The Great Affordability Crisis Breaking America
By: Annie Lowrey - The Atlantic
The Great Affordability Crisis is quite real. And the cause of the crisis is not a mystery. The United States has become an economy of middlemen; most attempting to become wealthy without producing anything. Supply-side economic theory has transformed the United States into a mercantile economy that has killed capitalism. When the wealthiest people in the United States are retailers, transportation magnates, insurance brokers, and bankers then declining American lifestyles should not be a surprise.
The proffered solutions requiring government intervention won't fix the problem. Those government interventions are really about rewarding those becoming wealthy by not producing anything. Throwing more money at a cost problem caused by middleman inefficiencies won't lower costs. The middlemen will gladly take all the money thrown at them and then beg for more.
Expecting government to pay for everything is not socialism, that's just economic stupidity.
The seeded article was published by The Atlantic. Since The Atlantic is trapped behind a paywall with limited, teaser views (even news has become unaffordable), the full text of the article has been provided.
S E E D E D C O N T E N T
In the 2010s, the national unemployment rate dropped from a high of 9.9 percent to its current rate of just 3.5 percent. The economy expanded each and every year. Wages picked up for high-income workers as soon as the Great Recession ended, and picked up for lower-income workers in the second half of the decade. Americans’ confidence in the economy hit its highest point since 2000, right before the dot-com bubble burst. The headline economic numbers looked good, if not great.
But beyond the headline economic numbers, a multifarious and strangely invisible economic crisis metastasized: Let’s call it the Great Affordability Crisis. This crisis involved not just what families earned but the other half of the ledger, too—how they spent their earnings. In one of the best decades the American economy has ever recorded, families were bled dry by landlords, hospital administrators, university bursars, and child-care centers. For millions, a roaring economy felt precarious or downright terrible.
Viewing the economy through a cost-of-living paradigm helps explain why roughly two in five American adults would struggle to come up with $400 in an emergency so many years after the Great Recession ended. It helps explain why one in five adults is unable to pay the current month’s bills in full. It demonstrates why a surprise furnace-repair bill, parking ticket, court fee, or medical expense remains ruinous for so many American families, despite all the wealth this country has generated. Fully one in three households is classified as “financially fragile."
Along with the rise of inequality, the slowdown in productivity growth, and the shrinking of the middle class, the spiraling cost of living has become a central facet of American economic life. It is a crisis amenable to policy solutions at the state, local, and federal levels—with all of the 2020 candidates, President Donald Trump included, teasing or pushing sweeping solutions for the problem. But absent those solutions, it looks certain to get worse for the foreseeable future—leaving households fragile, exacerbating the country’s inequality, slowing down growth, smothering productivity, and putting families’ dreams of security out of reach.
The price of housing represents the most acute part of this crisis. In metro areas such as the Bay Area, Seattle, and Boston, severe supply shortages have led to soaring prices—millions of low- and middle-income families are no longer able to purchase centrally located homes. The median asking price for a single-family home in San Francisco has reached $1.6 million; even with today’s low interest rates, that would require a monthly mortgage payment of roughly $6,000, assuming that a family puts down the standard 20 percent. In Manhattan, listings for sale now ask an average of nearly $1,800 per square foot.
The housing cost crises in the Bay Area and New York might be the country’s most obscene. But the problem is national, driven by a combination of stagnant wages, restrictive building codes, and underinvestment in construction, among other trends. Home prices are rising faster than wages in roughly 80 percent of American metro regions. In 2018, housing affordability declined in every one of the 160-some urban areas analyzed by the National Association of Realtors, save for Decatur, Illinois. Rising prices and housing shortages are squeezing families in Reno, Minneapolis, and Phoenix.
The problem now even extends to rural areas, where income growth has lagged in the post-recession period. A recent report by the Pew Charitable Trusts found “sizable” increases in the number of households spending half or more of their income on housing in rural counties across the country. The housing crisis is hitting Bertie County, Virginia, and Irion County, Texas, too.
One central effect of the housing-cost crisis has been to turn the United States into a country of renters. The homeownership rate has fallen from a peak of nearly 70 percent in the mid-aughts to under 65 percent today; the numbers are more acute for Millennials, whose homeownership rate is 8 percentage points lower than that of their parents at the same age. Unable to buy, roughly 3.5 million younger families have kept renting—delaying the Millennial and Gen X cohorts’ wealth accumulation, thus consigning them to worse net-worth trajectories for the rest of their lives. And renting, for many families, is not affordable, either: Nearly half of renters are facing uncomfortable monthly bills, and the cost of renting has risen faster than renters’ incomes for a full 20 years now.
The cost-of-living crisis extends beyond housing. Health-care costs are exorbitant, too: Americans pay roughly twice as much for insurance and medical services as do citizens of other wealthy countries, but they don’t have better outcomes. In the post-recession period, premiums, deductibles, and out-of-pocket costs in general just kept rising, eating away at families’ budgets, casting millions into debt, and consigning millions more to bankruptcy.
The “cost burden” of health coverage climbed through the 2010s; just from 2010 to 2016, family private-insurance premiums jumped 28 percent to $17,710, while median household incomes rose less than 20 percent. That meant less take-home pay for workers. Deductibles—what a family has to fork over before insurance kicks in—also soared. From 2010 to 2016, the share of employees in health plans with a deductible jumped from 78 percent to 85 percent. And the average annual deductible went from less than $2,000 to more than $3,000.
The country’s insurance premiums and out-of-pocket health-cost burdens are just very, very high—including for people with publicly subsidized or public coverage. The average person on Medicare spends $5,460 on health care beyond what they pay for insurance every year. The average person with Medicaid forks over nearly half that. No wonder two in three bankruptcies are related to medical issues, and nearly 140 million American adults report “medical financial hardship” each and every year.
Next up is student-loan debt, a trillion-dollar stone placed on young adults’ backs. Or, to be more accurate, the $1.4 trillion stone, up 6 percent year-over-year and 116 percent in a decade; student-loan debt is now a bigger burden for households than car loans or credit-card debt. Half of students now take on loans of one kind or another to try for a higher-ed degree, and outstanding debts typically total $20,000 to $25,000, requiring monthly payments of $200 to $300—though of course many students owe much more. Now nearly 50 million adults are stuck working off their educational debt loads, including one in three adults in their 20s, erasing the college wealth premium for younger Americans and eroding the college earnings premium.
Finally, child care. Spending on daycare, nannies, and other direct-care services for kids has increased by 2,000 percent in the past four decades, and families now commonly spend $15,000 to $26,000 a year to have someone watch their kid. Such care is grossly unaffordable for low-income parents in metro areas across the country, causing many people to drop out of the labor force. But one in four American mothers returns to work within two weeks of giving birth, so heavy are the other cost burdens of living in this country. The whole system is broken.
The federal government has set as a benchmark that low-income families should not spend more than 7 percent of their income on child care. But child care is generally the single biggest line item on young families’ budgets, bigger even than rent or mortgage payments: Putting a kid in daycare costs 18 percent of annual income in California; home-based options equal 14 percent of family income in Nebraska; having an infant in professional care in the District of Columbia costs more than most poor families earn.
It all adds up, and it all subtracts from families’ well-being. The price tags for tuition and fees at colleges and universities have risen twice as fast as wages, if not more, in recent years. Rental costs are outpacing wage gains by a percentage point or more a year. Health-care costs have grown twice as fast as workers’ wages. And child-care costs have exploded. These cost pressures are particularly acute on young Americans who have seen worse employment prospects and smaller raises than their older counterparts.
The effects are wide-ranging. High costs are preventing workers from moving to high-productivity cities, thus smothering the country’s economic vibrancy and putting a drag on its GDP; economists have estimated that GDP would be as much as 10 percent bigger if more workers could afford to live in places like San Jose and Boston. High costs are forcing families to delay getting married and to have fewer children, and putting the dream of owning a home out of reach.
What is perhaps most frustrating is that the Great Affordability Crisis is amenable to policy solutions—ones most other rich countries adopted decades ago. In other developed economies, child care, early education, and higher education are public goods, and do not require high-interest-rate debts or endless scrambling by exhausted young parents to procure. Other wealthy countries have public-health systems that cover everybody at far lower cost, whether through socialized or private models. And numerous proposals would transform residential construction in this country, including one that just failed in California’s legislature.
But the Great Affordability Crisis hides in plain sight, obvious to households but unmentioned in the country’s headline economic numbers. It persists even as President Donald Trump rightly praises the country’s growth, low unemployment rate, and rising household incomes. And though there are many nationwide policies that could end the crisis, they all seem unlikely to pass through the country’s broken Congress; the brightest glimmer of hope lies in housing and health-care policy by individual states. But it is still a dim glimmer. This crisis looks sure to stay with us for the coming decade, whatever recessions or expansions it may hold.
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Throwing public money at a cost problem only rewards those who have caused the problem. That's not socialism, that's just economic stupidity.
"Great Affordability Crisis"
So this is the next shiny object to be offended about?
It's in the article.
This is the first generation of middle-class kids who will not do as well as their parents did and this trend although not new, has been growing with the passing years.
No, need to be offended or even concerned. The Great Affordability Crisis is a self correcting problem; just as climate change is a self correcting problem.
The economy really does regulate itself. Over exuberant inflation will naturally be counter balanced by unstoppable deflation. No need to do anything; the problem will solve itself.
Where does it say that?
Yea, but nobody towards the bottom is going to like the result - trying to buy USA housing on the Vietnamese pay scale.
The seeded article doesn't say that. The article only presents symptoms that point to an inevitable outcome (for those that understand economics).
What the article does is advocate for government intervention that uses public money to pay for more of what has become unaffordable. IMO that's not socialism; that's economic stupidity. Throwing more money at a cost problem is not a solution. That only rewards those who have caused the problem by giving them more money. And, ultimately, that approach does not avoid the inevitable outcome.
In the case of the Great Affordability Crisis, the proffered solution of government intervention to pay for what has become unaffordable only kicks the can instead of solving the underlying problem. Providing more money to pay for what has become unaffordable is a supply-side economic solution that rewards those controlling supply for becoming unaffordable. There simply isn't enough money to keep that sort of pyramid scheme going.
The problem of unaffordability will solve itself when there isn't enough money to pay for what is unaffordable. Consumers can't buy what is unaffordable. What follows is unstoppable deflation so that things become more affordable. An economic depression is the natural self correction for the problem of unaffordability.
OK, let's take one issue. Healthcare and specifically drugs.
Our drug companies go unchecked by our government and we are the only western power that does this. Let's look at how to fix some of this without spending a dime.
Pharmaceuticals are highly regulated for safety, quality, and efficacy. But people do not buy drugs from drug manufacturers.
People are buying drugs from middlemen; distributors, dispensers, and pharmacies. And people are required to obtain prescriptions from middlemen before they can buy drugs from other middlemen. And the costs imposed upon the supply chain by middlemen are not uniform. The price of drugs varies widely among distributors.
Negotiating with drug manufacturers does not address the costs added by middlemen. Middlemen are advocates for themselves; they are not advocates for consumers. Health insurance is a service that does not contribute to delivering medical care; another middleman added to the supply chain that adds cost.
One intended purpose of nationalized medicine is to remove middlemen from the supply chain and to impose cost controls on middlemen. The model of nationalized medicine may or may not be appropriate. But imposing controls on inefficiencies in the supply chain (caused by middlemen) to reduce added costs is a necessary requirement.
No, they are not. That is part of the problem. We just think they are, like the EPA said that the air was safe after 9/11.
Most people buy their drugs at pharmacies. Most pharmacies now advertise their prices, but they can only go as low as the drug manufacturer is charging them. We saw the abuse of this system with the Epi-pen and insulin, both drugs long past their R&D but being over charged to actual pharmacies. The middlemen are just a fraction of our drug prices.
Obviously, buying direct would bring down the cost, but that is not the bulk of what we are paying for.
While I agree that there are a lot of lawyers getting fat off of class action suits, that does not explain why an epi pen goes up over 500% in one year or the cost of insulin skyrocketing. There is an actual abuse going on. Change the formulation slightly, and charge as if it is a new drug. Does that hit you as right? Literally, right now people are dying because they can't afford their insulin, because of the huge cost increases, and no, they are not getting sued over insulin or epi-pens.
I just don't understand why people justify, the unjustifiable. It's counterproductive to us, the consumers.
How about what the CEO's make?
Defend that.
An Epipen is a medical device, not a pharmaceutical. The pharmaceutical and the medical device are provided a monopoly by separate patents.
Don’t Only Blame Mylan for $600 EpiPens
"Let’s be clear about the source of the U.S. drug pricing problem. Our government offers drug companies monopolies through both patents and Food and Drug Administration (FDA) marketing exclusivity, a statutory provision that grants a new drug protection from direct competition from generics for up to seven years. Given that regulatory approval for production lines can take years, the FDA can also influence how many competitors exist in a drug class. In this environment, it’s no surprise that drug companies push prices as high as possible until there’s public outrage."
How will throwing more public money at that cost problem provide a viable solution? How will government negotiating prices address the supply-side policies that allow monopolies? How will private (or government) insurance overcome intellectual property protections?
That was the problem with Obama Care, it forced people to buy what was unaffordable without regulations or price controls so the price continued to skyrocket. When Bush gave Medicare Drug Coverage there were no price controls no bargaining despite the huge volumes of these drugs the government would be buying. If you have Medicare through someone like united heath care they actually pay health care providers less than the Medicare reimbursements because they negotiate and they make a profit. That's why they're always trying to get seniors to get this or that test or service, they're not trying to help seniors they're trying to make more money off the government. We could have National Health Care like Medicare for All for less than what we as a Nation (public and private insurance) are spending on Health care now but not as long as the Health Care Industry can buy our Elected Officials. As long as the industry can buy our leaders we will never be able to afford National Health Care. As far as the rest of this mercantile economy killing capitalism that's crap, Buying and Selling and making a Profit is Capitalism. It's been a hell of a long time since we've bought the majority of our food or products from the people who actually produce them, when was the last time you bought meat from a Farmer or a shovel from a Blacksmith. There have always been middlemen and retailers the only difference is the stores have gotten bigger, instead of the general store we have Walmart and Amazon.
You nailed it, zuksam!
You do realize that the changes made to the new EpiPen, were not needed and were only done to make a profit. And none of this addresses insulin.
You must be getting me mixed up with someone else. I didn't say that.
Right on. I saw the problems starting as soon as big box stores started to open and huge farming corporations started buying up the family farms - neighbourhood hardware stores, grocers, bookstores, etc were damned. My wife buys much of our produce direct from the small farmers. Personally, I have been begging now for years for Scotty to beam me back to the late 1940s - I can live without TV, smartphones, videogames and computers and go back to the time when kids could play together outside until dark without needing to be watched, and nobody locked their doors.
There's good and bad in everything. Amazon is huge and can offer prices that many brick and mortar stores can't compete with but at the same time Amazon marketplace and Ebay have allowed millions of people to own their own businesses and make a living. We are both the beneficiaries and victims of the economy of scale, when a Blacksmith made a shovel it provided him with half a days work but it cost the farmer three days pay now a huge company makes hundreds of shovels per hour but you can buy one for 1 hours wages and there's still a bunch of middlemen making a living. Many People say they're broke but they're only broke because they buy so much stuff, my parents would never have bought a 4-5 dollar coffee or a bottle of water. When I think of the 1940's lifestyle I think of the Honeymooners show, they had nothing but a fridge and a toaster, compare that to an average American kitchen today. We pay 150-200 bucks a month for cable tv and internet, I live alone but I have 3 TV's. It's no big deal, I say if you want it and can afford it buy it but don't spend 1/3 of your pay on luxuries you don't really need and complain about being broke or that you don't earn enough to survive. A lot of things have changed in the last 75 years but some things never change, spendthrifts go broke and penny pinchers get ahead. I don't know what the future holds for us economically some fear AI robots will cause massive unemployment but I can't see how you can make millions selling the products produced by these robots if nobody can afford to buy them so they will need to come up with a solution one way or another.
Do we know what we are paying for? Some estimates (whose veracity I cannot confirm) suggest that middlemen increase pharmaceutical costs by as much as 30 pct.
PHARMACY BENEFIT MANAGEMENT: HOW THE MIDDLEMEN HAVE LEVERAGE IN THE U.S. HEALTHCARE SYSTEM
Middlemen (which are politely called intermediaries in the pharmacy supply chain) are under pressure for stock performance. Intermediary affect on price growth has raised questions about the value they add to the supply chain.
Healthcare’s endangered middleman
An interesting tidbit from the last link that highlights the middleman role of health insurance:
"The quest for savings goes beyond the pharmaceutical sector. Twenty percent of employers are considering sidestepping health insurers to contract directly with a provider or accountable care organization in the next three years. Providers recognize the opportunity. Seventy-seven percent of provider executives surveyed by HRI said bypassing insurers to contract directly with employers will be important to their organization’s success in the next five years. Companies like Texas-based Euphora Health and California-based Carrum Health are enabling this future with technological platforms that connect employers to top-performing providers directly."
Yes. The changes (improvements?) are intended to extend patent protections and maintain a monopoly position.
What is overlooked is that expired patents allow any manufacturer to produce the product. Unfortunately, manufacturing can't compete with profits allowed by monopoly protections provided with intellectual property. Passive investors prefer financing patent holders because patent protections establish a monopoly position within the marketplace. Manufacturers have difficulty attracting investments if they do not hold active patents.
If healthcare is a public right, then why are patents on pharmaceuticals and medical devices not public property?
It's a dirty word when used regarding corporations. Not so dirty when those same corporations don't want US citizens buying their prescription meds elsewhere for less, either in person or online. Then, they're all for regulation.
Competition is one of the best business concepts ever conceived to control cost. I still buy meat, fruit and veggies direct from the farmer but that’s a choice I’m free to make and it costs more to buy that way. Local Farm markets are making a huge comeback because more people are willing to pay more for it. The only reason the Walmart’s and Amazons of the world have flourished is because they are cheaper. They made things more convenient and/or brought costs down and people have chosen to bite.
You were right about Obamacare but mainly because it took away unsubsidized choice and competition. Allow competition across the board in healthcare and costs will begin to come under control. That does mean no more lobbying favors like you said though.
If the company offering the best service at the best price wins, then we all win. Social medicine, by definition, will never be able to provide that. It’s just not in human nature to do so without free choice.
;Excellent comment, zuksam.
By the way, I, too, refuse to buy a Starbucks coffee - I brew my own and drink a mug a day with breakfast. My father refused to have a credit card - he always used to say, if you don't have the cash in your pocket, you can't afford it. Unfortunately, where I live, I would never drink the tap water, and these days due to voluntary self-quarantining in order to be safe, cable TV and internet are necessities in order to not suffer from cabin fever.
Sparty,
Sometimes competition works for you and other times not so much. Why? Price fixing. In the 1960s when my parents had a children's clothing store, premium brands had price-fixing and so you couldn't discount an item and the consumer is the loser. That is what is going on in the drug industry. We pay on average over 10X what every other country pays for the same drugs. That is what happens when you deregulate an item you need to live. No one should have to lose their homes or die because they can no longer afford their meds or health care.
And I am not talking about social medicine. I am talking about not allowing these companies to charge whatever they like or refuse meds that can save someone's life, even if they carry insurance.
That's something you don't see much of anymore, when was the last time you paid the "Manufacturer's recommended retail price". I remember back in the 70's and early 80's when you bought name brands there wasn't much wiggle room you pretty much paid the recommended retail price whether it was a Panasonic tv or a Fender guitar or even a pair of Levi's. Now everything is 40% off everyday it's what they now call the "street price".
True but while nothing is perfect I’ll still pick choice over regulation. In the case of one example you brought up I never owned a pair of Calvin Klein jeans because we had much cheaper choices that were just as good or better. The pharma industry is a bit of a special case because there isn’t already another choice but when there is other generic choices, they usually cost pennies on the dollar.
regulation certainly has its place. The VA for example gets deals on meds that we all should get. Pharma is a great example of free market abuse that should be reigned in but it by itself does not make a great case for completely dumping a free market “choice” system. Not imo anyway.
Drilling down to this item, Colleges seem to escape much scrutiny as to why their costs are rising so quickly. Average Public College tuition has increased over 210% in thirty years while wages have averaged less than 40% increase in 40 years
We hear about wage stagnation all the time but rarely do people talk about the much bigger problem of cost inflation of college tuition.
Why is college tuition going up so fast? Colleges don't want to talk about that so they program their graduates to question wage stagnation only instead.
Federal student loans are the driving factor.
No doubt that increase is a large factor. Want to see tuition costs really blow up?
Offer free college. One of the stupidest ideas i have ever heard.
Free college is not the way to go. In fact, we have kids who are in college that really belong in trade school and would make a whole lot more later on in life.
I agree 100%.
What is happening with education costs should provide a warning about government intervention that throws money at a cost problem. Those responsible for making education unaffordable gladly take all the public money thrown at them and beg for more.
Good article about that here:
There is an old saying my grandparents used to say,"you can't squeeze blood from a turnip" and I didn't know what it meant. Now I know what it means. Unless corporations get real and come to their senses, they need to get a clue that they cannot squeeze from people what no corporation is willing to allow people to have. Unless they stay out of politics, spend their wealth on job creation, increase wages and allow people to make a living wage, many of them will fall. They really deserve to fall because the simple solution is take 2 percent of your profits and give it to workers if they want to survive themselves. People cannot buy what corporations price them out of. Facebook constantly floods my timeline with all kinds of ads. I have no money, I cannot buy anything they promote so why bother? The people with money are not going to make a decision to purchase a product or service from an advertisement on Facebook or anywhere else. They want to squeeze blood from all of us turnips so I say, good luck with that.
Capitalism is dead--murdered by Supply Side Economics. SSE has one purpose and one purpose only, concentrate the wealth. With a by-product of consolidating the power. And this is why
Citizens United is so important to so few.