Is “Kamalomics” A Return to Price Controls . . . and Counting Matzo Balls?

Bill Whalen: It's Wednesday, August 21st, 2024, and you're listening to Matters of Policy and Politics, a Hoover Institution podcast devoted to governance and balance of power here in America and around the free world. I'm Bill Whalen, I'm the Virginia Hobbs Carpenter Distinguished Policy fellow in Journalism here at the Hoover Institution.

I'm not the only fellow in the podcast game these days. I recommend you go to our website, which is hoover.org, click on the tab at the top of the homepage, it says Commentary, then go over to where it says Multimedia. And up will come a menu of audio podcasts, including this one.

And also the GoodFellows podcast/broadcast that I do with the incomparable Niall Ferguson, John Cochrane, and HR McMaster. In fact, we have a new show coming out in a couple of weeks that you want to check out. My guest on today's show is David Henderson. David is a research fellow here at the Hoover Institution.

He is also a professor of economics emeritus at the Naval Postgraduate School in lovely Monterey, California. If you read David Henderson's insightful writing, you'll notice two themes. One, that the unintended consequences of government regulation and spending are usually worse than the problems they are supposed to solve. And secondly, that freedom and free markets work to solve people's problems.

Dave, welcome back to the podcast.

David Henderson: Thanks, Bill.

Bill Whalen: So speaking of free markets, that takes us to the current presidential race and one candidate's proposal for bringing down the lofty price of food. And with that in mind, David, I'm going to turn your attention. If our listeners are not watching this, they should know that David and I are doing this on Zoom so we can see each other.

I am broadcasting from my office here at Hoover, where behind my left shoulder, on my wall is a poster of Richard Nixon in 1968. David, I have this poster up here because it is very clever, I think, as a poster in 1968, you remember this election very well, by the way.

I think you were still a Canadian, I believe, at the time, but trying to get US politics, right? Anyway, Nixon 1968, Dave, he is coming out of the wilderness trying to get back into office. He had lost the election eight years prior, and his campaign was desperately trying to make him hip in all ways possible, au courant, I should say so.

Remember, he goes on laughing and says, talk it to me. And if you look at this poster up close, he has Milhous as a button on his lapel. And his kids, his daughters are in the poster, and then surrounded with all kinds of Republicans, Ronald Reagan is on this, George Romney, Mitt's father, is on this.

Ed Brooke, the late senator from Massachusetts. Who else? Wilt Chamberlain, the basketball player, Bart Starr, the football player, Clint Eastwood. They're trying to sell you on the notion that it's okay to support Richard Nixon in 1968, and that election panned out. But I mentioned this, David, because to me, Richard Nixon kind of hovers over this election in at least two regards.

One, if you think about it, Donald Trump is kind of Richard Nixon, at least in that he also unhinges his opponent. Remember, before Trump Derangement Syndrome, before Bush Derangement Syndrome, Obama Derangement Syndrome, Clinton Derangement Syndrome, there was Richard Nixon Derangement back in the 1960s. Also, Trump in 2024 is trying to do what Nixon did in 1968, David, where he is trying to make a what would seem like an unlikely comeback after previously being written off as a sore loser.

But David, when you look deeper into the election, Kamala Harris is also Richard Nixon in a couple of regards. She, obviously, is a Californian like Nixon, who came to the vice presidency via the US Senate. So she made her way up the pyramid in California. She's trying to repeat what Nixon tried to do in 1960, running as an incumbent vice president and trying to distance herself from her former running mate at the same time.

But, David, here we have Kamala Harris tapping into Nixon economic policy, which takes us to your really clever Substack piece titled Kamala Milhouse Nixon. A title you bestowed upon the vice president after she gave a speech on economics that included a call for ending the price gouging of food.

All this, David, on the eve of the 53rd anniversary of Nixon calling for price controls, what inspired you to write this?

David Henderson: When I saw her proposal, that was the first thing I thought of. My goodness, we've been down this road. I was 20 when Nixon imposed an economy-wide freeze on all wages and prices on August 15th, 1971.

I was a math major, but I'd studied a lot of economics on my own and I understood why price controls were so bad. And it was a Sunday night and I remember thinking, this is really bad. And I thought, well, let's call her out because she's advocating the same thing, not economy wide, but for food and groceries.

And this is a really bad idea.

Bill Whalen: Okay, we'll get into what Harris has proposed in a minute, David, but let's start with what Richard Nixon did in August 1971. And I think, by the way, it's important to note that people in this day and age view Richard Nixon as some sort of arch conservative, add villain if you want to, but arch conservative.

Again, I would point you to that poster. Nelson Rockefeller is front and center in that poster, David. If you're an arch conservative, you ain't putting Nelson Rockefeller up front in your poster. But Nixon did various things during his presidency that do not speak to conservatives, or, necessarily, the free market.

I point you to the creation of the Environmental Protection Agency, for example. But here we have Nixon in 1971 going down the road of price controls. What inspired Nixon to do so, and tell us what happened as a result?

David Henderson: Okay, so at the time, inflation was substantial.

It was actually a little higher than it is now.

Bill Whalen: Close to 6%, right, something like that.

David Henderson: I think it was around 4% and unemployment was around 6%. And he was really worried, because, see, back in 1960, Arthur Burns had tried to persuade Eisenhower to push the Fed not to choke the growth of the money supply and cause a recession.

He didn't succeed, there was a small recession, and Nixon thought it cost him the election, and he was probably right. So he was trying to do something about getting prices down without reducing the growth of the money supply. His guy, Arthur Burns, was now chairman of the Fed.

And so the idea was, I mean, I don't know if Nixon would have said it this bluntly, but here's the idea. The idea was not let's reduce inflation, let's hide inflation, because all price controls do is hide inflation. There's an old joke, and I often tell it when I talk about price controls.

A guy goes into the butcher and says, how much is your filet mignon? And the butcher says, $14 a pound. And the guy goes, $14 a pound? I can buy it across the street for $12 a pound. Well, then why don't you cross the street? Well, he doesn't have any.

And the butcher says, when I don't have any, I charge $10 a pound.

David Henderson: So the idea is that prices don't mean much if you can't get the good at those prices. And so the idea was, hide inflation. Have Arthur Burns pump up the growth of the money supply, which he did.

And I, Richard Nixon, will win the 1972 election, which he did. So that is, I think, what his strategy was.

Bill Whalen: Now, it's worth noting, at the time when Nixon rolled this out, the only mistake he made, in retrospect, the time of speech, David, he did it on the same night as Bonanza.

I think his speech preempted Bonanza, which is probably not a smart move politically.

Bill Whalen: But I think when polls came in after he announced this, David, I think like 75% of the country said, okay, fine, why not? Because if you said I'm going to control the price of things, people probably like that.

But here's what Nixon did. He proposed, I think, I believe, David, he proposed a 90 day freeze. Increases would have to be approved by a pay board and a price commission. He created what he called a cost of living council headed by, of all people, a very young gentleman named Donald Rumsfeld.

So here's Rumsfeld, and Dick Cheney was involved in this, too, I believe.

David Henderson: And John Dunlop.

Bill Whalen: And John Dunlop-

David Henderson: From Harvard, yeah.

Bill Whalen: Very prominent people. But Nixon also tossed in there, David, for good measure, a 10% duty on imports, and suspended international convertibility to the US into gold.

David Henderson: Yes, and by the way, Milton Friedman was always good at separating out what was good and what was bad. So Milton said price controls, horrible, and suspending the convertibility of dollar into gold, good, cuz it was gonna happen anyway and it was overdue, and I think Milton was right.

Unfortunately, of course, that was the last link between gold and the dollar. And that's one reason we had inflation all through the 70s.

Bill Whalen: Okay, so Nixon rolls this out in a speech on August 15th, 1971, David, then what happens to the economy?

David Henderson: Well, the economy does pretty well, but over time shortages show up.

And so what happens is Nixon says, okay, we're going to move from phase one, the price freeze, for 90 days, into phase two, where we allow some price increases, then phase three, and if I recall, three a and so on. And this is now three is past the election, past the 72 election.

So we have spot shortages all over the place. I was a summer intern at the council economic advisors in the summer of 73. My boss at the time was a guy named Bob Tollison, a great economist. Herb Stein was the big boss, and Herb was one of my favorite bosses.

But Herb had gone along with the price controls, knowing better, but he went along with them. So one day he comes back from the White House mess furious because there's no steak and there's no steak because the supplier couldn't get steak. And Bob Tollison and I are going to the cheap seats, the place where we can get a lunch for cheap.

And we're just laughing because finally someone gets to pay a little bit of a price for this policy he favored. But more seriously, you had all these shortages show up. The big one, though, was on energy, because what happens when there's an international price that you can't control and you don't allow that international price when it goes up to be reflected in the domestic prices?

Well, that's what happened. Opic, in the fall of 73, over a few months, engineered a price increase on oil from $3 a barrel to $11 a barrel, and the price controls on oil did not allow that. And then they weren't allowed to be fed through to the price of gasoline.

And we got massive lineups, we got this horrible situation, and instead of saying, you know what, guys? We blew it, let's get rid of the price controls on oil and gasoline. They formed the Federal Energy Office, which later became the Federal Energy Administration, to administer price controls, to allocate, to tell the oil companies where they had to allocate their gasoline.

And we got this massive problem on and off all through the rest of the seventies.

Bill Whalen: So David, here is what the authors Daniel Yergin and Joseph Stanislaw said about the American economy in the summer of 1973. This is from their book The Commanding Heights, The Battle for the World Economy.

And they wrote the following, quote, ranchers stop shipping their cattle to the market, this is back to what you said about steak, farmers drown their chickens, and consumers empty the shelves of supermarkets.

David Henderson: Yeah, and I remember, was it Herb or someone else? No, it was someone at the Cost of Living Council, but Herb might have recounted it in some memoirs or something.

But anyway, they were actually going to the supermarket and buying soup with matzo balls and opening them up and seeing how many matzo balls they had, because they used to have four, now they got three. All these ways we now call it shrinkflation of responding when you can't raise a price, and so you had all these crazy things happening.

But even more seriously, here's what happened when the price of gasoline had gone up. If you think there's a long run price increase, which there was, what do you do if you're a buyer of a car? Well, you're probably gonna buy a more fuel-efficient car. But if the price signal isn't allowed, why do that?

People weren't shifting into smaller cars as much as the government wanted. And so then Gerald Ford is now president, the Energy Production and Conservation Act, I think it was called, is passed. And it gives the federal government the power to set mileage per gallon on cars and trucks.

Bill Whalen: Right.

David Henderson: And then Detroit has to adjust, it's mainly Detroit in those days. And how do they do it? Well, the quickest way to do it is to reduce the weight of a car and to hit those standards. And we get a lot more fatalities as a result, by the way.

And then over time, that thing is in law. It's been made worse. It was made worse substantially under Obama, Trump cut it back a little, Biden has increased that requirement again. And so what we get, by the way, is often you go to the parking lot and try to find your car and you're pushing your button and it's not doing anything because you're at the wrong car.

They all look alike. Why, because the way to get higher miles per gallon is aerodynamics. And when you go with aerodynamics, there's gonna be a lot of similar-looking cars. And there are a lot of other things that happen. They start having energy standards for buildings, they start having energy standings, standards for appliances, and we're stuck with all of that stuff because of those original price controls.

Bill Whalen: It's funny, you mentioned the anecdote about your colleagues counting matzo balls. When the president started talking, President Biden, by the way, he's still in office we forget.

Bill Whalen: When the president started talking about shrinkflation not too long ago, I thought, my God, there's some poor intern at the White House whose job is to go out and get a bag of Doritos and count the Doritos in the bag.

David Henderson: Yeah, yeah, yeah.

Bill Whalen: But shrinkflation has been a democratic hobby horse. Biden has been on it, Elizabeth Warren has been on it. We're going to get to Senator Warren here in a minute because I think she cast a very long shadow over what's going on here. But let's now turn our attention to Vice President Kamala Harris.

We're doing this on the day before she officially, or she takes her, if she does her acceptance speech in Chicago. Maybe she'll talk about economics, maybe not, we will see. But she did talk about economics previously Friday in a speech at Raleigh, North Carolina, in which she got into nixonomics, if you will.

But David, did she talk about price control or price gouging? And I ask this because you've seen a pushback, especially from her defenders in the press, saying she's not in favor of price controls, what she wants to address is price gouging. Now is there a legitimate difference between the two, or they just trying to thread a needle here?

David Henderson: Well, there could be. By the way, she didn't call it price gouging, she called it price gauging.

Bill Whalen: Gauging.

David Henderson: I don't think she knows how to even read a teleprompter. But anyway, yeah, so the idea is with price gouging, that producers take advantage of a situation and raise prices in the short run.

Bill Whalen: Right.

David Henderson: There's no evidence that that's happening. And that's why I think a lot of people, including Catherine Rampell at The Washington Post, jumped all over this and said, no, no, this is price controls. And I think in the broad scheme of things, I think she's right.

This is price controls because it's not like there's this hurricane or something and people are raising prices. Although, by the way, our colleague John Cochrane has pointed out how important it is to allow price gouging. Cuz that's exactly when you want prices to be able to go up, when there is a situation where there's a diminished supply and an increased demand.

But anyway, no, I think they're being picky, and I think the people who are criticizing her for price controls are right to do so.

Bill Whalen: So what would President Harris do to change the price of food?

David Henderson: Well, what she says she would do is get the Federal Trade Commission on this.

Now, I think she needs congressional authorization. But, of course, we know with the whole student loan thing that Joe Biden said he needed congressional authorization. Nancy Pelosi said he needed congressional authorization. Congressional authorization was not forthcoming, and yet he let people out of student loans anyway, so who knows?

And she did make a threat, sometime in the last couple of weeks, I noticed that she says, I'll get, I want Congress to act, I don't think it was on this, it was on something else. But if they don't, I'm gonna issue executive orders, so she might go that route.

Bill Whalen: David if she wants Congress to act, it's as very simple as going and blowing dust off the following bill, which would be something that Liz Warren trotted out in 2022, the Price Gouging Prevention Act of 2022. This bill, this was Elizabeth Warren, Tammy Baldwin, the Wisconsin Democrat, and Congresswoman Jan Schakowsky from Illinois, also cosponsors this.

David, here are four bullet points from the bill, let's talk about this. So item number one, the Warren bill would prohibit price gouging at the federal level, this is all I'm reading verbatim from what the bill says. Quote, the proposed bill would allow the Federal Trade Commission and state attorneys general to enforce a new standard against sellers charging an unconscionably excessive price during periods of exceptional market shock.

Let me repeat that. Unconscionably excessive price during periods of exceptional market shock, so somebody's got to figure out what unconscionably excessive is.

David Henderson: And what a market shock is?

Bill Whalen: Yeah, the bill clarifies that price gouging again, I'm reading it verbatim. The bill clarifies that price gouging is illegal wherever it occurs in a supply chain or distribution network.

Point number two, David, create an affirmative defense for small businesses acting in good faith. Quote, local businesses often must raise prices during crisis events because they have little negotiating power with their price gouging suppliers. This affirmative defense protects small businesses earning less than $100 million from frivolous litigation if they show legitimate cost increases.

Bullet point number three, David, target dominant companies that have exploited the pandemic to boost profits. The bill would create a rebuttable presumption of price gouging against firms that exercise unfair leverage and companies that brag about increasing prices during periods of inflation. Finally, David, point number four, require public companies to clearly disclose cost and price strategies during periods of exceptional market shock.

The bill requires public companies to transparently disclose and explain changes in their cost of goods sold, gross margins and pricing strategies in their quarterly SEC filings. And the final for good measure David, how do you make this all happen? The bill appropriates $1 billion to the Federal Trade Commission to carry out its work.

So let's take this apart, but first, why don't you explain what the Federal Trade Commission does for a living.

David Henderson: The Federal Trade Commission was set up, I believe, by the Clinton Act of 1914 to enforce certain kinds of antitrust laws. And there's been this evolution in thinking at the Federal Trade Commission over the last, say, five decades.

Due to the work of people like Robert Bork and others who started actually learning economics. He was obviously was a law professor, but learning economics and understanding that the market is not perfectly competitive, to use the term, people teach in Econ 101, but it is competitive. And so all these things that are thought of as, hey, this looks like monopolization when they start looking at the details.

No, this is not monopolization, this is companies responding to various complex situations, and so over time, the Federal Trade commission became more reasonable. And then this young law student, I think she was at Yale, I think, named Lena Kahn, started pushing the idea. She wrote this 120 page law review article going after Amazon, I read the whole thing, and she lays out why she thinks they have monopoly power.

And what was really striking to me when I read it is how she doesn't seem to have any knowledge of this revolution in thinking of any on antitrust that had gone before her. And it just goes to show that you can get a long way without people calling you out if you just ignore things.

And so she became Biden's appointee to the Federal Trade commission, and then people were surprised when he also made her the chair. And by the way, she imposed this very strict rule on economists kind of, and lawyers speaking at various events, and a lot of the professional staff complained, a number of them resigned.

And so we've got, she's kind of out of control. And so even though this has very little to do, virtually nothing to do with monopoly power. I think that Kamala Harris and Senator Warren understand that she would be willing to probably do a lot of the stuff they would want her to do.

Bill Whalen: So here's an example of the FTC at work, David. February, this year, the Federal Trade commission files a lawsuit joined by several state attorneys general to challenge a merger between Albertson, a supermarket. The agency's rationale, less competition is bad for prices. But if you dig deeper into what the FTC put out in this press release, you'll notice that they are very concerned about one mega company taking away union jobs, and I.

Hearing this throughout the Chicago convention right now. Even though I think when you look at wage salary workers in the US, David, I think maybe ten to 11% belong to a union right now, my goodness, unions play an oversized role in the Democratic Party.

David Henderson: Yeah, no, that's right, yeah.

And by the way, where do they fit Walmart and Costco in there and Amazon? I mean, we've got this incredible competition now in groceries and all those kinds of things, and so they're back in the 60s, really.

Bill Whalen: Well, but they might go lighter if they unionized, this is part of the thrash we see around the country where local chapters wanna unionize, there was one, a fight in Alabama over this recently, right?

David Henderson: No, that's true, that's true.

Bill Whalen: Let's project a little bit into a Harris presidency, David. Maybe she would beef up the Federal Trade Commission, maybe, I don't know. If pigs flew, and I'm being sarcastic here because it's hard to see how Democrats get control of the Senate in 2025 unless the Republicans screw up every available race and somehow it's a 50/50 split, a Democrat could come in.

But I would think that, number one, if it's Republican Senate, whoever her federal trade commission appointee is gonna be, that person's gonna go through a very difficult nominating process. And secondly, I don't see Republican Senate giving the FTC a billion dollars, it's just not gonna happen. But you did mention taking a page from Barack Obama who famously said, what?

I have a pen and a phone, so maybe you don't executive order, but, David, we look at the federal government right now in terms of beefing up regulatory actions. Where else would you look in the government, would you look at the health bureaucracy, would you look at the FDA and drug approval, where would you turn your attention?

David Henderson: If I'm whom, if I'm Kamala Harris you mean?

Bill Whalen: Just as an outsider is a free market economist who looks at the government and looks at this question. So what I'm getting to is a question of if in a Harris presidency, if we're gonna be, if she really does think like Bernie Sanders and Elizabeth Warren.

Remember Bernie Sanders last night convention, said what? This is our turn. So she sees the world economically the way they do, then where would she unleash government?

David Henderson: I think in a lot of places she would certainly if you look at the Biden precedent now with drugs. Where they kind of give these drug companies an offer they can't refuse of selling to Medicare at a big discount, I think she'll push in that direction.

But that's actually already in play, that was passed under the Inflation Reduction act, which she cast the deciding vote for, and so that's in play so she doesn't have to get new legislation to do that? Jeez, I don't know, see, that's the thing. She's been very vague about what she wants to do, and that's why it's really a bad sign that the first thing she proposed was.

Some kind of law against price gouging or as she said, price gauging. So if that's an indicator, there'll be lots of ways she'll look to do those things. It's just she's kind of a blank slate right now, except that if you look at her history, she was, while she was in the Senate, slightly to the left of Bernie Sanders.

And so she might, she says she's forsworn Medicare for all, and she probably has. When she tried to move around the edges and hobble private insurance companies a little, subsidize government provision more, all those things that could shift 10 million people, let's say, from private insurance to government insurance.

Those are the kinds of things I think I'd look for.

Bill Whalen: Again, I look at Elizabeth Warren because one thing that she and Bernie Sanders very cleverly did, but really Warren, was they made sure that their people, people who see the world as they do, got positions inside the Biden administration.

And the Biden presidency is more than happy to give them appointments just to keep them quiet.

David Henderson: Yeah, no, that's right. And 's like Biden was never this big leftist. He was never really anything. He was a career politician who did what he needed to, said what he needed to say, voted the way he needed to vote to keep getting reelected.

So he's kind of a blank slate without much energy. And certainly, I think it was some Obama holdovers and so on have a big say in that administration, like Susan Rice, for example.

Bill Whalen: Let's go down a different route here and let's look briefly at a Trump presidency, David, and the idea Trump comes in and maybe if he's lucky, he gets Republican Congress and he can talk about the regulatory state.

And here I want to ask you something. It's a little bit of a departure, but I was looking at the Mercatus Center at George Mason University. They do a study, David, they look at the most regulated states in America. And in 2023, you can probably guess what several of the most regular states are.

Do you want to guess who number one is?

David Henderson: California.

Bill Whalen: Well done. Do you want to guess who number two is?

David Henderson: New York.

Bill Whalen: Well done. Okay, you wanna go for three and four?

David Henderson: Illinois.

Bill Whalen: That's four.

David Henderson: Okay, Minnesota?

Bill Whalen: New Jersey.

David Henderson: Okay, yeah.

Bill Whalen: Number five is Texas.

David Henderson: Interesting.

Bill Whalen: Must have a lot of agriculture regulations in place. The least regulated states, David. Idaho, the two Dakotas, Montana and Nevada. Now, here's my question for you. I was reading the report that they put out for 2023, and here's what they said of California.

Quote, it would take the average person about 1,176 hours and more than 29 weeks to read all 21.2 million words in the 2019 version of the California Code of Regulations.

David Henderson: Yeah.

Bill Whalen: At what point, David, does a big blue state like California just kind of collapse under its own weight of too many regulations?

David Henderson: Well, it depends what you mean by collapse. One of the lines, I was friends with our former colleague Milton Friedman, and one of the lines he loved was a line from Adam Smith, there's much ruin in a nation. And finally I said to Milton, what's that mean?

And he said, some young man had come up to Adam Smith and said, who's the guy who surrendered? Lord Cornwallis surrendered, and the nation is in ruin. And Adam Smith says, young man, there's much ruin in a nation. And what Milton was getting at is a lot can go wrong, and yet you still have a fairly vibrant economy.

So I don't see a collapse of California. I see a slow, slow decline. And we're seeing it in who's leaving California. We're seeing it in the fact that because this is a one party state with a veto proof majority in both parts of the legislature, they're getting away with just all of these horrible ideas that don't seem to have been thought through at all.

And so we're gonna see a slow decline. It might speed up at times. So that's the way I see it. And it's hard to see what turns it around. That one's very hard to see. If you look at the 70s and 80s, when Deukmejian came in as governor, I think 82 he was elected, people didn't have very high expectations for him.

And I was in the Reagan administration at the time, but I was paying some attention. And it struck me Deukmejian did a lot of good work of turning things around. I don't think we're in that situation now that the Republican Party in California is a regional party, and it's just hard to see what turns it around.

But I'm always hesitant to say something will collapse. It won't collapse. It'll be a slow decline.

Bill Whalen: Our listeners should follow the work of Lee Ohanian, our colleague here at Hoover, UCLA economist who writes for a website we have called California on Your Mind, who talks a lot about the economy in California.

David Henderson: Very good stuff, by the way.

Bill Whalen: Notice that in two ways, David. Number one, when you look at things like the Chips act, which becomes a question of how states can be innovative and attract chips. California is never in this conversation, Arizona, the midwestern states, but California.

And in part I think it's as simple as a business that comes to California and set up shop, they can't do it in neat fashion. So that's a challenge. You see that in terms of manufacturing job growth, California is not part of that conversation. But the other way, David, and this ties into what's going on at the Democratic Convention as the Democrats are talking about, what, a half a million new homes in America?

Housing construction in California is just a mess.

David Henderson: No, it is. By the way, there's something where I have to grant something to some Democrats, including in California, that what happens locally is people get together and prevent new construction. And at the state legislative level, Democrats have been pushing these bills.

And unfortunately, when you look at the details, they're not as good as they sound, but pushing these bills to somewhat deregulate, to allow more building. And Obama talked about that in his speech at the Democratic Convention last night. And so there is a little bit of hope there.

But we'll see.

Bill Whalen: How would you go at the regulatory state? I mean, we look at California, you mentioned one party rule. How do you dismantle regulations? I know people say, well, have a constitutional convention to blow everything up. That's not happening anytime soon. Do you have to go to ballot and piecings?

I mean, a good example of this. This is the California Environmental Quality Act, CEQA, as it's called, law by 19, by one Ronald Reagan, by the way. Not one of Reagan's better moments, but one Republicans and Democrats will agree upon is a major problem when it comes to doing construction in California.

Why? You try to develop a piece of land, somebody comes in and says, if you try to develop this, we'll take you to court over CEQA and sue you. It freezes everything. You end up, basically you have to pay extortion to end the lawsuit. It just drags things out.

And it's one reason why construction is complicated in California. When you look at the construction of stadiums in Los Angeles, for example, they magically get green lighted past CEQA. Gee, go figure. I mention that because in CEQA, at least in California, David, it's like the weather. Everybody talks about it, but nobody does anything about it.

No governor goes to the ballot and tries to kill it. No governor has a nerve to go to legislature and try to overturn it. They just complain about it. Gavin Newsom complains about it, as did Jerry Brown, as did Arnold Schwarzenegger, as did Gray Davis, as did my old boss Pete Wilson, and so it goes in California.

So again, if you want to undo the regulatory state, David, other than going to the ballot, very expensive ballot measure campaigns, how do you do it?

David Henderson: Yeah, and by the way, I just wanna add, that's one of the things. So I've said that a lot of Democrats want to deregulate at the local level, but what they're not willing to do is go after the actual thing that is at the state level, which is CEQA.

And so I think that's how you do it. But as you say, it's hard to see who's going to come along and do it. Maybe there could be a voter initiative. Who knows something like that? One organization I have some hope for, they're one of the major charities I give money to is the Institute for Justice, because they come along and they say, okay, this government is preventing these people from making a living, and it's amazing how far they've gone with that.

Or this government is grabbing people's money when they're driving along and they have $1,000 in their wallet, and not giving it back. And they fight that. And so I do have some hope for the Institute for Justice coming along and doing something on that, but I don't know if they're doing anything on this.

Bill Whalen: Let's wrap this up by talking about two economists, David. One is our colleague John Cochran, who I have the great pleasure of talking to on the Goodfellow show. In fact, I just did a one-on-one podcast with John to talk about how he became an economist, economist and kind of what's on his mind.

And John's just a great creative thinker. And there's a wonderful blog called the Grumpy Economist, which you were mentioning a minute ago, because John was talking about price gouging, not to be confused with price gauging. Can you explain a little bit about John's argument as to why price gouging is not necessarily a bad thing?

Cuz I think what he's saying is basically it's reflective of the market.

David Henderson: Right, and so, by the way, what he's saying is a lot of what I taught my students.

Bill Whalen: Yes.

David Henderson: Let's say you have a hurricane in Florida and people want to buy plywood to board up their windows and stuff afterwards, or maybe during.

And of course, there's this huge demand for plywood. Okay, so you'd think plywood suppliers would want to raise prices substantially, which they would. And then the government comes along, says you can't raise them more than 10% above what they were. And so, here's what would happen if they don't, and we have seen this happen when they've held off a little.

You have people in Georgia and South Carolina lined up with trucks to bring in plywood, because at those prices that are maybe 50% to 100% higher, it's worth transporting. And so you get a lot more supply if you don't regulate prices, if you allow what's called price gouging.

The other thing it does on the demand side, and this is the example I gave my students, you have this wealthy guy who has a mansion and this poor guy who has a trailer, and they both want plywood. Well, the wealthy guy is more likely to have an in with the plywood supplier than the poor guy.

So if there's a restriction on price, the wealthy guy might actually get more than otherwise. Whereas if the price is allowed to go up, the wealthy guy's gonna buy it for his mansion, but he might not buy it for his tool shed, leaving enough for the poor guy to buy enough for his trailer.

And that's the great thing. A lot of people who don't know economics, and Kamala Harris is one of them, don't understand that prices aren't just labels on things. Prices are incentives. Prices actually mean something. And so the price is telling you, here's how scarce this is, and do I really want this?

If I really want it, I'll buy it. But someone else might want it more. And the price then allows it to go to the person who wants it more. And it's not always the wealthy guy.

Bill Whalen: Okay, now let's turn your attention to the anti-Cochrane who would be Paul Krugman, and his latest column, New York Times, August 19th.

The headline, Kamalomics, Kamalomics revealed, Kamalomics revealed a solid center left agenda. And here's what Mr Krugman-

Bill Whalen: Quote, I've been amazed at how many credulous commentators, and not just on the right, have asserted that Harris is calling for price controls, making her out to be the second coming of Richard Nixon, if not the next Nicholas Maduro.

What she's called for is legislation banning price gouging on groceries. Obviously, this is a populist political gesture, a way to offer something to voters upset about high food prices. But just because something is popular doesn't mean it's a bad idea, does he?

David Henderson: Well, okay, so I've gotten out of the habit of reading Krugman, I admit.

By the way, Krugman and I were both senior economists at council economic advisors when John Cochran was a junior economist. Just a little funny history there. Does he say why? Does he say why it might not be a bad idea? Or does he just go on to something else?

Bill Whalen: I think he's more conservative, which is beating down the notion that she's for price controls.

David Henderson: Okay, got it.

Bill Whalen: Early in the podcast, just, you have this kind of semantics gaming going on that, no, she doesn't want taxing, she wants revenue enhancements.

David Henderson: Yeah, so restrictions on price gouging are a form of price control.

And so I want to see him actually make an argument why you should restrict that. And by the way, there's this group that surveys economists around the country. Ken Judd, our colleague at Hoover, is one of the ones surveyed. And they're asked these questions occasionally, and a solid majority says, no, we should allow higher prices during these times of hurricanes and stuff like that, because they understand the argument I just made.

And Krugman is not a dumb guy. Krugman understands the argument. When he used to write for slate back in the nineties, I would say I learned something from something important and good, from at least 80% of his articles. When he moved to the New York Times around 2000, that percent fell well under 20, and then it fell under 10, and that's why I no longer read them.

And I think he's just become kind of a politician, except he doesn't have an excuse.

Bill Whalen: There is something akin to Stockholm syndrome that occurs when you start writing for the New York Times. And it happens, too, when they bring in, especially people who have a Republican pedigree.

They start out as very strong conservative voices, but over time, I'm not gonna name names here but people can figure them out. They just become weaker and weaker and weaker, because I don't know if it's because they just warned down by the environment, or this don't wanna deal with.

I know having written for papers like this, you just get just nibbled to death. In terms of the editing process, there's some line under Durban will just take what David Henderson writes and we'll fight with you on every third word to the point where you just give up.

And maybe in the back of your mind you start thinking, you know, I don't have a fight. I'm just gonna write something they'll go along with.

David Henderson: Yeah, no, that's true. My own, I think you can't talk about Paul Krugman, though, without understanding his wife. I don't know if you ever saw that New Yorker puff piece they did, where they talked about how he would write something critical of George Bush, George W Bush.

And it'd be kind of, it'd be critical, but reason somewhat and not name calling. And then his wife would take it, and they talked about this in the interview. She was very proud of this. She'd take it and punch it up like, and by the way, George W.

Bush is a bad guy, and so it's like, and my own guess, is that when Paul would write things. I wrote an article in Fortune in 1995 defending the idea of sweatshops as ways of getting people in poor countries out of poverty. And there's a very good historic record on that.

Paul Krugman wrote something similar slightly later in slate, making the same argument, and he made it very well. Here's what I imagine. He goes to a cocktail party of various people in MIT, where he was at the time, and no one says, great article. And then he happens to write an article that's maybe kind of good economics.

But then he slams George W Bush, and he goes to a cocktail party, and people say, Paul, you showed such courage in writing that piece. And so over time, if you aren't really philosophically committed to something, you get all those little signals that push you in a certain direction.

Bill Whalen: So let's fast forward to six months from now, and if there is a Harris administration, whoever's the head of CEA, whoever's the next Jared Bernstein, goes out on the White House lawn. And he or she has to defend commonomics and has to defend price gouging, price gauging, price controls, whatever you want to call it, David.

Can she find credible economists who can stand up there and make a credible argument for this? Or is this the case where someone's gonna be enjoying the position and has to defend what the boss believes in?

David Henderson: I think the latter. It's hard to find a credible economist who thinks these are good ideas.

What you might do is, and you have to look at the language closely, but what you might find is someone who says, when asked why these price controls or whatever, these restrictions and price gouging, the person might say, the president believes that, and then the person has covered his or her integrity.

But you had to notice it's the president believes that, not I believe, by the way, that's what I did when I was in the Reagan administration and the few cases where I disagreed with my boss, Marty Feldstein, and I had to defend his position at meetings, I said, Marty believes that.

And do you believe it? If they asked me that, I'd try to avoid. But if they asked me, I'd finally say, no, I don't.

Bill Whalen: It's funny, I'm friends with Mike McCurry, who was Bill Clinton's press secretary during the Lewinsky scandal and was a State Department spokesman before that.

During his White House days, he constantly would say, the president believes, or the president's lawyers or something like that. Never got himself entangled to it, so smart man. So finally, David, let's talk a bit about Substack, and let's talk about what you write under the heading of I blog to differ.

Very clever, I might have gone with bloggers can't be choosers, but I blog to differ is very clever.

David Henderson: I like that.

Bill Whalen: What are you writing on Substack?

David Henderson: Lately, I've just been writing some kinds of, well, okay. The one I did yesterday was talking about what I see as a bit of a crisis in economics, and it was brought on by this discussion of how price theory isn't taught much anymore, even in graduate programs.

And that's a real problem because price theory, it's funny. When I heard the term, when I was 18, I didn't know what people were talking about. And they don't mean just the theory of price. What they mean is looking at prices and other incentives as incentives. And so it's a very powerful way of looking at the world.

And in fact, what's happening in PhD programs to some extent is people looking at data rather than actually, actually doing price theory. And so I wrote a piece saying, I think we've got a bit of a crisis in economics on our hands when people aren't doing that. And so that's kind of the latest thing I wrote.

Bill Whalen: Final question, David. We are now heading the homestretch of this presidential election. Once we get past Labor Day, historically, when the sprint kicks in, you're going to hear a lot of back and forth between the two campaigns on economics in terms of what they want to do on taxes, what they want to do on regulation, what they want to do on inflation, jobs and so forth.

Can you advise our listeners on where they should turn to for information? Because I think if you listen to the two candidates, if you go onto Twitter or X, excuse me, it could be kind of disorienting. But where would you turn to to try to make sense of what the two proposed do and what the ramifications would be?

David Henderson: Well, I mean, a lot of the stuff on Hoover is very good on defining ideas. My piece that I wrote for defining ideas that Charlie Lindsay is editing today and will run tomorrow is comparing Kamala Harris and Donald Trump on taxes and spending, where I think neither of them is good, but Trump is head and shoulders better than Harris.

So there are things like that. My Substack, I blog to differ is another one. Grumpy Economist, you mentioned, is another one. There are a lot of places to go, and you just have to find them.

Bill Whalen: Yeah, shout out to our colleague Michael Boskin, who wrote a really terrific piece for the Wall Street Journal this week, trying to explain commonomics.

David Henderson: Yeah, that was pretty devastating.

Bill Whalen: Okay, David, are you enjoying the good life in Monterey?

David Henderson: I am, I got some good news from a biopsy of my prostate the other day, so I'm pretty happy right now.

Bill Whalen: Well, life in Stanford is pretty nice, but if I had to trade in Palo Alto and Stanford, Monterey would be pretty high on my list.

David Henderson: Yeah, yeah.

Bill Whalen: Okay, hey, Dave, enjoyed the conversation.

David Henderson: Ditto, thanks, Bill.

Bill Whalen: You've been listening to matters of policy and politics, a Hoover Institution podcast devoted to governance and balance of power here in America and around the world. If you've been enjoying this show, please don't forget to rate, review and subscribe to us.

And if you wouldn't mind, please spread the word. Tell your friends about us. The Hoover Institution has Facebook, Instagram and X feeds. Our X handle is @hooverinst. That's spelled H-O-O-V-E-R-N-I-S-T. David Henderson is on Substack. As we've talked about, the title of it again is I Blog to Differ.

You can also find him @ davidhenderson.com where you can find several books he's written on economics and business. I mentioned our website at the beginning of the podcast. That's hoover.org. While you're there, you should sign up for the Hoover Daily Report. Delivers the best work of Dave Henderson and his colleagues to your inbox weekdays.

For the Hoover Institution, this is Bill Whalen. We'll be back soon with another installment of matters of policy and politics. We'll be talking to California colleague Lee Ohanian. Until then, take care. Thanks for listening.

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