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Brian Lehrer: It's the Brian Lehrer Show on WNYC. Good morning again, everyone. If the Democratic Convention this week sought to elevate Democrats' mood with its emphasis on joy, a big challenge now is trying to further inflate the mood while convincing people she can deflate the cost of living. Here is one minute of Harris last night on the kind of economy she would try to create.

Kamala Harris: An opportunity economy where everyone has the chance to compete and a chance to succeed whether you live in a rural area, small town, or big city. As president, I will bring together labor and workers and small business owners and entrepreneurs and American companies to create jobs, to grow our economy, and to lower the cost of everyday needs like healthcare and housing and groceries. We will provide access to capital for small business owners and entrepreneurs and founders, and we will end America's housing shortage and protect Social Security and Medicare.

Brian Lehrer: Harris last night, and with us now to talk about what he calls Kamalanomics, is Nobel Prize-winning economist and New York Times columnist Paul Krugman. He likes some parts of the Harris economic agenda more than others. This may be the headline piece, and of course, we'll talk about it. He rejects the most widely heard criticism of her anti price gouging agenda, which some people call price controls. They say price controls never work. Dr. Krugman, always good to have you on. Welcome back to WNYC.

Dr. Paul Krugman: Hi. Good to be back on.

Brian Lehrer: First, is there a cohesive and articulated vision yet that deserves the name Kamalanomics?

Dr. Paul Krugman: Sure. It's not really very different from Bidenomics, at least as it was at the beginning. If you look back to Biden at the start with the Build Back Better agenda, most of what Harris is proposing now can be said to be completing that. Getting the parts of Build Back Better that couldn't get through the Senate because the marginal senator was Joe Manchin. It's not any kind of radical departure, but it's clear. This is a center-left Democrat who wants to move a little bit further left, but not a lot. It's not at all radical and it is cohesive.

Brian Lehrer: Let me go right to this, what's become the most controversial part of the agenda as she laid it out. We're going to play a clip from Harris's economy speech that was delivered last Friday in advance of the convention. She calls for the government to crack down on grocery chain price gouging on food and other things they sell, described by some as price controls. You say they're not price controls. Here's the clip from her economy speech last week, or at least an excerpt from it that I think is generating a lot of the reaction.

Kamala Harris: We all know that prices went up during the pandemic when the supply chains shut down and failed, but our supply chains have now improved. Prices are still too high. A loaf of bread costs 50% more today than it did before the pandemic. Ground beef is up almost 50%. Many of the big food companies are seeing their highest profits in two decades and while many grocery chains pass along these savings, others still aren't.

Brian Lehrer: Harris, last Friday and as you point out, Dr. Krugman, even some mainstream analysts, not just conservative attack dogs, are saying that's too socialist. I'm going to read from one of those in a minute and get your reaction, but hey say that "History in this country and elsewhere show price controls lead to shortages and other things that are bad." Your response is no. She didn't call for price controls at all. Explain how you hear it.

Dr. Paul Krugman: Okay. If you look at price gouging, saying that we're going to stop price gouging is a very, very long way from price controls. It's not Venezuela. It's not even Richard Nixon trying to freeze prices in 1972. It's actually quite standard. Most states have legislation that says that during an emergency, that during a disaster, it's illegal to charge unconscionable prices. That basically, if you happen to be a store owner and there's a shortage of basic foodstuffs, you cannot go and quadruple the price of food because people are desperate. There are good reasons, both political, moral and also economic, for not allowing that kind of behavior. That's all that is on the agenda.

When I wrote about it, I quoted from the anti-price gouging law in Texas. That actually sounds, if anything, a bit stiffer than anything that Harris has said, so it's not price controls. It's more or less saying, "We're going to make official what is already official and federal what is already standard policy in most states and basically what everybody wants."

Brian Lehrer: Listeners, we're going to open up the phones for your calls for Dr. Paul Krugman. Are you impressed with what you're hearing of the Harris economic agenda so far, or do you have questions for Dr. Krugman? We're also going to talk about inflation and another column that he wrote that's about that and the news this morning that the chairman of the Federal Reserve Board, Jerome Powell, seems to indicate that an interest rate cut is not too far away on the horizon. On any of that, 212 433 WNYC, 212 433 9692. Dr. Krugman, I don't know if this is one of the articles you were referring to without naming names, but I have Kathryn Rampel's piece from the Washington Post from the other day.

I think it's fair to say that she's generally a left-of-center political and economics columnist. She writes, "Price gouging is the focus of Vice President Harris's economic agenda. Her presidential campaign says she'll crack down on, 'excessive prices and excessive corporate profits, particularly for groceries.'" Then she cites the printed news release from Harris last week that refers to the first ever federal ban on price gouging on food and groceries, setting clear rules of the road to make clear that big corporations can't unfairly exploit consumers to run up excessive corporate profits on food and groceries. All right.

Here's where she gets specific. She says, "The most likely template for Harris's proposal is a recent bill from Senator Elizabeth Warren. Warren's bill would ban any grossly excessive price during any atypical disruption of a market." Alas, no definition was provided for these terms. Rather, the bill would empower the Federal Trade Commission to enforce bans using any metric it deems appropriate. Then she goes on to say, "At best, this would lead to shortages, black markets, and hoarding, among other distortions seen previous times, that countries tried to limit price growth by fiat." Your reaction?

Dr. Paul Krugman: Okay, this again, if you look at I like to use Texas law because nobody thinks that Texas is a socialist state. Texas law says that you can ban unconscionable, excessive price increases during any declared disaster, which is not very different from an atypical situation. The Warren bill doesn't say we're going to control prices all the time. It does leave it open-ended, but you have to do that. There's no real reason to think that this would become standard practice. Mostly, this is a gesture towards people's real concerns. You can argue that maybe two years ago during the worst of the supply chain disruptions, there was the kind of disruption of markets where possibly you might have invoked some price gouging rules, so though it's not clear that even then that would have happened.

To think of that, to translate that into price controls and black markets and all that, that's going way overboard. I think that I was a little surprised at Kathryn Rampel for buying into that. If you read the Warren legislation, it's pretty mild. It's nothing like price control.

Brian Lehrer: How would a Harris administration take this on? How would they figure out which grocery stores or supermarket chains were price gouging? What would the standard be and how would they enforce a particular price?

Dr. Paul Krugman: I think in reality, it's likely to be just something that's sitting on the books and never invoked. If you had a situation where you had an abrupt run-up in prices, then they would be looking at things like profit margins. Looking at whether price increases were in line with those taking place elsewhere in the world. Something like an immediate aftermath of Russia invading Ukraine, there was a big run-up in food prices globally. You can imagine that that would have triggered an investigation into whether some US grocery chains were raising prices even more than was appropriate given that situation.

Not clear that this would have turned up any real examples, but that's the kind of thing, and hopefully, we don't expect Russia to keep invading Ukraine every year. Look, it's mostly symbolic. Again, it's really nothing more than the kinds of laws that most states already have on the books. It's a way of saying we're paying attention. We care. If you are a corporation with a lot of market power, beware of exploiting it too much in times of disruption. It's not the core. I mean, if you look at the stuff that's substantive in what Harris is proposing, the price gouging is sort of way down the list. It's not at the core of what she's proposing to do.

Brian Lehrer: Liz in Huntington has a question for you. Hi, Liz. You're on WNYC with Paul Krugman.

Liz: Hi, thank you for taking my call. I'm just wondering if most or many states have these laws already, why is price gouging happening then? I don't understand.

Dr. Paul Krugman: It's not actually clear that price gouging is happening. Certainly not now. The closest you can get to it is to say that profit margins in the grocery sector are a little bit elevated from normal. There has been a longer issue, actually, in some industries, like meatpacking, where it does look as if there is the kind of stuff that we would normally deal with with antitrust, but there is not as much effective competition. If you look at this inflation story of the past few years, price gouging is, at most, a pretty small part of it. It's a few tenths of a percent at most in the aggregate and I doubt it's even that much.

Brian Lehrer: Are you saying the progressive quiet part out loud, which is talking about price gouging may seem like a good populist political line right now, but it's not really happening.

Dr. Paul Krugman: Well, I think right now, I think even left-of-center economists, including myself, would say that, "Look, I'm not saying it's not happening anywhere, but is it an important part of the story? No, it's not." I don't think even Elizabeth Warren, if really pressed on it-- you could ask her but- would say that this is mostly a price-gouging story. Most of what's going on is not, but price gouging gets people really upset. When it does happen, I mean, if it's suddenly there's a sudden thunderstorm and your neighborhood pharmacy suddenly starts charging $40 for an umbrella, you get really mad. That's an understandable reaction.

We want the government, to some extent, to be prepared to intervene to stop that from happening. There's nothing wrong with putting it on the list unless you think it's going to be abused, and there's no reason to believe that it would be.

Brian Lehrer: Mark in Brooklyn, you're on WNYC with Dr. Paul Krugman. Hi, Mark.

Mark: Yes, thanks very much. I definitely don't want the Democrats to say anything that's going to hurt their chances of defeating Donald Trump. I guess my question is are Democrats being a little disingenuous when they say that we're not going to raise taxes if your income is below $400,000? It seems to me like a lot of people out there might think, "Well, you know, if somebody's earning $200,000 a year, maybe they could pay a little more in taxes." Given the needs that we have, for example, on housing, I would imagine that to do something about the housing shortage in the US, there's going to need to be huge federal subsidies, so that's my question.

I guess there's a political calculation the Democrats have made to say, "$400,000 is the cutoff. If you're earning less than that, you're okay. We're not going to raise their taxes." Is that really realistic given the deficit and whatnot?

Brian Lehrer: Mark, thank you. Dr. Krugman?

Dr. Paul Krugman: Yes, it's hard to tell a story about the deficit and debt concerns tend to be way overblown. but in the end, the government has to more or less pay its own way. It is hard to see us doing that without some broader increase in taxes. We are a very unequal society, and there's a lot of money in people making $400,000 a year. There's a lot of potential tax revenue, but almost certainly not enough. Now, housing is not one of those areas. The main problem in housing is not that we need to spend a lot of federal money on it. The main problem is that we have all of these red tape barriers, all of the NiMByism, that prevents us from building housing, and so that's much more of a regulatory issue.

One of the things that actually was encouraging about Harris speech and, in general, the talk at the convention, was that the Democratic Party has gotten pretty YIMBY, yes, in my backyard. That is they're in favor of allowing the construction of more housing, and that's the main thing you're going to do on that front.

Brian Lehrer: Interesting, although, I see in your column that there's a lot of things about Harris's economic policy that you like, very much the child tax credits, and we'll get to that. You wrote that you're less enthusiastic about Harris's proposals on housing. Describe them and explain why not.

Dr. Paul Krugman: Okay, she's proposing to provide some financial incentives for home construction, which is a good thing, and provide assistance for first-time homebuyers, which is okay. I'm not wild about that because I think we overemphasize the importance of home ownership, but it's not actually a very expensive proposal. In some ways, might be equalizing. My main concern there is not what's in it, but what isn't in it, which is that the big obstacle to increasing the supply of housing is not something you can solve by subsidizing. It's not something you can solve with tax incentives because the bigger problem is that there are too many places in America that are not allowing anyone to build housing.

What good does it do to offer a subsidy to home builders if local governments, in some cases state governments, just block the construction? What's kind of interesting is that on this, the parties have reversed roles. Project 2025 has a full-throated endorsement of NIMBYism, saying that communities can restrict themselves to single-family housing, and we will never do anything about it. It's actually the Republicans are saying, "Let's go ahead and drill everywhere and let's strip mine, but build houses? Oh, no. Not if affluent households don't want more housing in the area."

Brian Lehrer: Don't let the market prevail in that respect. Well, here's a clip on the rental as opposed to homeownership part of Harris's possible housing policy from her economy speech last week.

Kamala Harris: Some corporate landlords collude with each other to set artificially high rental prices, often using algorithms in price fixing software to do it. It's anticompetitive and it drives up costs. I will fight for a law that cracks down on these practices.

[applause]

Brian Lehrer: Dr. Krugman, do you have a sense of what she's talking about there with respect to algorithms or how she could crack down on this?

Dr. Paul Krugman: Well, it's clear that she wouldn't be referencing that if there weren't some studies showing that this is actually happening now. Again, is this a major driver? Rents in New York City are way up. Is that mostly because of collusion and software algorithms? No. Are they making some contribution? Yes, it's probably, again, we're in the decimal point range, but why not? I think it's really important that people feel that the system is fair, and it's okay to try to address that, as long as you don't confuse doing that with the need to make sure that just plain more housing is constructed.

Brian Lehrer: Well, before Biden dropped out, he proposed a form of national rent control. You probably saw it. 5% a year maximum increases for what he called corporate landlords. I don't see that in what I've read of the Harris plan. Am I missing it or did Harris decide not to go there?

Dr. Paul Krugman: Well, I don't know exactly what happened, but she didn't mention it, which is good, because I think that's too mechanical. Look, we had a big run-up in rents and in housing costs, generally roughly from 2020 to 2022, which appears to have been mostly driven just by market forces. The rise of work from home meant that people wanted more home to work from, and that just increased the demand for housing a lot. Supply couldn't catch up in some cases just because it takes time, and in some cases because, again, NIMBYism. You weren't allowed to build more stuff, So that's the big story.

I think it would have been really problematic if we'd had a price cap on rent increases during that run-up.

Brian Lehrer: Does that get us back to our previous conversation about price controls?

Dr. Paul Krugman: Sure.

Brian Lehrer: When you reference the cost of rent in New York City, there are conservative economists who will say, "Well, one of the reasons for high rents in New York City is because a million apartments are under rent stabilization, controlling the prices, so there's a shortage in the rest of the apartments, and that pushes up the prices. Everything would be cheaper for everybody if the market was simply allowed to prevail." What's your view on that?

Dr. Paul Krugman: Okay, rent control is a price control. In fact, it's the only kind of price control that's at all widespread in America these days. It is a bit of a problem for supply. The conservative argument that controlling rents on some apartments raises rents on others, there's a little bit of truth to it, but probably not much of it. The fact of the matter is that rents are very high in every city that has any kind of zoning restrictions on construction. I don't think that the rent controls are a big thing. Yet the argument against, nobody is actually proposing now a massive extension of rent control, except for that Biden proposal, which was a little bit, I think, that was slapped together and appears to be being quietly dropped.

Brian Lehrer: Interesting.

Dr. Paul Krugman: The problem, of course, is that you can't just say okay to millions of people, "Okay, your rent is going to suddenly double because we're removing controls." That's an unacceptable shock, but this is all really peripheral. It's really not the core of the problem.

Brian Lehrer: These are complicated issues in New York City, at very least, as you know, where people say, "Well, it's not just NIMBYism that I don't want corporate landlords building big buildings and changing the density and demand for services on the subways and the schools and quality of life in our neighborhoods." That's a complicated conversation that we have here in bits and pieces almost every week. I want to acknowledge before we run out of time that a lot of people are calling and texting, either disagreeing or at least confused by what you said before about price gouging on groceries not really happening.

I'm going to take Laurie and Morristown to represent them. Laurie, you're on WNYC with Paul Krugman, hi.

Laurie: Hi, thank you for taking my call. Yes, when the grocery industry and the fuel industry and tech, so many sectors are having record profits quarter after quarter after quarter. How can we say that there's no price gouging? I wanted to understand that better.

Dr. Paul Krugman: Okay. You want to think about it's a question of magnitudes. When we say record profits, grocery chains typically have a profit margin of, at most, a couple of percent. So when we say record-- I wish I had the numbers right in front of me- but we might be talking about 3% rather than 2%. Of course, the price of groceries is up a lot more than that. Not all of it, is price gouging. Some of it can be other factors, but even if you attributed it all of the increase in grocery store margins to price gouging, it's still only a small part of the rise in food prices.

The fact of the matter is global food prices really shot up, particularly after Russia invaded Ukraine. They've come only partway back down. Look, overall, the thing I always like to say, which gets everybody angry, is to say, "Look, if you go back to 2019 when people were feeling pretty good, and compare it with today, overall, prices are about 23% higher than they were then. Wages for ordinary workers, non supervisory workers are up about 28%." That tells you both that claims that everybody's been made much worse off by inflation aren't right. It's also telling you that there can't be all that much price gouging going on if wage growth has, in fact, exceeded price growth.

It's one of those things where there is injustice out there. There is abuse of market power out there. These are real issues. It's appropriate for the president or presidential candidate to say we are going to crack down on those abuses, but it's also appropriate for the rest of us to understand that that is not the core of the economic problem.

Brian Lehrer: We're over time. We're going to have to leave any conversation about child tax credits, which both sides favor now in one form or another for another day, but I do want to get your quick take on Fed Chairman Jerome Powell's remarks this morning, which seem to indicate that he thinks inflation is under control enough now that interest rates might start coming down soon.

Dr. Paul Krugman: Yes, he's just declared victory over inflation and said, "Now we need to make sure that unemployment doesn't scoot up." There's no error at all between what Powell said this morning and what I said in my newsletter on Tuesday, so I was very happy with his speech.

Brian Lehrer: Which was what?

Dr. Paul Krugman: Which was that basically inflation is under control. It was mostly longstanding disruptions that came ultimately from the pandemic. As those disruptions have eased, inflation has come back down more or less to normal. Now our big concern is we've made our landing now. To make it a soft landing, we need to pull up the nose on the airplane, which means cut interest rates.

Brian Lehrer: That Tuesday newsletter, available only to New York Times subscribers I understand, was called What Happened to Inflation? His column available to anybody who goes to the New York Times website or gets the print edition. I guess if you haven't run out of your free articles per month or however that works, is called Kamalanomics Revealed: A Solid Center-Left Agenda. Dr. Krugman, thank you, as always.

Dr. Paul Krugman: Thank you.

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