Free Markets Can Promote Affordability

By John Hood

RALEIGH — If formal surveys and social-media tracking offer useful signals — flawed as they may be, they’re superior to motivated reasoning or rank speculation — affordability tops the priority list for those most likely to cast ballots this fall.

Voters are particularly concerned about the costs of housing, energy, groceries, health care, and child care. They worry that whatever wage or income gains they receive over the next few years will be more than outpaced by rising prices. They fret that when their children or grandchildren reach adulthood, their living expenses and quality of life will be materially worse than what they experienced at the same age.

Some of these concerns are overblown. Despite the rampant inflation of the COVID era, Americans as a whole are better off today than past generations were. Today’s Millennials and Generation Z aren’t poorer than my fellow Gen-Xers and I were in the 1980s and 1990s. During most of my lifetime, progressives claimed “the rich are getting richer and the poor are getting poorer.” Their claim was erroneous, although in most cases mistakenly rather than misleadingly so.

There’s no guarantee these generally favorable trends will continue into the 2030s, however. Artificial intelligence may prove more disruptive to labor markets than past technologies revolutions were, at least in the short run. Federal debt has shot past 100% of gross domestic product and will reach unprecedented heights over the next two decades, putting upward pressure on interest rates and possibly leading to economically ruinous tax increases. And while poverty has never been rarer than it is now — most of the decline in the poverty rate occurred before the mid-1960s War on Poverty, by the way, not as a result of it — recent trends in education, family formation, and labor-force participation do not auger well for the economic prospects of lower-income Americans.

What should an affordability agenda look like? Progressives and left-wing populists have long argued for regulating prices, socializing risk, and redistributing income. Over the past decade, some right-wing populists have embraced a similar approach, albeit with culture-war characteristics. Neither approach is prudent. Neither targets the actual problem — insufficient innovation and competition to drive prices down and value up — and would worsen rather than enhance economic growth and social dynamism.

Here are ideas that policymakers in Washington, Raleigh, and local communities ought to pursue instead:

• On housing, modify regulations to make it easier for companies to add new inventory for sale or rent, for homeowners to rent out rooms and adjacent dwellings, and for would-be homeowners to save for downpayments.
• On energy, modify regulations to accelerate new power plants, and to make cost and reliability the top priorities for utility companies and their regulators.
• On food, end federal subsidies and regulations that prop up prices for produce, milk, sugar, and other products while reforming zoning to permit more groceries and corner stores near neighborhoods and focusing immigration enforcement on criminals and those without any visible means of support.
• On health care, modify regulations to foster greater competition among hospitals, drug companies, other providers of medical goods and services, and health plans. Subject insurance premiums to income taxes and use the proceeds to expand tax-free health savings accounts and other arrangements that empower patients to seek bargains and pocket the savings.
• On child care, welcome and facilitate recent increases in remote and hybrid employment while easing zoning on new child-care centers and reducing administrative and immigration barriers to the use of in-home caregivers.
• And to alleviate more cost pressures in these and other sectors, including clothing and transportation, end the use of protectionist taxes that make imports of lumber, metals, textiles, furnishings, machine tools, and other essential elements of supply chains artificially expensive.

Big-government approaches to the problem “treat high prices not as crucial signals of scarcity but as political nuisances to be suppressed,” wrote Ryan Bourne in the Cato Institute’s latest Handbook on Affordability. The better response is to champion “more economic freedom to supply goods and services.”

John Hood is a John Locke Foundation board member. His books Mountain Folk, Forest Folk, and Water Folk combine epic fantasy with American history (FolkloreCycle.com).