Despite increasing attention to trade policies and their impact on inflation, the root cause of America’s affordability crisis is far more complex and entrenched. The notion that President Trump’s trade war was the primary driver of rising costs for essential goods and services is a simplistic narrative that neglects the fundamental shifts in the US economy.
The ‘Unaffordability Five’ – housing, food, healthcare, child care, and energy costs – have been on an upward trajectory long before the onset of Trump’s trade war. According to data from the Bureau of Labor Statistics (BLS), prices for these essential goods and services have been increasing steadily since the early 2000s.
Housing costs, in particular, have been a major contributor to the affordability crisis. As the US population has grown and urbanization has accelerated, demand for housing has outpaced supply, driving up prices and rents. The lack of affordable housing options has been exacerbated by a shortage of single-family homes and apartments, which has led to a proliferation of high-rise buildings and luxury developments that cater to affluent buyers.
Food prices, another critical component of the affordability crisis, have also been rising steadily over the past decade. Factors such as crop failures, supply chain disruptions, and the increasing cost of agricultural inputs have contributed to these price increases. Furthermore, the growing demand for organic and specialty foods has driven up prices for consumers, making it even more challenging for low- and moderate-income households to afford basic necessities.
Healthcare costs have been another major driver of the affordability crisis. The rising cost of medical care, combined with the increasing burden of health insurance premiums, has made it difficult for many Americans to access essential healthcare services. The Affordable Care Act (ACA), while expanding health insurance coverage to millions of Americans, has not addressed the underlying drivers of rising healthcare costs, such as the high costs of medical research and development, the growing use of expensive treatments and pharmaceuticals, and the increasing administrative burden on healthcare providers.
Child care costs have also become a significant contributor to the affordability crisis. As the cost of childcare has risen, many working parents have been forced to make difficult choices between continuing to work and taking time off to care for their children. This has significant implications for the US labor market, as the lack of affordable childcare options can limit women’s participation in the workforce and hinder economic growth.
Energy costs, the final component of the ‘Unaffordability Five,’ have been affected by a combination of factors, including the increasing cost of fossil fuels, the growing demand for electricity, and the need to transition to cleaner energy sources. While the shale revolution has driven down the cost of natural gas and oil, the increasing demand for electricity has driven up prices, particularly in regions with high penetration of renewable energy sources.
What to Watch Next
Looking ahead, it’s essential to understand the root causes of the affordability crisis and to develop policies that address these underlying drivers. This will require a multifaceted approach, incorporating elements of supply-side economics, social welfare policy, and environmental regulation. By tackling the affordability crisis head-on, policymakers can help to mitigate its negative impacts on low- and moderate-income households and promote more equitable economic growth.
Conclusion
The affordability crisis facing America is a complex issue that cannot be attributed solely to tariffs or trade policies. By examining the underlying drivers of rising costs for essential goods and services, policymakers can develop effective solutions that address the root causes of this crisis and promote more sustainable and equitable economic growth.
