Let's teach David Frum how modern economies work

And ideally learn him a little humility in the process

David Frum was a guest on Talking Feds this past weekend. Harry Litman usually gets great people, and he had two, Jen Rubin and Stuart Stevens. And maybe Frum is normally a great panelist but he said something so stupid that I have my doubts.

Frum is a staff writer at the Atlantic, which is probably my most-read publication right now. The “About” page on his website has encomiums from William F. Buckley, Frank Rich, and John Podhoretz, which are pretty good credentials. Presumably, none of his ten books says anything as dumb as this, said of Kamala Harris:

“The thing that worries me the most is her constant emphasis on price gouging as a cause of inflation. I worry she might believe it. And if she believes it, that tells me that she can’t think in an orderly way about how a modern economy works. What terrible moral change came over American business that in 2019, businesses weren’t greedy, and in 2021, they were greedy. A massive moral change for the worse. But good news! Between 2021 and 2023 they stopped being greedy. And they repented, like Scrooge in the last act.”  

Let’s start with Frum’s apparently having failed Capitalism 101 — businesses are always greedy. That’s how a market-based economy works. We can quibble about whether it’s tilted in the wrong direction, but whatever tilt it has, it’s dictated by some manner of greed. They were greedy in 2019, they were greedy in 2020 and 2021, and they’ve continued being greedy since then. And news flash: They’ll be greedy in 2025 too.

What happened in 2020 was that the pandemic triggered a gigantic shift in the economy. Real estate, food, vehicles — you name it, its buying patterns changed. The closest comparable period was post-WW II, when the U.S. shifted overnight from a wartime economy to a consumer economy that had never before existed.

In an economy like that, businesses don’t know how to price their goods. For example, people suddenly wanted to create their own home gyms. The price of a simple 45-pound barbell skyrocketed. There was limited supply. Maybe people would pay $150. Wow, they will. Maybe they’ll pay $180. Wow. Maybe $200. Let’s try $300.

People were buying homes in desirable areas after seeing nothing more than a realtor’s FaceTime walkthrough. (I know realtors in New York’s Hudson Valley, about 60 miles north of Manhattan, who did some of those video walkthroughs.)

So maybe “gouging” isn’t the exact right word, but it’s worth noting that real estate prices haven’t come back down, though demand is diminished, and a Rogue-brand barbell is still $245 (“normally $295!”). Allegedly, the price of eggs shot up because Avian influenza diminished the supply, but the flu is long gone, and the price of eggs is still way above pre-pandemic levels. It’s hard not to imagine that some kind of gouging is at work. Again, businesses are as greedy as consumers allow them to be.

Which brings us to the other side of the market. The pandemic initiated a complete rescrambling of the labor market. The CARES Act of 2020, in particular, gave people some breathing room (i.e., income without working) to rethink their jobs, their careers, where to live — their entire situation.

In my favorite episode ever of the New York Times’s podcast, “The Daily,” journalists Sydney Harper and Michael Barbaro interviewed employers and employees and found that “companies across the service industry [faced] a labor shortage, with the retail and restaurant sectors leading the way” (“Stories From the Great American Labor Shortage,” Aug. 3, 2021).

Employers were dealing with “a crippling shortage of workers”; waiters and chefs were rethinking the endless hours and ratio of pay (low) to skills needed (high). The net result? You saw it yourself in restaurants that cut days and hours when they reopened, simplified menus, continued doing take-out only, or had lines of people waiting because a table doesn’t turn over quickly when the staff is untrained. And it wasn’t just restaurants. You saw it in the signs on the doors of retail businesses, suddenly paying $15 and even $20 per hour for work that used to pay the minimum wage. You saw it in rural and suburban highway billboards that advertised high pay for anyone who could wield a hammer.

Frum is wrong about Harris not thinking in an orderly way about how a modern economy works, but Democrats, in general, haven’t come to grips with the simple fact that if workers’ wages rise, so will prices.

Wages may be generally and consistently outpacing inflation when looked at from the 30,000-foot-high viewpoint that economists like Paul Krugman take, but when you swoop down below the clouds of the CPI, GDP, and other such macro measures, what you see are lots of workers who see others doing okay while they’re not. You see parents despairing that their grown children will never be able to buy a home of their own. You see workers with part-time jobs—sometimes more than one—who don’t get health care benefits, 401Ks, or paid time off, who sometimes don’t even know what their hours will be next week.

What you also see are skyrocketing rents and skyrocketing home prices and mortgage rates, skyrocketing home insurance, skyrocketing car insurance, and skyrocketed credit card interest rates. (This is a bad mixing of metaphors; you would think with all these things shooting up into the sky, once they pierced the clouds, Krugman, et al., would get a peek at them.)

Even as the paid commentariat class wrings its collective hands over the prices of eggs and bacon, these skyrockets, for many people, are what’s forcing them to continue to live paycheck to paycheck, despite higher wages.

And it’s not hard to see what those skyrockets have in common —they trace back to a highly concentrated oligarchy of banking, finance, and insurance companies setting prices in markets where it’s hard for buyers to shop and where a handful of dominant companies are able to collude tacitly if not overtly. If you want to see the greed, look no further than a recent CNBC recently report: “Despite a half-point Fed rate cut, the average credit card interest rate fell by just 0.13%.” Greed isn’t the only cause (climate change has forced a rise in home insurance rates, for example, especially in red states like Florida and Oklahoma), but it’s certainly one cause.

These are matters that are apparently beyond Frum’s ken, which is fine, but he really shouldn’t lecture other people about an economy that he himself doesn’t understand. He also apparently doesn’t understand the quote on his own homepage: “Those who seem to despise half of America will never be trusted to govern any of it.” Hasn’t that been disproven by at least two of our three most recent elections? Maybe he also doesn’t understand irony.