The Biden policies we must leave behind

By Gordon Gray
Real Clear Wire

Throughout Joe Biden’s tenure in the Oval Office, Americans suffered under higher prices. President Trump has signaled he will take a markedly different approach to economic issues from his predecessor.

In just his first day in office, Trump departed from Biden on a range of policies including immigration and tax policy, plus made alleviating rising costs for families a goal.  With 10-year bond yields reaching their highest levels in over a decade and the Federal Reserve expressing renewed concerns about inflation, family budgets remain at risk.

Amid this uncertainty, recent improvements in productivity offer a glimpse of the economy’s potential. Gains in labor productivity, driven by advancements in technology and capital investment, are the silver bullet for economic growth. Productivity growth offers the promise of higher incomes without additional pricing pressure. The only catch is that productivity growth is often ephemeral and very difficult to predict or directly affect.

Which calls for President Trump and Congress to establish a policy environment that encourages the investment needed to sustain and expand. The free market is best suited to encourage this efficiency, but not in a vacuum. Public policy can improve these incentives or harm them. Here are five policies the new administration should pursue to lower prices:

First, policymakers should improve the climate for business investment. The tax debate will be a critical forum for shaping policies that encourage investment.

That is because productivity gains don’t happen in a vacuum, they require sustained investment in technology and innovation. Policies like full expensing, which allows businesses to immediately deduct the cost of capital investments, are essential for fostering efficiency. As part of tax reform, Congress should make full expensing permanent and restore full Research and Development (R&D) expensing. These provisions lower the cost of investing in the tools and processes that drive productivity, reducing costs for businesses and consumers alike.

Second, federal housing policies should be oriented towards increasing supply. Housing costs are among the largest contributors to the CPI measure of inflation. Indeed, shelter costs, somewhat mirroring household budgets, is the single largest element of the consumer price index. Restrictive zoning laws, inefficient permitting processes, and misaligned incentives have constrained housing supply, driving up prices. Federal housing policies should encourage better land-use practices, higher-density development, and streamlined permitting to expand supply and ease cost pressures. In the wake of devastating fires, California will be waiving the usual gamut of regulatory approvals that otherwise stymie home building in the Golden State. If California can make homebuilding more efficient during a crisis, surely the U.S. as a whole can do so during a national housing crunch.

Third, the U.S. needs to stop the assault on dynamism by activist regulators. The Federal Trade Commission’s (FTC) increasingly aggressive antitrust enforcement threatens to disrupt productive investment and innovation. By prioritizing ideological goals over economic realities, the FTC’s activist approach creates uncertainty that hampers efficient capital allocation. Congress should ensure that antitrust enforcement promotes fair competition and innovation, rather than imposing barriers that ultimately harm consumers through higher prices.

Fourth, the U.S. must embark on legal reforms that slow the growth of runaway tort costs that become embedded in the prices of consumer products, from goods to financial products such as insurance. According to an Institute for Legal Reform study, the current tort system costs a family of four an estimated $4,500 annually. Reforms such as capping punitive damages and discouraging frivolous lawsuits would alleviate these costs, making the legal system more efficient and reducing the burden on consumers.

Fifth, the new administration and Congress must roll back the regulatory state. Excessive regulation acts as a hidden tax on businesses and consumers. With the late Jimmy Carter's presidency receiving renewed consideration, one unabashed success story from his term was airline deregulation. Since Carter signed the Airline Deregulation Act of 1978, American consumers have benefited from lower prices and greater choice. Under the Biden administration, $1.8 trillion in regulatory costs were added, contributing to inefficiencies across industries. Policymakers should look to the success of past deregulatory efforts and wrest savings out the regulatory state to pass on to consumers. By using tools like the Congressional Review Act to roll back burdensome regulations, policymakers can reduce burdens on innovation and competition, ultimately benefiting family budgets.

While recent productivity improvements are encouraging, they highlight the need for policies that sustain and amplify these gains. By incentivizing investment, addressing housing supply constraints, reforming the tort system, and curbing administrative and regulatory overreach, and, Congress and the new administration can create the conditions for sustained economic growth and lower prices.

Rising bond yields and persistent inflation signal that the time for action is now. These policies offer a clear path to a stronger, more affordable economy.