders like Woodrow Wilson, Franklin D. Roosevelt, and Lyndon B. Johnson — policies that expanded government power at the expense of economic freedom and prosperity for ordinary Americans.

The path forward for sound policy is to embrace a pro-growth approach championed by the American Institute for Economic Research, Club for Growth’s Freedom Forward Policy Handbook, Americans for Tax Reform’s Sustainable Budgeting, among others. Reducing government spending, taxes, regulations, and the money supply will unleash abundance.

By recommitting to pro-growth principles, the GOP can present a compelling alternative to the electorate and pave the way for a more prosperous future. Or, it can follow the “New Right” down the progressive road to serfdom.

The Federal Reserve’s efforts to bring down inflation appear to have worked. Indeed, the latest data from the Bureau of Economic Analysis (BEA) suggests the Fed may have reduced inflation even more than it intended. The Personal Consumption Expenditures Price Index (PCEPI), which is the Fed’s preferred measure of inflation, grew at a continuously compounding annual rate of 1.9 percent in July 2024. It has averaged just 0.9 percent over the last three months.

Core inflation, which excludes volatile food and energy prices, also came in low. Core PCEPI grew at a continuously compounding annual rate of 1.9 percent in July 2024, and 1.7 percent over the last three months.

Despite the recent low inflation, prices remain elevated. Headline PCEPI is around 8.8 percentage points higher than it would have been had the Fed hit its 2-percent inflation target since January 2020. Core PCEPI is 7.9 percentage points higher.

The Fed increased its federal funds rate target range by 525 basis points between February 2022 and July 2023, and has held its target steady over the time since. With inflation running slightly below target, the Fed now looks poised to begin cutting its target rate.

Speaking at the annual Jackson Hole symposium earlier this month, Federal Reserve Chair Jerome Powell suggested rate cuts would begin in September. “The time has come for policy to adjust,” he said.

It may even be past time for policy to adjust. Remember: monetary policy works with a lag. Today’s inflation reflects the stance of monetary policy months ago. Correspondingly, today’s monetary policy will affect inflation months from now. With inflation already running below target, today’s tight monetary policy will likely see inflation fall further still.

Additionally, disinflation tends to passively tighten monetary policy. Recall that the implied real (inflation-adjusted) federal funds rate target is equal to the nominal federal funds rate target minus expected inflation. Since inflation expectations tend to move in line with inflation, falling inflation typically causes the implied real federal funds rate target to rise. Ideally, the Fed would gradually reduce its nominal federal funds rate target as inflation falls, in order to prevent monetary policy from passively tightening. It hasn’t. Instead, it has maintained its nominal federal funds rate target.

To recap: monetary policy is already too tight given observed inflation in recent months and will likely tighten further as inflation continues to decline unless the Fed course corrects quickly.

A September rate cut would certainly be a step in the right direction. But the Fed has a long way to go. Its federal funds rate target range is currently set at 5.25 to 5.5 percent. In order to achieve a neutral policy stance and 2-percent inflation, the Fed must set its nominal federal funds rate target 2 percentage points above the natural rate of interest. Estimates from the New York Fed would put the neutral nominal policy rate at 2.7 to 3.2 percent. Similarly, in the June Summary of Economic Projections, the median Federal Open Market Committee member thought the midpoint of the (nominal) federal funds rate target range would eventually return to 2.8 percent.

How quickly will the Fed shave 2.5 percentage points off of its nominal federal funds rate target? Markets think it could move fast. The CME Group reports a 69.2 percent chance that the federal funds rate target range is at least a full percentage point lower by the end of the year. That would significantly reduce the distance the Fed needs to travel in order to return monetary policy to neutral.

Alas, history suggests the Fed will move slower than markets currently project. Fed officials were notoriously slow to react when inflation picked up in 2021; slow to reach a tight policy stance once they began raising rates in March 2022; and slow to respond to the disinflation experienced over the last year. Absent a severe economic contraction, it is difficult to believe the Fed would now pick up the pace.

The Fed will almost certainly cut its federal funds rate target by 25 basis points in September, and it will likely continue to cut its target rate by 25 basis points every month or every other month thereafter, until the stance of monetary policy has returned to neutral. Such an approach would shave 50 to 75 basis points off the federal funds rate target this year, not the 100 basis points or more that futures markets are currently pricing in.

Let’s hope that’s enough.

Vice President Kamala Harris recently announced an economic plan for her presidential campaign. A centerpiece is the transformation of the Child Tax Credit (CTC) into a child allowance. If it became reality, the policy would discourage parental employment and risk harming the long-run prospects of children. These unintended consequences together with the plan’s cost should lead voters to reject it. 

The existing CTC provides up to $2,000 per child and is only available to parents with a tax liability or earnings. The Harris plan would increase the credit to $6,000 for newborn children, $3,600 for children age 1 to 5, and $3,000 for children age 6 to 17. Just as important, Harris would delink the CTC from work by delivering the full amount to families who pay no taxes and have no earnings. 

Delinking the CTC from work would turn back the clock on decades of progress improving the safety net. In the 1990s, bipartisan welfare reform moved the country away from unconditional cash welfare to a safety net that required and rewarded work. Defying the predictions of skeptics, the policy shift was tremendously successful in leading single mothers in particular to go to work. Child poverty fell as more resources were brought into homes, and children’s long-run outcomes — as later research demonstrated — improved as well. 

Harris’ CTC plan would risk undoing this progress by going a long way toward bringing back welfare as we knew it. A non-working single parent with two children would receive between $6,000 and $9,600 from Harris’ child allowance. This is in addition to the $9,000 they currently receive in food stamps, totaling around $15,000 to $19,000 in guaranteed assistance not tied to work. This would exceed the combined (inflation-adjusted) value of food stamps and cash welfare the same family would have received in 1996 in the majority of states. In other words, the Harris plan would increase the amount of guaranteed cash or near-cash assistance paid to non-working families beyond what they received the year prior to welfare reform, even before accounting for the growth in the rest of the safety net over the past 30 years.  

In addition to making it more possible to get by without working, the bigger concern is that the Harris plan would diminish the reward to work — that is, a family’s resources would not increase as much as a result of working. Economists have generally attributed most of the pro-employment success of welfare reform to expansion of the Earned Income Tax Credit, which provides a several thousand dollar work reward per year. The CTC is structured the same way in providing up to a $6,000 work reward for a family with three children. The Harris plan would eliminate that work reward by making the credit a guarantee for everyone regardless of work effort. 

The best prediction is that the Harris plan could lead well over a million parents to exit employment, an effect concentrated among single parents. This was the conclusion of a study I coauthored on the effects of making the 2021 CTC permanent. The Harris plan adopts the same policy with the exception of an even higher $6,000 benefit for newborn children, which would tend to slightly magnify the employment loss we found in our study. 

Employment exit is not the only risk voters should consider. The effect on children is at least as important. In the short run, the greater amount of resources sent to low-income families via Harris’ child allowance would reduce child poverty. But in the long run, employment exit could deprive some children of resources and undo the non-financial benefits of having a parent who works.  

Research suggests that the long-run risks to children are real. A large body of evidence finds that work-rewarding tax credits drive academic improvements among children which translate into gains in employment, earnings and self-sufficiency upon reaching adulthood. The evidence for positive long-run effects of government aid that does not require work is weaker. So turning the CTC from a work-rewarding tax credit into unconditional government aid could risk reversing some of the gains children experienced as a result of welfare reform.  

Proponents of a child allowance may respond that some amount of employment loss — and the associated risks to children’s long run prospects — are a worthwhile tradeoff for a safety net that provides a basic level of protection to poor families with children. That’s a valid point.  

But we should keep in mind the fairly robust set of assistance programs that we already have. A family of four bringing in no income of its own receives around $12,000 in food stamps plus benefits from other nutrition programs, free health insurance coverage via Medicaid, and is eligible for (though may or may not actually receive) cash welfare, energy assistance, and rental housing assistance. We do not need to create a child allowance to ensure families have a floor of government aid. 

The final and arguably most important concern with Harris’ child allowance is its cost. According to the Committee for a Responsible Federal Budget, the proposal would cost over a trillion dollars over the next decade. Given the lack of political will to control the cost of existing government programs to tackle the $35 trillion federal debt, now is not the time to add even more spending to future taxpayers’ tab. The very Americans who the Harris plan seeks to help — children — are the ones who will ultimately face the burden of repaying it in the form of higher taxes and dampened economic growth. 

The Harris child allowance is not worth the costs. More resources would help children in the short run. But the risks to parental employment and the long-term wellbeing of children, not to mention the fiscal costs, are too big a price a pay. We learned from welfare reform that a pro-work safety net helps lift up families. We owe it to families and taxpayers not to forget that lesson. 

“The Old Lady of Threadneedle Street” is the affectionate nickname of the Bank of England, as respected an institution as Britain ever had. Calling something as “safe as the Bank of England” was the highest praise of surety and soundness. Should any financial institutions get out of line, it was said that a simple rise of the Governor of the Bank’s eyebrow would get them back in line. It was a symbol of British tradition and stability. 

Because of the Bank’s stalwart reputation, the incoming Labour government of Tony Blair in 1997 announced that it would hand over responsibility for monetary policy to the Bank. This was meant to reduce the risk of politicized decision making. As an institution above politics, the Bank seemed to be the model for a new form of governing body: the respected, impartial, independent agency. Governments of left, right, and center have followed suit by increasingly turning over contentious decisions from Ministers to independent bodies. 

Yet, as anyone who has read the Federalist Papers could tell you, democratic and judicial checks and balances are important. Without them, power tends, as Lord Acton noted, to corrupt. In the Bank’s case, that fall from nobility is most apparent in its role in the fall of former Prime Minister Liz Truss. The consequences of its actions may be in the process of destroying Britain. 

The received wisdom of the fall of Truss was that she proposed an irresponsible “mini budget” that would have been fiscally disastrous and that sparked “the markets” to respond, sending a clear signal that her sort of supply-side policy was unacceptable and leaving her position untenable. This story just doesn’t stand up to scrutiny. All her policies were either expected or well-signaled in advance. The main fiscal issue was the cancelling of scheduled tax rises and a reduction in the top rate of income tax. None of this should have caused financial Armageddon. So what did? 

As the Wall Street Journal reported this week, the Bank is tacitly admitting to its role in the whole business. Unlike other central banks, including the Fed, the Bank had doggedly held on to low interest rates until even it could not credibly do so in the face of COVID-caused inflation. The trouble was that Britain’s legacy pension funds, which paid out guaranteed benefits, had followed a risky high leverage hedging strategy during the low-interest rate era. Once low interest rates evaporated, the funds were left with no alternative but to sell off government bonds. The Bank estimates that most of the rise in bond yields that followed the mini-budget was due to this sell-off, rather than to Truss’s announced policies. 

The Bank’s actions were compounded by the rest of what we can term “the economic blob” – officials insulated from effective oversight, just like the Bank. According to Truss’s autobiography, officials at the Treasury didn’t even know these hedges existed. At the Office of Budget Responsibility, another independent agency set up, this time by David Cameron, to ensure the depoliticization of fiscal matters, officials sent out critical letters to Truss and her Chancellor, containing an analysis that has since proved incorrect, and which were immediately leaked to the press. The damage was done – the Bank and the blob had their fall guy. 

The consequences of the blob’s actions have proved to be significant. The Conservative Party lost its reputation for economic competence, free-market policies became anathema, and the consequent Tory government of Rishi Sunak plunged headlong towards its worst defeat ever. 

This meant the election of a Labour government with an enormous majority and virtually no mandate. It has presided over the introduction of what many regard as a two-tier justice system, with native Britons sent to jail for Facebook posts while ethnic minority violent offenders get much lighter sentences or are let off entirely. The actual situation is more complicated, but the nuances are probably less important than the perception. 

As far as the economy goes, Prime Minister Keir Starmer has announced that things are going to get worse and his budget will need to be tough – this from the party that condemned “austerity” after the financial crisis. What Starmer has not done is show any sign of tackling the blobs that rule Britain. 

No wonder. As Stephen Davies of the Institute of Economic Affairs has noted, the school of politics that produced these blobs “combines designed and regulated markets with social engineering and government-by-experts.” That model is coming apart together with the country it tries to govern. The Bank of England may survive Britain’s potential collapse. Its reputation should not. 

Rising grocery costs continue to put the squeeze on families. Overall, the cost of a trip to fill the pantry rose nearly 22 percent since the beginning of 2021. Many specific staples rose far more — eggs are up 110 percent, flour up 29 percent, orange juice up 82 percent. A family of four spending $1000 per month just three and a half years is spending an additional $2,640 annually for this same shopping list.  

Unfortunately, Vice President Harris misdiagnosed the source of the problem as “bad actors” seeing their “highest profits in two decades.” She blames the initial surge in food prices on supply chain issues during the pandemic — certainly a major contribution to the shortages and price increases on many items early in the pandemic.  

However, Harris mixes this truth with falsehood by claiming businesses are now pocketing the savings after these supply-chain issues have subsided. Her proposed solution — “the first-ever federal ban on price gouging on food” — will compound the misery.  

First, the faulty diagnosis. A look at the data easily counters this.  

An insightful way of analyzing whether price increases are due to “gouging” is to focus on the variable production costs of the goods sold plus the selling, general, and administrative expenses. Tyson Foods — the world’s largest chicken, beef, and pork processor — saw its margin drop from 8.4 percent in 2020 to just 1.1 percent last year. Kraft Heinz and General Mills — food processors with combined revenue nearly equal to Tyson Foods, suffered similar results. Kraft Heinz’s margin declined from 21.4 percent to 20.2 percent. General Mills’s shrank from 17.8 percent to 16.8 percent. Far from “gouging,” these industry leaders are failing to fully pass along the entirety of their own cost surges to consumers. Expenses relative to sales increased during the past three and a half years of elevated inflation.  

After accounting for all expenses — including extraordinary items, taxes, and interest — margins are even tighter. Notably, Tyson Foods experienced a net profit margin last year of NEGATIVE 1.23 percent. Kraft Heinz realized a 10.72 percent net profit margin last year, and General Mills a 12.91 percent margin.  

What about industry-wide? Profit margins are shrinking as food manufacturing costs rose 28.4 percent since January 2020, exceeding the 26.3 percent retail price hikes on food items. Grocery store profit margins sank to 1.6 percent in 2023, the third consecutive year of decline after peaking at 3.0 percent in 2020.  

In other words, grocer profit on $100 of sales is just $1.60. Profit margins contracted as overall food inflation totaled 20.6 percent in those three years. The biggest grocers have experienced this margin crunch. The Kroger Co. — the nation’s largest traditional supermarket — eked out an operating margin of 1.93 percent this past year, a margin lower now than it was pre-pandemic. These trends are the opposite of gouging.  

History provides endless proof that prices set by governments under the market price results in shortages. Demand expands as supply shrinks. What good is a lower price if the shelves become empty?  

Venezuela, Cuba, and the Soviet Union provide ample examples of the dangers of price controls. But the United States embarked on its own failed experiment just five decades ago. In August 1971, President Nixon ordered an initial 90-day freeze on prices and labor, with future price increases to be subject to federal approval. The proposal initially proved wildly popular, with 75 percent public support and a landslide re-election the following year. President Nixon even ordered an IRS audit on companies breaching the ceiling.  

Ultimately, the program ended in disaster. As explained by Daniel Yergin and Joseph Stanislaw, “Ranchers stopped shipping their cattle to the market, farmers drowned their chickens, and consumers emptied the shelves of supermarkets.” In April 1974, the administration dismantled most of the program.  

Importantly, the inflation of the early 1970s resulted largely from easy money. From the beginning of 1970 through the demise of the price-fixing program in April 1974, the M2 money supply expanded by 48 percent. In less than four years, prices rose by nearly 27 percent. In other words, prices jumped in fewer than five years by an amount equivalent to that of the entire prior decade!  

Does this sound familiar? It should. The inflationary surge of the post-COVID era is largely a direct result of the explosion of government spending beginning in 2020. The Federal Reserve financed much of this spending by ginning up its digital printing presses to purchase government bonds alongside a myriad of other assets — from mortgage-backed securities to corporate debt.  

The flood of new money coursed through the economy. The M2 money supply swelled by 40 percent in just two years. More dollars chasing goods and services ultimately resulted in dramatic price hikes.  

Harris appears to have forgotten the important lessons from this episode. Based on her insistence that price gouging is responsible for high grocery prices — when it clearly is not — the Vice President’s proposal would more likely function as a price freeze or command pricing. As such, the existence of state laws currently prohibiting dramatic price increases during emergencies should not assuage concerns about Harris’s proposal. Of course, even these state laws may result in the unintended consequence of shortages — but these temporary interventions in the market are rarely activated.  

With deficits looming even larger in the years ahead, the threat that the central bank will finance this spending with another bond purchasing spree only increases. The food production industry is not immune from the ravages of this reckless monetary policy: the spiral of rising labor costs, insurance, and equipment. In addition, the sector is particularly sensitive to the assault on affordable fuel vital to the cultivation and transportation of food.  

It’s time political leaders admit their own culpability in the shrinking purchasing power of the dollar at the grocery store. Blaming painful price increases on the very entities responsible for the most bountiful, readily accessible supply of sustenance in human history is woefully misleading. Imposing price controls is a demagogic solution harmful to farmers, processors, grocers, and families.  

Nothing signals a greater likelihood of intellectual confusion than does intellectual inconsistency. I’m not referring to changing one’s mind. Intellectual growth invariably brings about changes in mind. The person who once believed that minimum wages can in practice be implemented in ways that harm no workers might well come later to discover that her earlier belief is naïve. This person is not intellectually inconsistent; this person is intellectually open and honest. Ditto for the person who once believed that free trade is the best policy but who encounters arguments and data that push him to the opposite conclusion. One’s mind can change — correctly or incorrectly — without subjecting one to a legitimate charge of inconsistency.

By intellectual inconsistency I instead mean clinging to beliefs, offering arguments, or staking out — and sticking with — policy positions that are mutually contradictory. Intellectual consistency is no guarantee of being correct, but intellectual inconsistency is a sure sign of being incorrect.

How many are the conservatives today who support the child tax credit while also proudly proclaiming their rejection of “market fundamentalism” and accusing so-called “neoliberals” of being blind to human motives other than those that are transactional? Whatever are the child tax credit’s merits or demerits as a public policy — that question is one that I here don’t address — that policy is a means of persuading adults to have more children by promising to put more money into adults’ pockets.

Why, for example, should we give credence to Oren Cass’s many proposals for the government to override the market on the grounds that (as he once put it) “markets reduce people to their material interests, and reduce relationships to transactions” given that he also supports the child tax credit? The child tax credit works to increase birth rates only insofar as it appeals to people’s material interests. If it’s appropriate to appeal to people’s material interests on a matter as personal as decisions regarding family size, Cass is surely inconsistent to criticize classical liberals and libertarians for focusing on people’s material interests when these scholars make the case for free trade.

My point here isn’t that Cass is wrong to insinuate that most classical liberals and libertarians worship a fictional homo economicus (although in this matter  he certainly is wrong). My point instead is that Cass and many of his National Conservative brethren conveniently but unwittingly appeal to the homo economicus in us when they plead for the child tax credit. (They do also, by the way, in their endorsement of tariffs, which work their restrictive effects largely by appealing to the homo economicus within each consumer.)

These conservatives will respond by pointing out that they don’t deny that many considerations other than purely economic ones are at play when couples decide whether or not to have more children. They see the child tax credit as working only at the margin. This response is both believable and correct. Yet these same conservatives fail to recognize that when the liberals and libertarians who they attempt to slur with the label “market fundamentalists” argue for free trade and free markets, these liberals and libertarians also recognize that many considerations other than purely economic ones are at play when individuals engage in market exchange.

The case for free trade is not purely one of maximizing material consumption. Nearly all free traders also value economic freedom as an end in itself — economic freedom that would be worthwhile to possess even if its possessors were thereby made materially poorer. Is this non-material value — is this treasuring, for its own sake, the freedom to spend one’s income as one wishes — less worthy or less human than are any of the non-material values that motivate today’s national conservatives? I think not.

Free traders also understand that the growth in material output fueled by the freedom to trade enables individuals and families to better pursue more of their non-material goals. Are these non-material goals less important than are the particular non-material goals that protectionists claim can be met only by putting more customs agents at the nation’s ports? I think not.

Oren Cass and other NatCon protectionists will respond by insisting that the particular non-material goals they focus on are inherently at odds with the freedom to trade. Chief among these non-material goals is the dignity that comes from steady employment.

Overlook the implicit (and mistaken) insinuation that free traders are oblivious to the non-material value of steady employment. Focus instead on this NatCon inconsistency: The very protectionism for which the NatCons clamor destroys particular jobs no less than does the free trade that they oppose. Every import kept out of America by protectionist obstacles might well correspond to some particular American job not being destroyed. But every such import kept out of America also corresponds to fewer dollars going abroad — dollars that would, but now cannot, return to America as demand for American exports or as investment in America’s economy. This reduced spending and investing in America by non-Americans destroys particular jobs.

Is the non-economic value of the jobs destroyed by protectionism less than is the non-economic value of the jobs preserved by protectionism? It must be so for the NatCon case to hold together. Yet I’ve never encountered a protectionist of any stripe who explains why the jobs preserved by protectionism have a higher non-material or ethical importance than do the jobs destroyed by protectionism.

The NatCon perhaps believes that he can escape this criticism by insisting that his interest is simply to slow the overall pace of economic change. The particular jobs protected and destroyed are less important than is simply achieving greater economic stability. Greater economic stability — slower economic change and reduced job churn — is, it is perhaps supposed, a worthy non-material outcome that must be promoted with protectionist interventions.

Fair enough. But if this goal of greater economic stability is really what motivates the protectionist, he should turn his attention away from international trade and toward internal economic changes. In a country as large as the United States, most economic change comes from within the country. Labor-saving technologies that are the brain-children of innovative people in Silicon Valley and Austin and Boston, dietary and fashion changes that sweep the country repeatedly, improvements in health that increase — and improvements in wealth that decrease — participation in the labor force. These and other purely internal-to-America economic changes destroy (and create) far more jobs than does international trade. It’s inconsistent for the NatCon protectionist to rail against international trade while being mostly silent about domestic economic changes. 

One virtue of the free-trade position is its intellectual and ethical consistency. Endorsing individuals’ freedom to trade with foreigners is simply of a piece with the more general endorsement of individuals’ freedom to trade with whomever they please, whether fellow citizens or not. The protectionist position, in contrast, invariably relies upon arbitrary distinctions that ensnare protectionists in intellectual and ethical inconsistencies.

To a man with an antitrust hammer, everything looks like a monopoly nail. In a recent Substack, antimonopoly campaigner Matt Stoller blames the rise in rents and anemic housing supply growth since 2007 on growing concentration in the home-building industry, rather than local land-use regulations, an explanation he attributes to “noisy” YIMBYs. Is he right?

Let’s start with what he is right about. A number of markets have seen growing concentration in the home-building industry since 2007. But this trend is a result of conscious government policy in the wake of the financial crisis to regulate mortgage lending more tightly, as Kevin Erdmann at the Mercatus Center has ably documented. These policies drove many builders out of business. Erdmann’s work, which is fully consistent with the work done in the 1990s and early 2000s by Ed Glaeser at Harvard, Raven Saks Molloy at the Fed, Joseph Gyourko at Penn, and Bill Fischel at Dartmouth, among many others, shows that the housing shortage predates 2007, at least in many markets. Indeed, tight zoning rules have been fingered as a cause of costly, scarce housing since at least 1972.

The rise in builder concentration is a more recent phenomenon, which is not good news for the thesis that builder concentration has driven growth in rents. But Stoller has one other piece of evidence: builders’ use of “land banks” to acquire lots and hold them for later development. He calls this evidence of cartel behavior:

Interestingly, I suspect there’s a cartelization effect going on as well. Here’s Toll Brothers CEO Doug Yearley a few years ago:

‘We’re doing significantly more third-party land banking where we assign a contract to a professional land banker, who then feeds us land back on an as-needed basis,” Yearley said. “And then, we’re doing joint ventures with either Wall Street private equity or with our friends in the home building industry, the other builders.’ (emphasis original)

What exactly does that quote mean? I don’t know, but it seems kind of crazy that large homebuilders would be doing joint ventures with each other on land acquisition, when that could very easily lead to holding supply off the market and preventing smaller developers from competing to build cheaper homes.

But neither “land banking” nor joint ventures are evidence of cartel behavior (intentionally withholding lots from development in order to drive up new housing prices and profits). Land development is an incredibly risky business. You have to try to gauge what market conditions will be in a couple of years once your permit approvals have come through and the new units are move-in ready, but meanwhile you’re taking on large debts that you have to start paying back immediately. It makes sense not to develop every plot of land you own instantly, while you observe the vicissitudes of the real-estate market and, if necessary, ride out a bad patch. For the same reason, it can make sense to spread risk across multiple financial partners who all share a long-term view.

Stoller cites a working paper by Johns Hopkins University economist Luis Quintero as evidence that market concentration in home-building is driving up housing costs. It’s a serious paper, but it also has some methodological limitations, which may explain why it has apparently kicked around for seven years without yet passing peer review. (It focuses on just a few East Coast markets, it defines housing markets in an unusually narrow way, and the instrument seems to be valid only under the condition that it mostly just captures time trends, not cross-section variation, but then there could be many omitted factors that share a similar time trend.) Quintero may well be right that home-builder concentration does reduce housing supply and raise costs, but it hasn’t been proven yet, and it’s at best a minor factor compared to the zoning restrictions YIMBYs talk about.

As a way to visualize the debate, I looked at the source Stoller uses for builder concentration data (the share of the market controlled by the top 10). Then for each of these markets, I plotted the relationship with the most recent housing costs measure (“regional price parities”) produced by the Bureau of Economic Analysis. The result is below.

The relationship between builder concentration and housing costs in these 50 markets is zero, completely flat. Now, maybe you can construct a fancy causal model in which you can tease out some small positive effect once you control for X, Y, and Z or net out some kind of reverse causation, but this plot should give us a strong suspicion that builder concentration cannot be more than a distant secondary or tertiary explanation for why some markets are more costly than others.

As an example, the Cincinnati metro area is one of the most highly concentrated markets (97.2 percent market share for the top 10 builders!), but one of the cheapest places for housing (83.7 percent of the national average!). Seattle is not concentrated at all (59.4 percent top 10 share), but is quite expensive (154.8 percent of the US average).

Now what happens when we plot housing costs in 2022 against the most commonly used measure of local residential land-use regulation? You get this:

Now that’s a strong correlation! You can quibble with the causal story here: maybe high-demand markets tend to see housing costs rise and also try to adopt more regulation, but even these alternative stories still end up affirming an effect of regulation on housing costs. High-demand areas regulate supply to protect values for incumbent homeowners.

Not every problem in the American economy is about lack of competition, and not every policy “solution” aimed at this non-problem will make things better. Stoller’s proposal to equalize credit costs between big and small builders will probably just cause everyone’s credit costs to go up. Big builders are better risks, so financiers will reduce lending if forced to lend at the same rates to big and small builders. More costly financing means… less building and more costly housing. Instead, let’s listen to the YIMBYs and legalize building in high-demand areas.