Market Problems Aren't Solved With Government Solutions

To investors,

Vice President Harris is expected to unveil an economic plan later today in her bid to be elected President of the United States in November. The plan will cover numerous topics, but two things getting attention already are her ideas on how to bring down the cost of food and home ownership.

First, it is true that food prices have exploded in America. Grocery bills are up nearly 26% since the last election in November 2020. Both sides of the aisle agree we need to get these prices down, along with ensuring future price growth is at a much more moderate rate.

The disagreement between political parties is related to the best plan of action. Vice President Harris is slated to claim grocery stores are price gouging. She is going to propose a national ban on this price gouging, which will magically bring down food prices. Of course, that is not how the world works.

Grocery stores operate on razor thin margins. Estimates are between 1-4%, so the idea of price gouging in this industry is absurd. The real reason grocery prices have gone up is because the dollar has been debased and input costs for grocery stores have skyrocketed. When input costs go up, the output prices have to go up too.

The government should not fool itself into believing it can run a grocery store better than the executives of these companies. Price caps and other artificial interventions in the market will not solve the problem. In fact, history suggests that these actions will accelerate the problem and make things worse. Just ask the people of Venezuela.

If you want to bring down the price of food, there is only one reliable solution — you have to produce significantly more food.

Supply and demand determine price. Increase supply for prices to come down.

It doesn’t appear the existing administration attended their Economics 101 class in college though.

Unfortunately, food is not the only place where economic illiteracy is being applied.

Vice President Harris’ second major talking point for her economic plan today will related to housing. She is reportedly going to propose a $25,000 boost for first-time home buyers, along with a call for 3 million or more homes to be built.

The idea of giving free money to people to help them buy a home feels like a noble thing, yet it will have the opposite effect. Home prices will increase by $25,000 or more. The market responds to changes in variables.

With that said, Harris’ call for millions of additional housing units to be built is a great idea. We should celebrate this plan. We should giver positive reinforcement to her and her campaign. If you want to bring down home prices, then you have to create more supply.

Build. Build. Build.

That is the solution to the housing crisis. The solution to home affordability lies in the hands of home builders. If the government wants to participate and be helpful, they should reduce regulation and help home builders do what they do best — build more homes!

My hope for our next President, regardless of which candidate it is, will be for the application of basic economic concepts. Increase supply of food and homes to bring the costs of those items down. Give relief to citizens not in the form of handouts, nor through market manipulation, but rather via the hard work of producing more goods and services.

That is how you create lasting change. Javier Milei is doing it in Argentina right now. There is no reason we can’t do the same in the United States.

Let’s just hope Trump or Harris has the courage to do the hard things. Hundreds of millions of Americans are counting on them.

Hope you all have a great weekend. I’ll talk to everyone on Monday.

-Anthony Pompliano

Founder & CEO, Professional Capital Management

Phil Rosen, the Co-Founder of Opening Bell Daily, and Anthony Pompliano, CEO of Professional Capital Management, discuss the economy, inflation, volatility in the stock market, and future outlook for financial assets.

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Anthony Pompliano Explains Why Price Controls Are A Bad Idea

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