Why We Can’t Solve The Affordability Crisis

If there’s a constant in modern American political cycles, it’s that voters are furious over affordability.

They were furious when inflation devoured their wages and Covid-era stimulus checks. They stayed furious when oil and gas prices rocketed following Russia’s invasion of Ukraine. As prices ballooned — for houses, for cars, at the grocery store, at the doctor’s office — their anger brought President Donald Trump back from the political wilderness.

Now, Trump is on the receiving end of that fury. Consumer sentiment is more depressed than when Wall Street melted down and joblessness soared following the 2008 financial crisis. Nearly three-quarters of Americans believe economic conditions are worsening, according to Gallup, and they identify rising living costs as the biggest impediment to their finances.

This next part is important, and it’s also been a constant. Americans never stopped spending. They spent when their paychecks weren’t keeping up with prices. They spent when high interest rates eroded their purchasing power. They spent when retailers hit them with tariff costs, and they spent through the longest government shutdown in history.

American paychecks are larger now than before the pandemic, even after five years of elevated inflation. When the Iran war pushed gas prices above $4 per gallon, people kept their wallets open. And when they claimed that rising prices had forced them to pull back, Federal Reserve researchers found they were actually buying more.

Voters are broadly dissatisfied with both the economy and the political leaders who brought us to this moment. It is foolish to say that anger is misplaced, or dismiss any sign of strain. But fury hasn’t slowed consumption. And most people haven’t been budgeting as if financial ruin is at hand.

Affordability is a political crisis. But right now, it’s not an economic crisis. At the same time, millions of Americans really are struggling to get by amid deep structural issues in our economy. And that’s not something that Trump or any elected official can solve easily.

“Economists find the word ‘affordability’ almost a nonsensical word,” Betsey Stevenson, a former economic adviser to President Barack Obama and now a professor of public policy at the University of Michigan, told me.

It boils down to the fundamental elements of economics, she added. There are finite resources for meeting everyone’s demands. Everyone’s demands are different, everything comes at a cost, and “people always want more.”

“You can afford anything,” Stevenson said. “The question is just: What do you have to give up to get it?”

For a long time, Americans got a lot of everything without feeling like they were giving up much.

In a July lecture at the Federal Reserve Bank of St. Louis, Jason Furman — another Obama alum who’s now a professor at Harvard — described the current divide between the public’s perceptions and the economy’s fundamentals as “misery amidst splendor.”

Consider the ways in which life in the U.S. has improved over the last several decades, he said. Inflation-adjusted family income is 70 percent higher than in 1970. Larger shares of the population are graduating high school and attending college. People are spending more, and the goods and services they purchase are often of better quality. Poverty rates have declined. More houses have spare bedrooms. Health outcomes and life expectancy have improved.

“I don’t want to say it’s all perfect,” Furman lectured. “But ultimately, what you really care about is what you’re buying for your money. And you’re buying better houses, you’re buying better health outcomes, you’re buying more of all of that.”

Those trends didn’t stop in the tumult of the post-pandemic era, he added. Over the last 10 years, wages for low income workers climbed faster on an inflation-adjusted basis than at any point in the previous 50 years.

“We’re getting more for our money than we ever have before,” he said.

Norbert Michel, a vice president and director at the free-market Cato Institute, put it even more bluntly.

“People think everything is so bad. All they hear is how bad everything is, how the middle class has been decimated, and that’s just factually incorrect,” he told me. “It’s just absolute bull.”

Nothing about the current political moment says that’s the case.

A majority of Americans say that basic staples became more unaffordable after Trump returned to office, according to POLITICO’s recent polling. The New York Fed released datareleased earlier this month showing that a growing share of households say their financial situation is worse than it was a year ago. More expect it to be worse a year from now.

Trump has dismissed “affordability” as a Democratic “hoax,” a construct of a minority party that failed to meet the moment when it held power. But for most of Washington, what consumers say matters just as much as what they do. Regardless of the economy’s overall performance — or signs indicating that American households remain on healthy footing — those headlines are impossible to ignore.

It’s no wonder then that every midterm campaign and policy fight seems to be framed through a lens that presumes American households and small businesses are on the brink.

Why did Congress pass bipartisan housing reforms this year? “Affordability crisis.” Trump took a sledgehammer to Obamacare subsidies. How will it hurt the GOP? “Cost of living.” Will the president’s fight with Canada dent Susan Collins’ reelection odds? According to the Maine Republican, the trade war’s “micro impact on a state like Maine is considerable.”

That focus is natural, said Bharat Ramamurti, who served as the deputy director of President Joe Biden’s National Economic Council.

It would be political malpractice for candidates and policymakers to ignore voter anxieties about how Washington has made life more expensive. But the relative strength of the American consumer also suggests any political upside from quick-fix solutions could be fleeting.

Frustrations about the cost of living are top of mind, but no less so than when the Biden White House was struggling to message its way through the aftermath of post-pandemic inflation. Even if political leaders can correctly point out how income is growing faster than prices, “you’re not going to be able to just chart people into agreeing with you,” Ramamurti told me. “It’s not going to penetrate how voters feel about these issues.”

Ramamurti describes the politics of the affordability phenomena as a “mirage.” The benefits of fast-acting policies — think price caps or direct payments to consumers — are often temporary. They may make inflation worse if structured incorrectly. Those solutions need to be linked with fundamental reforms that address wealth and income inequality issues that, in his view, are upstream from the affordability battles.

“We’ve seen a really long decline — a steady decline — in the public’s view of the economy and of the government,” Ramamurti said. “I worry that if we ignore those things, we’re not really addressing some of the public’s deeper concerns about the structure of the economy.”

If that happens, “the political benefit will be less than we hope for.”

In many respects, the Trump administration’s predicament is emblematic of the dynamic Ramamurti describes.

After campaigning on promises to address rising living costs, the president loaded his signature, omnibus tax and spending law with hefty refunds and new deductions for individual taxpayers. Prior to the law’s passage — and despite speculation that jumbo refunds could prove inflationary — there was a belief within the administration that new tax breaks would cast Trump’s party in a favorable light ahead of the 2026 midterms.

When those checks hit their bank accounts, voters weren’t impressed. They didn’t provide political cover as the administration attempted deeper structural changes intended to spur investment in domestic industries through tax breaks, deregulation and trade policy.

The White House has said those policies will improve livelihoods over time. Treasury Secretary Scott Bessent has spotlighted a recent spike in pay for low-income workers as proof that Trump’s industrial policies are having their desired effect.

It’s a valid point. Account data from major institutions like Bank of America and PNC point to an acceleration in wage growth and spending among lower-income populations. But the Treasury Secretary has gone so far as to claim the K-shaped economy — which refers to how gains for the affluent can mask weaknesses for lower-income Americans — is “over.” If that’s true, it hasn’t mattered much to the public’s perception of the economy’s performance, and the president’s approval rating on the economy remains near its nadir.

Then again, why wouldn’t it be? Gas is above $4 per gallon, thanks to an unresolved war with Iran that the White House says will make global energy markets more resilient (eventually). Normal people saw Trump’s tariffs as inflationary, even though their actual effects on prices were relatively modest. And the administration’s attempts to make supply chains less susceptible to shocks, including by bringing manufacturing onshore, raises costs for consumers in the short term.

And that doesn’t begin to unpack the various ways in which the artificial intelligence industry — which will revolutionize our economy, kill us all, or both, depending on who you ask and what week it is — is hoovering up capital and energy at a pace that’s stoking inflation and interest rates.

“Politicians struggle to tell people that they’re going to be a lot better off in the long term if we were willing to pay a little bit more today,” said Michael Faulkender, a veteran of both Trump administrations who most recently served as Deputy Treasury Secretary under Bessent.

And that speaks to the political currents that will challenge any attempt to foster durable solutions to affordability, he added.

“How do we create the conditions such that more is created? How do we get less regulation? How do we unlock more labor? How do we unlock more capital for investment? How do we get more energy?” he said. “These things take time. It’s not a silver bullet that goes into effect tomorrow.”

Washington is chockablock with whitepapers, policy blueprints, op-eds and broad-brush frameworks that detail how leaders should address Faulkender’s rhetorical questions. In the meantime, the economy keeps humming along.

Unemployment has been at or below 4.5 percent for nearly five years — that’s a record. The S&P 500 has delivered annualized returns of more than 12 percent during that period, and the percentage of American households who were positioned to benefit from that run has climbed steadily over the last decade. A lower share of households are living in poverty than at any point in history.

And yet, Americans are still furious. Why is that?

“Averages don’t lie,” Beth Ann Bovino, the chief economist at U.S. Bank, told me. But “they can be misleading.”

There are cracks everywhere.

Sure, Americans make more money now than they did before the pandemic. But real wage growth reversed in recent months thanks to the inflation brought on by the Iran war. The percentage of auto loan and credit card balances now in serious delinquency are back to levels last seen in the aftermath of the 2008 recession, according to the New York Fed. Personal savings rates have fallen sharply, and the percentage of Americans who’ve broken into their 401(k)s — for home payments, for medical expenses, for tuition — has tripled since the start of the decade, according to Vanguard.

What’s more, even if that money is going further than it ever has, so is everyone else’s. And there’s a lot more money at the top.

The bottom 90 percent of households hold less than a third of the country’s wealth, according to the Fed. That’s barely budged since early 2011, when the jobless rate was more than twice as high as it is now. For a brief period in the early 2020s, a key measure of income inequality improved. “Brief” is the operative word in that sentence. Meanwhile, the top 10 percent of households are widely believedto be responsible for roughly half of all spending in the U.S.

Ekaterina Oparina, an economist at the London School of Economics who’s studied how income affects people’s notions of their own well-being, told me that “your income matters to you not only in the amount of money you receive, but in how well you think you are doing compared to others.”

And “if people perceive things to be worse, their [sense of] well-being will respond, even if — objectively — things might be better.”

And it’s hard to believe things are objectively better when inflation refuses to die.

Consumer sentiment can improve after prices surge, but it takes time. Americans have not been afforded that time. The psychological wounds caused by the sticker shocks of the early 2020s never healed. Instead, they were constantly picked at and reopened by trade wars, shooting wars, AI, government stimulus and our own consumption habits. That kept inflation — and interest rates — much higher than at any point in the previous decade. And it’s erased the perception that it’s possible to get ahead.

Individuals ascribe their raises they receive during periods of inflation “to job performance or career progression,” wrote Harvard University’s Stefanie Stantcheva in a widely-cited study on inflation’s effects. People tell themselves that they’re getting paid more because they’re worth it, not because their employer is responding to market forces. That fosters an assumption that they’ve improved their lot.

“People want a progress narrative,” said Stevenson, the University of Michigan economist. “They want to feel they have some control over their own destiny, and that the control they have can [be] used to build a better life for themselves and their kids.”

“What happens with inflation is we rob people of control,” she added.

That phenomenon is well understood by academics. And if someone believes that inflation has robbed them of the means to get ahead, you can’t “well, actually” them into thinking otherwise — even if their dollar goes further now than it did before.

“Economists are taught to watch what people do, not what they say,” Jared Bernstein, a longtime economic adviser to Biden, told me. “I learned that that lesson that economists are taught is not correct. When people tell me they’re hurting, I tend to believe them.”