The Atlantic‘s Annie Lowrie offers a “The Three-Step Guide to Fixing Affordability.” After noting that,
By the most straightforward, objective measures, Trump has a pretty good argument that the affordability crisis does not exist. Real disposable income is near its highest point in history, and Americans are buying more stuff than ever. Yet voters want prices to come down to where they were a few years ago, a shift that would likely never occur outside the context of a devastating recession.
she observes,
Many policies that would bring down prices in a durable fashion (such as a huge home-building push) would do nothing in the next few years. Many of the policies that would bring down prices in the short term (such as rent freezes) would generate shortages and lift costs over time. “We call it the affordability conundrum,” Neale Mahoney, an economist at Stanford, told me, referring to work he did with the policy adviser Bharat Ramamurti. “People want affordability now, and the tools we have don’t work on an immediate or short-term basis.” Even worse, many of the policies that sound good to voters (such as stimulus checks) would spike inflation, and many of the policies that would do a lot of good (getting rid of the tax exclusion for employer-sponsored health coverage, for instance) would be challenging to pass and challenging to implement.
Before getting to the titular advice:
What’s a policy maker to do? Three things, I learned by speaking with campaign operatives, pollsters, economists, think-tank types, and a lot of teed-off voters from across the political spectrum. Stop making things worse. Provide immediate relief. Then do the hard work of getting the most important prices down.
Which, alas, runs right smack into the aforementioned conundrum.
[U]ndoing the bad choices and refraining from making new ones won’t be enough, for people or their bank accounts. Voters want radical policies that deliver instant relief. They want prices to go down. In polls, they say they want bans on price gouging, freezes on rental costs and utility bills, tax cuts, stimulus checks, and price controls.
The standard economic argument is that the voters shouldn’t get what they want, because a lot of those proposals would raise inflation or worsen the country’s affordability crisis in the long term. Take Mamdani’s promise to freeze the rent on roughly 1 million New York City apartments. The residents of eligible units would benefit. But people paying market rates or looking to buy a home would not, and the policy could fuel gentrification and dampen construction, pushing up real-estate costs in the long term. But what if the rent freeze were only temporary and lasted just long enough to give the city time to build more housing units? Maybe that’s not a bad trade.
Nothing spurs investment in new construction like preventing those who own property from charging market rates. And, while we wait for that to happen, we drive up prices for everyone else, since we’ve artificially limited supply.
Capping prescription-drug costs—perhaps the single most popular policy idea out there, embraced by voters of both parties—seems to be a reasonable quick fix for the health-care-cost crisis. But it wouldn’t do much, Altman said. Prescriptions account for less than 10 percent of overall health expenditures. Nevertheless, caps might still be worth implementing, helping the sickest Americans and delivering immediate relief to consumers.
Given that Americans already pay more than just about anyone for prescription drugs (albeit most of us just pay a relatively small deductible), I’m not opposed in principle to a cap. But, as Altman notes, it’s really a drop in the bucket. And those who would most benefit are those without insurance and likely can’t afford even the capped price.
Rate freezes on utility bills, similarly, aren’t much more than a Band-Aid. The average monthly energy bill has gone up 35 percent since 2022, and 12 percent in the past year alone. “There’s this disconnect between the private companies that are profiting off of energy markets and people’s struggles to keep the lights on,” Mike Pierce, the executive director of the advocacy group Protect Borrowers, told me. Climate change, the AI buildout, and the aging of the country’s utility systems threaten to hike costs in the future too. The country needs green-power plants, grid improvements, and public control over utility systems. But for now, the answer might be “stopping these companies” from raising rates, Julie Margetta Morgan, the president of the Century Foundation, told me.
I don’t pretend to have any expertise in utility pricing. Most everywhere I’ve lived, though, they’re a regulated monopoly whose prices are set by, well, regulators. (In my current house, we depend on a co-op for electricity, a propane tank filled by a private company we contract with for heating, and our own well and septic systems for water and sewer; I don’t see how any of that would be regulated.)
Oh, it gets worse.
The United States isn’t going to become affordable again unless Washington and the statehouses tackle three broken markets: housing, health care, and child care.
Oddly, there wasn’t a crisis five years ago, when we were doing very little about those markets. Regardless,
The country is short an estimated 5 million housing units, thanks to excessive zoning regulations, excessive community input, rising financing costs, and rising input costs. Washington doesn’t have a ready way to fill the gulf. State and local governments have control over nearly all of the relevant land-use rules, with the federal government working almost exclusively through mortgage and rental subsidies.
As Lowrey’s husband, Ezra Klein, has documented for years, a lot of well-meaning regulation makes it really hard to build. And the incentives are to build the most expensive housing possible, since it maximizes profits per unit.
As for health costs, well, “there has never been a meaningful, national effort” to hold them down, Altman said. (The Affordable Care Act expanded coverage but didn’t do much on prices.) As a result, health care pushes half a million Americans into bankruptcy a year, and excess spending acts as a miserable tax on every family’s budget.
The problem is structural. “Most people get health benefits through their employer—they’re exempt from payroll taxes, they’re exempt from income taxes, and employers can deduct them as a cost of doing business,” Meredith Rosenthal of the Harvard T.H. Chan School of Public Health explained. The situation “drives unaffordability,” she told me. Employers have a reduced incentive and little leverage to demand low-cost plans. Employees can’t effectively shop around. She and Altman also pointed to hospital consolidation and a lack of price controls as core issues.
Here, those making the most money off the system have managed to dominate the politics. The ACA was, in many ways, the worst of all possible fixes, further bolstering the insurance-based system that adds an expensive, inefficient middleman into the system while actually legislating away measures that held costs down. It expanded coverage, which was of course a good thing, but was unaffordable without massive subsidies.
Last, there’s child care, a ruinous, if temporary, expense. Parents pay the equivalent of a second mortgage. Day-care centers offer poverty wages to workers. Far too few families get affordable, high-quality care, pushing millions of women out of the labor market. Connecticut and New Mexico are setting up publicly financed universal-child-care systems, and the federal government should consider doing the same on a national level. “These things would be expensive,” Lena Bilik of the Roosevelt Institute told me. “But think of all the foregone wages and the lost economic security when people have to step back from work for any kind of unpaid caregiving.”
Many if not most other wealthy countries heavily subsidize childcare. Our cultural conservatism makes that harder here, as there’s something rather perverse in having society incentivize having small children raised by strangers rather than their parents. But, as it is, it makes little sense for those (usually mothers) without the ability to earn rather large salaries work outside the home, since the costs of childcare, commuting, and the outsourcing of other labor will usually offset take-home pay.
Of the three markets Lowrey identifies as needing fixing, healthcare is the easiest. It is, in most real senses, not a market at all. People with life-threatening injuries or illnesses really can’t shop around for the best prices or substitute less expensive goods. Most other OECD countries have some sort of universal system, often with insurance supplementing for extraordinary care.
