The unaffordability of big government

America’s midterm congressional campaigns are now underway, marked by clamor over the so-called “affordability crisis.” Although driven primarily by Democrats, the hand-wringing narrative is prompting candidates across the political spectrum to propose all manner of government measures to correct purported market failures. But such interventions are, more often than not, the cause of higher costs for food, housing, healthcare and energy, rather than the remedy.

Whether an affordability crisis exists is questionable; claims by media and politicians often lack context, and the economic data cited, if any, is highly selective. In broad terms, however, Americans are spending freely as a growing proportion of households move into higher-income brackets. As the Manhattan Institute’s Allison Schrager has documented, “Americans have never been richer.”

Indeed, consumer spending increased at a robust annualized rate of 3.5 percent in the third quarter of 2025. Meanwhile, the proportion of the United States population that is employed is peaking, according to an analysis of federal statistics by the Center for American Progress.

Yet surveys reveal gloomy consumer sentiment, reflecting a disconnect between public opinion and spending behavior. Job insecurity is undoubtedly a factor. Despite strong gross domestic product (GDP) growth of 4.3 percent in the third quarter of 2025, hiring has slowed following a post-pandemic spree. Pessimism may be unavoidable when headlines and airwaves are overrun by doomsayers – on both the left and “New Right” – intent on undermining the Trump administration.

Awash in affluence, recent generations have come to regard material prosperity as more of an entitlement than an ambition.

 

There is certainly room for improvement; the size and scope of government remain oppressive despite the president’s aggressive regulatory reform efforts. But the oft-heard claim that the Trump tariffs are driving inflation is inaccurate – prices were rising steeply years before the president took office. Harvard Business School researchers estimate that only 14-20 percent of tariff costs are passed through to consumers, although that may change over time.

Apart from politically driven fearmongering, public unease about affordability may also stem from a nostalgia for the unparalleled economic growth of the post-war years that made upward mobility seemingly inevitable. Awash in affluence, recent generations have come to regard material prosperity as more of an entitlement than an ambition.

A vast number of Americans are faring remarkably well financially. As the Cato Institute noted recently, the share of households earning less than $35,000 fell by a third between 1967 and 2023 (adjusted for inflation), while the proportion of those earning more than $100,000 effectively tripled (from 14 percent to 41 percent). Median earnings for two-income households hit $142,200 last year.

To the extent affordability is problematic for some, the primary culprits are flawed policies that Democrats continue to pursue and which Republicans have failed to reverse, namely: a national debt exceeding $38 trillion; an ever-expanding tax burden; unsound monetary policy; regulatory restrictions that constrain housing and energy supplies; and government subsidies that divorce consumption from price, particularly in healthcare.

Grocery bills cooking up frustration

Food prices seem eye-popping to many shoppers. The average cost of groceries has surged by 24 percent since 2020 for a variety of reasons, including pandemic supply disruptions; Russia’s invasion of Ukraine (a major global exporter of corn and grain); droughts and floods in key agricultural regions such as California and Florida; and a devastating outbreak of avian influenza. The rate of increase in food prices has, however, slowed since 2023.

Yet inflation numbers alone do not define affordability. The ledger is incomplete without accounting for trends in wages. As scholars Marian L. Tupy and Gale L. Pooley have documented, American consumers are spending a smaller proportion of their income on food than their parents and grandparents did. In 1960, for example, households spent about 17 percent of disposable personal income on food. That share fell to 9.5 percent by 2019. Even in the wake of pandemic-driven price spikes, the proportion of income spent on food was 10.4 percent – or roughly half the share of what most people spent throughout the mid-20th century.

The price pinch is obviously felt more acutely by blue-collar workers, but Mr. Tupy and Mr. Pooley also document how groceries have become more affordable, not less, for even low-income households. Over the past two years, blue-collar wages increased by 8.1 percent, while grocery prices rose by 4 percent.

Home sweet home

House prices also jumped precipitously during the pandemic years, with the median sales price rising 32 percent (from $328,150 in 2020 to $432,950 in 2022). Average rent rose 8 percent in the same period.

Higher house prices today reflect, in part, changes in both property size and features. The median size of a new single-family home increased by 39.8 percent between 1975 and 2024, from 1,535 square feet to 2,146 square feet, according to the U.S. Census Bureau. Some 42 percent of the single-family homes completed last year featured four or more bedrooms.

Conventional wisdom holds that higher prices indicate a supply shortage. There is little doubt that exclusionary zoning and other regulatory constraints add to the costs of construction and dissuade investment. For example, more than 50,000 apartments sit vacant in New York City because rent control laws prevent landlords from charging enough to cover costs for upkeep.

But there is no consensus about what constitutes a shortage because such a measure is subjective. And, in fact, the Cato Institute has calculated that U.S. housing construction has kept pace with U.S. population growth, to wit: “Between 2000-2021, the average building units permitted per 100-unit change in resident population is approximately 93 housing units, hardly indicative of a major shortage.”

Regardless of how one interprets supply, homeownership rates have held relatively stable. The ownership rate stood at 65.6 percent in 2024, down from the 2004 peak of 69 percent, but up from a low of 63.4 percent in 2016.

A multitude of government policies inflate housing costs. Federally backed mortgages, for example, over-stimulate demand, as do artificially low interest rates set by the Federal Reserve. These and other demand-side tactics, although seemingly well-intended, actually push prices up. A wealth of federal, state and local subsidies, meanwhile, override market forces in driving development decisions.

Bill of health

Determining trends in healthcare affordability is a deeply complex task, entangled in a knot of cross-subsidies, variable insurance plans and providers and differences in utilization (ways in which patients access health services), to name a few of the myriad factors.

To start with the basics: Healthcare spending in the U.S. reached $4.9 trillion in 2023, or 17.6 percent of GDP, according to federal government figures. The federal government (that is, taxpayers) covered the largest share, at 32 percent ($1.6 trillion), followed by households, at 27 percent ($1.3 trillion); private businesses, at 18 percent ($894 billion); state and local governments, at 16 percent ($761.3 billion); and the balance from other private revenues.

The amount that households pay out-of-pocket for healthcare varies dramatically. On a per capita basis, out-of-pocket costs roughly doubled (in real terms) between 1970 and 2023 (from $703 to $1,514). However, out-of-pocket costs comprise a lower proportion of overall healthcare spending than in years past. As documented by the Manhattan Institute, the proportion of out-of-pocket spending has declined steadily from 80 percent in 1929 to 11 percent in 2023.

Higher spending overall reflects, in part, major advancements in medical care. In turn, increased longevity raises the incidence of chronic conditions and age-related diseases. The bulge of Baby Boomer seniors exacerbates these factors. But the overriding issue is the unconstrained expansion of government subsidies that hide the actual costs of consuming medical care. To be sure, the subsidies have pushed the uninsured rate to a historic low, but they are also behind record-high rates of utilization.

Energy costs and outdated infrastructure

The costs of the various forms of energy that fuel our lives are highly volatile, subject to swings in global production, political disruption, economic fluctuations and natural disasters.

U.S. households in 2023 spent about $1.6 trillion on energy overall, or about $4,657 per person. That includes heating and cooling homes and businesses, running factories and fueling all manner of transportation. The costs vary widely among regions, states and localities.

Overall, the proportion of household spending for energy has declined compared to other expenses. For example, energy, as a share of household spending, ran about 9 percent to 11 percent in the 1980s, according to the Federal Reserve Bank of Chicago. That share declined to about 7 percent in the 1990s and remained between 7 percent and 8 percent through 2010. It dipped to about 6 percent in 2020 and remained below 7 percent through 2023.

Gasoline prices fluctuate considerably as well, but filling up the tank as a proportion of household income has fallen to the lowest level in 20 years, according to the Energy Information Administration, which predicts prices to average $2.90 a gallon this year.

The cost of residential electricity rose about 3 percent between 2019 and 2024, but commercial and industrial customers saw price reductions. Overall, the average retail electricity price has declined by 8 percent from its 2010 level (14 cents per kilowatt-hour to 12.9 cents), and has remained flat since 2019, according to the World Resources Institute.

Looking forward, electricity prices are forecast to rise as demand surges from the proliferation of energy-intensive artificial intelligence. Meeting this higher demand will prove challenging because of the nation’s antiquated infrastructure; currently, 31 percent of transmission and 46 percent of distribution infrastructure are near or beyond their useful life.

Once again, flawed government policies are the primary culprit. Misguided federal and state mandates for inefficient wind and solar power have shifted untold billions of dollars from grid maintenance and modernization. At the same time, environmental reviews and other regulatory constraints on energy development have created years-long delays for construction of new conventional – more dependable – power sources.

Unaffordable taxes and spending

For all the rhetoric about affordability, most politicians and pundits ignore the costly burdens imposed on family budgets by excessive government. The average American family pays approximately 29 percent of their household income in federal, state and local taxes, according to the Institute on Taxation and Economic Policy. The proportion varies by income level: Those in the top 1 percent pay about 35 percent of their income on average; those in the middle pay about 26 percent; and the poorest fifth of Americans pay about 17 percent.

Despite massive revenue collections, the current $7 trillion federal budget runs a deficit of $1.8 trillion. Such deficit spending has plagued the economy since the early 2000s, fed by ever-increasing levels of government debt. Constant borrowing feeds inflation, while runaway spending promotes tax increases. Addressing the budgetary malfeasance would go a long way toward restoring Americans’ economic stability.

This material was originally published here: https://www.gisreportsonline.com/r/unaffordability/