- Both Trump and Harris are proposing policies that defy economic reality, Howard Marks wrote.
- Trump's tariff and tax plans ignore the potential costs associated with them, the billionaire investor said.
- Harris' anti-price gouging policy misses the point, as does her housing support plan, Marks said.
The presidential election is running on promises that just don't hold up, according to billionaire investor Howard Marks.
"Like me, you've undoubtedly noticed that politicians ranging from former President Trump and Vice President Harris to down-ballot candidates are back to making promises that ignore economic reality," Marks wrote in his latest memo.
These proposals either disregard the costs that come with them or show a failed understanding of the problem they hope to address, the Oaktree Capital founder wrote.
Marks emphasized that he was neither dismissing nor promoting either candidate, and took aim at policy ideas on both sides of the aisle.
Donald Trump: Tariffs and taxes
In Trump's case, plans for higher tariffs on virtually all US imports are equivalent to a price hike on average American consumers, Marks said.
Trump has frequently disregarded this argument as a false alarm, despite warnings of a tariff-led US economic shock. Instead, the former president has emphasized that 10% across-the-board duties would correct trade inequalities and bring back domestic production, with no risk of inflation.
Marks agreed that tariffs might stimulate US output, but higher taxes on foreign goods discourage low-cost imports. As these disappear, consumers should prepare for higher prices. One think tank estimated that these could amount to an additional $1,500 cost on households a year.
The billionaire investor also scrutinized Trump's tax proposals.
If elected, he has vowed to extend the expiring 2017 tax cut, keeping the corporate tax rate at 21%. But Marks warned that this will increase the national deficit by $5.8 trillion in the next decade, or $4.1 trillion if the cut leads to a stimulative impact.
In recent years, scrutiny has mounted over US overspending and the rise of federal debt. Marks noted that annual interest on national debt now exceeds the defense budget — and will eventually need to be addressed.
"The truth is, deficits encourage the economic growth that most people enjoy, and spending more than the government takes in permits officials to give away 'free stuff,' thereby gaining votes," he said. "But doing this perpetually requires ignoring the laws of economics, running up debts in the apparent belief that they'll never have to be paid. Can it go on without end? We'll see, but I would think not."
Kamala Harris: Price gouging and housing
Marks' primary criticism aimed at Harris' anti-price gouging policy.
Gouging happens when corporations lift prices for their benefit, taking advantage of supply-demand imbalances — such as during a natural disaster or in a pandemic.
While Harris has voiced a desire to tackle grocery inflation, Marks isn't convinced that price hikes have stemmed from bad intent on the part of corporations.
"There's nothing wrong with trying to bring down the cost of necessities. However, the best way to do this is to encourage additions to supply. Another way is to not overstimulate demand by injecting excessive liquidity into the economy," he said. "Mandating lower prices is generally the least effective way to get them."
Economists have generally been split on whether Harris' gouging policy amounts to price controls, though proponents say this is misleading.
Marks also considered Harris' proposal for $25,000 in downpayment assistance to first-time homebuyers. Since the pandemic, the housing market has become increasingly unaffordable, with prospective buyers facing low supply and high costs.
"Certainly, it's hard these days for young people to come up with the cash needed to become homeowners," Marks wrote. "The problem here is that giving a million would-be buyers $25,000 each, or $25 billion in all, would almost certainly result in an immediate increase in home prices, eliminating much of the hoped-for benefit from the program."
