Vice President Kamala Harris recently unveiled an economic plan centered on price controls, wage hikes, and subsidies. While the tech industry is not specifically targeted in her proposals, the broader economic ramifications could spell trouble for the sector.

Harris’s price controls, covering essentials like food, medicine, and housing, echo the failed attempts of the past, such as Richard Nixon’s price controls in the early 1970s. Nixon’s efforts may have temporarily masked inflation, but they led to shortages, required a price-control bureaucracy, created higher lobbying costs, reduced industrial production, and, ironically, led to higher prices in the long run. Price controls often hurt those they aim to help; price controls on food damage family farms and harm low-income households by decreasing supplies of controlled products in favor of higher-priced foods.

In the pharmaceutical industry, price controls have even more severe effects. A study of OECD pharmaceutical price controls finds that they suppressed research and development (R&D) budgets by billions, resulting in fewer new drugs, lower life expectancies, and increased overall healthcare costs.

The consequences for small businesses are similarly grim. Artificially low prices squeeze out the least profitable, generally smallest or newest firms, often leaving only the largest corporations standing.

What does this mean for the tech industry? While the wage hikes could accelerate the adoption of AI and automation—a potential boon for tech—the broader economic drag caused by price controls would likely dampen demand for tech products and services. Depressed incomes and production, coupled with the inevitable price surges once controls are lifted, could spell trouble for the sector.

Moreover, someone must pay for the new, substantial subsidies, potentially costing between $1.7 trillion and $1.9 trillion over a decade. Funding this would likely require some combination of tax hikes or money printing—both of which could stifle the economy. Tax hikes would reduce aggregate investment, spending, and savings, thus suppressing gross domestic product. The likely consequence for tech are less R&D into artificial intelligence and reduced demand for the tech industry’s products.

Alternatively, financing these subsidies through monetary expansion risks escalating inflation—a phenomenon the Biden-Harris administration has struggled to contain. Inflation suppresses the economy, erodes economic stability, and distorts financial decision-making. Not only would the resulting depressed demand hinder growth in the tech sector, but the industry would likely also see its costs rise faster than other areas of the economy. (Technically, the tech sector falls into business services. Its rate of asset turnover—the measure of how many days it would take for revenue to pay for assets—is below average across industries.)

Compounding these issues are the Biden-Harris plans to regulate algorithmic pricing in housing. Suggesting regulations at this time could have a chilling effect on technological innovation. Even as research into algorithmic pricing remains nascent, Harris’s signaling of regulatory intentions could deter businesses from adopting new technologies, stifling the very innovation that drives the tech industry.

Harris’s plan resembles a move toward a planned economy, which, as Ronald Reagan warned, equates to controlling people—using force and coercion to constrain the choices of workers, farmers, and businesses; choices that, if left to a free market, would benefit consumers. This heavy-handed approach is bad for the tech industry and bad for the economy as a whole.

As the tech sector grapples with numerous business challenges and regulatory challenges, including the exploding regulatory regimes in Europe and aggressive antitrust at home, the broader economic implications of Harris’s plan should not be underestimated. What is presented as a path to economic improvement would instead lead to stagnation and diminished innovation in one of America’s most dynamic industries.

The post The Potential Risks to the Tech Industry from Kamala Harris’s Economic Plan appeared first on American Enterprise Institute – AEI.