America needs someone to connect the economic dots

The blue wall looks strong. Even before the rousing Democratic National Convention in Chicago, August polling showed that Kamala Harris had pulled ahead of Donald Trump in three key Midwestern swing states — Michigan, Wisconsin and Pennsylvania. This is down to her ability to channel a mood of optimism rather than fear, Trump’s own mis-steps and the fact that 30 percent of the private sector investments into strategic sectors supported by the Biden administration has gone to places like the industrial Midwest.

That investment in those areas most affected by trade shocks wasn’t accidental.

As a recent Brookings Institution paper points out, it is part of a systemic approach taken by this White House to do three things: alleviate the downward spiral in the communities most affected by the China shock of 2000-2012, fortify economies at high risk of future disruption and rush private investment into key new sectors such as semiconductors, clean energy and biomedical equipment.

People often refer to this as industrial policy. But you might also call it systems thinking, meaning solving problems not as one-offs but as part of a broader strategy that connects the dots in order to deal with root causes rather than symptoms. In this case the dots are economic and political and they fall across different issues, geographies and sectors.

Systems thinking is much more common in areas like military strategy and engineering than in economics. But it’s something that Harris and her team will need to embrace if she wins the presidential election. So far, the vice-president’s economic policies have been light on details. That’s appropriate given the election timetable and the need to stay somewhat politically flexible. Ultimately, however, her team will need to start connecting the dots in areas such as housing, childcare, competition and tax policy if they are to truly address the problems facing the US economy.

Consider the housing market. Harris is right to focus on the need for new starter homes and to consider tax incentives for builders and buyers as well as ways to remove zoning roadblocks. But there are other systemic issues that distort the market. One is the increasingly high price of homeowners’ insurance. Another is supply chain complexity and cost (housing requires several separate material supply chains). Then there’s the way in which the Fed has, albeit unwittingly, created a huge choke point in the housing market by keeping rates higher for longer at a time when prices have also remained elevated.

None of this can or should be messaged on the campaign trail. But it needs to be understood in a holistic way in order to craft the best policies. The same goes for childcare, another passion point for Harris. Her idea to expand the child tax credit is a no-brainer. But tackling the fundamental problems in childcare will require a broader approach to market dysfunctions, which have resulted in a system that serves mainly the wealthy, or those receiving government support. It will mean understanding why private equity now owns eight out of the top 11 childcare chains in America (not to mention the fact that shadow banks are making inroads in other areas of public interest, such as the student loan market, healthcare and education) and examining the implications for access and affordability.

Harris has many strengths, one of which is a prosecutor’s ability to grapple with diverse problems and to see all sides. That will serve her well on the campaign trail and in debates. But good governing requires a systems approach.

You can love Bidenomics or hate it, but it wasn’t ad hoc. This White House has presented a clear, unifying vision, which is that markets don’t always work, power exists in the political economy and governments must intervene in systemic ways to protect the interests of their citizens, not just consumers.

Harris now has a chance to showcase her own systems thinking on issues such as price gouging. Her proposed ban on excessive grocery prices is an important political nod to more vulnerable voters who have been hard hit by food inflation.

But tackling price gouging will require looking not just at grocery margins, but understanding how financial speculation by the world’s largest commodities traders lifted both food and fuel input prices over the past several years. As a recent UN report laid out, it is “unregulated activity within the commodities sector” that was responsible for the bulk of “speculative price increases and market instability” since the pandemic.

The way in which shadow banks jump through regulatory loopholes to leverage unfair advantages, or the complex interplay between housing markets and monetary policy, or how to move beyond tax policy as the only solution to market distortions might seem like disparate challenges. In fact, they are all part of a larger issue, which is the need for our elected officials to better understand how markets really work — not just how classical economic models say they should — and set rules and policies that ensure they do so in the public interest.

Should Harris win the White House, she’ll be in a unique and powerful position to do just that.

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