Affordability, Inflation, & the Misinformation Machine: How Prosperity Lost the Plot
Thanks to Bidenomics, full employment returned fast after the plague depression; but voters heard “affordability crisis” amid broken information channels. Housing’s post-GFC scar, health/childcare...
Thanks to Bidenomics, full employment returned fast after the plague depression; but voters heard “affordability crisis” amid broken information channels. Housing’s post-GFC scar, health/childcare costs, student loans, and unequal growth met Fox-Facebook reality distortion. But the overwhelming big factor was inflation, and how it makes people think the government has broken its contract with them, & is incompetent. The economy healed with unusual speed; the story never did. When facts lost to vibes, full employment and reindustrialization couldn’t beat inflation-driven anger…
Fact: those with justified true beliefs about the state of issues like crime, inflation, immigration, and the state of the stock market overwhelmingly supported Harris. So did Trump voters believe lies because Trump told them to, or were they Trump voters because they believed lies? And how do Americans who want a better politics and a better future dismantle the misinformatin system and, as Viscount Sherbrooke after the 1867 extension of the voting franchise in Britain: “we—or, rather, you—must educate our masters” on how to go about understanding the world, and how to go about deciding who to believe?
Let me outline the difference between potential voters who knew or guessed true things and false things:
Those who had not been misinformed by the Fox-Facebook system and who knew violent crime was not at or near all-time highs were more pro-Harris by a 91%-point margin.
Those who knew that southern border-crossings were more pro-Harris by a 76%-point margin.
Those who knew that inflation was down were more pro-Harris by 72%-points.
Those who correctly knew that the stock market was at an an all-time high were more pro-Harris by a 29%-point margin.
So I reject the characterization that achieving prosperity at the cost of a transitory episode of moderate inflation was a decisive mistake by Biden along the prudent political governance dimension. I characterize 2024 as reflecting a worldwide failure to break the misinformation system—the global misinformation system that rose to prominence and power in 2016 with its “accomplishments” if that is the word, of BREXIT and Trump I; that has maintained its structure and influence since; that those of us in the Sisyphus Brigade have failed to dismantle; and that has turned public -eason and self-governance into a sinister and destructive clown show.
Why start here? Because Thursday morning we had the very sharp Derek Thompson writing:
Derek Thompson: The Democrats Have a New Winning Formula <https://www.derekthompson.org/p/the-democrats-new-formula-the-affordability>: ‘The affordability theory of everything…. Wind back the clock…. In 2020, Joe Biden won by promising that he could restore normalcy to American life. That did not happen. As the biological emergency of the pandemic (death) wound down, the economic emergency of the pandemic (inflation) took off. An affordability crisis broke out around the world….
In 2024… affordability [was] what Trump’s voters said they wanted more of. Gallup found that the economy was the only issue that a majority of voters considered “extremely important.”… VoteCast survey found that voters who cited inflation as their most important factor were almost twice as likely to back Trump. So Trump won.
And, for the second straight election, the president violated his mandate to restore normalcy. Elected to be an affordability president, Trump governed as an authoritarian dilettante…. A recent NBC poll asked voters whether they thought the president had lived up to their expectations for wrestling inflation to the ground and improving cost of living. Only 30 percent said yes. It was the his lowest number for any issue polled. The affordability issue, which seemed to be a rocket exploding upwards 12 months ago, now looks more like a bomb to which the Republican Party finds itself tightly strapped….
[And] so again, for the second straight year, we have an affordability election on our hands. On the surface, Mamdani, Spanberger, and Sherrill emerged victorious in three very different campaigns…. [But] what unified the three victories was the Democratic candidate’s ability to turn the affordability curse against the sitting president, transforming Republicans’ 2024 advantage into a 2025 albatross….
Last night showed what affordability can be for the Democratic Party. Not a policy, but a prompt, an opportunity for Democrats to fit different messages under the same tentpole while contributing to a shared national party identity: The president’s a crook, and we care about cost-of-living…. Each candidate answered the affordability prompt with a tailored message fit to electorate. Affordability is a big tent…. Because it is a prompt rather than a policy, it allows Democrats to be organized in their thematic positioning but heterodox in their policies…
But Derek’s citation to Annie Lowrey elides the fact that the affordability crisis is not a post-COVID plague Biden-era but rather a post-GFC Obama-era phenomenon:
Annie Lowrey (2020): The Great Affordability Crisis Breaking America <https://www.theatlantic.com/ideas/archive/2020/02/great-affordability-crisis-breaking-america/606046/>: In one of the best decades the American economy has ever recorded, families were bled dry…. 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….
But beyond the headline economic numbers… the Great Affordability Crisis… [that] involved… [how,] 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….
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…. 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….
Health-care costs are exorbitant, too: Americans pay roughly twice as much… as do citizens of other wealthy countries…. Next up is student-loan debt, a trillion-dollar stone…. Finally, child care… [as] 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…. 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…
Had growth continued after 1973 at its post-WWII generation pace, annual real GDP per capita today would not be its current $70,000 but rather $100,000. And had growth continued after 2000 at its 1973-2000 pace, annual real GDP per capita today would not be its current $70,000 but rather $85,000. The post-1973 productivity slowdown, reinforced as it was by the investment drought and the midwestern manufacturing crisis brought on by the Reagan full-employment deficit spending episode was a huge deal for America. So was the post-GFC failure to get the economy back on its pre-GFC track, as that recession—uniquely in American history—triggered pronounced “hysteresis” and has cast a shadow on our prosperity today. The two are about equal in terms of making America much less than we could imagine, and than we did in earlier decades imagine it would be today.
Add on the effects on non-plutocrats and non-plutocrat wannabes of rising income and wealth inequality:
Since 1978, the top 1% of the household distribution have growth their share of income from 9% to 25% of the total, and the next 4% have grown from 13% to 17%. That leaves the 95% not at the top with not 78% but rather 58% of the total. The bottom 95%’s incomes would be 33% more if income distribution today were what it was back in 1978. And the true plutocrats, the top 0.01%, the top 16,000 households, have gone from 1% to 6%, have gone from having 128 to 1034 times the income of the bottom 95%.
Lowrey notes four key elements of the affordability crisis: health, housing, childcare, and student loans, on the theory that a failure of wealth to grow sufficiently or as anticipated binds most tightly in areas where costs are high and rising and affect families’ ability to support what they see as a middle-class lifestyle. But these four have followed different trajectories:
Health-care costs in America are very high, yes, and very uncertain in the runup to any procedure. But ObamaCare made things much, much better for those whose Medicaid expansion was not blocked by Republican state-level power structures, for those previously unable to purchase insurance as part of a pool, and for everyone since it caused or coincided with the end of overly rapid inflation in healthcare costs.
Student-loan debt burdens have been gathering size over time, but primarily because wages of college graduates have recently stopped growing extremely rapidly.
Childcare costs have also been growing over time, but it was always expensive—it is, from a societal point of view, very time-consuming (and very important).
The joker in the deck is housing. Near-nationwide housing affordability in crisis is a creation of the post-GFC housing-construction drought and then the post-COVID plague normalization of interest rates.
Adjusted for per-capita wealth, changing family sizes, and population growth, a “normal” America would have seen housing construction grow from some 600,000 units per year in 1980 to 1,200,000 units per year today. That is not what happened. Construction collapsed during theVolcker disinflation of the early 1980s and then boomed, collapsed again after the S&L failed deregulation crisis of 1990, and severely collapsed after the derivatives failed deregulation crisis of 2008 (notice a pattern?), which itself followed the housing boom of the 2000s, and then we had a YIMBY housing boom during the Biden years.
But the current nationwide—as opposed to chic coastal cities—housing-affordability crisis stems from the fact that the Obama-era housing bust relative to trend was so much bigger than the previous Bush-era housing boom.
What is my main point here? (He asks rhetorically, trying to rein in this rambling article.) It is this: Framing it as an “affordability crisis” and implicitly or explicitly blaming Biden for causing it or at least not restoring normalcy to American life—and blaming Trump for deepening it—is not quite right. Blame Trump: he is deepening it. But don’t blame Biden: he fixed a lot of it. The problem with the Biden years, from a politically-focused point of view of the economy, was that people think that they deserve not just to have a good, stable job but also to be able to buy what they need at the prices that they expect. And inflation breaks what they see as the contract that they can do this that the government has made with them. And to say: Yes, prices went up by a total of 12% suddenly in eighteen months between January 2021 and July 2022, but your wages also went up by an extra amount about as large, so things did not become less affordable—to say that is true, but it cuts no ice.
So there are three layers:
there is the affordability crisis.
there is the “government allowed inflation, and so I could not buy things at the fair prices I expected” discontent.
and then over and above all that, there is the Fox-Facebook misinformation crisis. So let me repeat myself:
Dean Baker: I hate to put a lot of highly paid pundits out of business, but look at this f**king graph:
… Obviously, the causation goes both ways, Trumpers don’t want to hear that unemployment is near a half-century low and crime is down, but that doesn’t change the problem. If we don’t have a way to get them to hear basic facts about the issues that concern them most, how would do we expect them to hear our plans for dealing with them? <https://twitter.com/DeanBaker13/status/1854752514090189261/>
Fact: those with justified true beliefs about the state of issues like crime, inflation, immigration, and the state of the stock market overwhelmingly supported Harris. So did Trump voters believe lies because Trump told them to, or were they Trump voters because they believed lies? And how do Americans who want a better politics and a better future dismantle the misinformatin system and, as Viscount Sherbrooke after the 1867 extension of the voting franchise in Britain: “we—or, rather, you—must educate our masters” on how to go about understanding the world, and how to go about deciding who to believe?
Fortunately, it is unlikely that there will both be significant further inflation and that Democrats will be blameable for it in the future. But Democrats need to deal both with the long-running slow-growth and also salient-expensive-middle-class-necessities aspects of the affordability crisis, plus the Fox-Facebook misinformation machine. That will be really hard, when one switches from poetry to prose and actually has to govern. Yes, I love the pivot from “abundance” to “affordability”.
But it is waaaaaaay too premature to say, as Derek Thompson does, that “affordability” is the Democrats’ new winning formula for the next half-decade.
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"WhenI hear 'affordability' I reach for my revolver."
"X is not 'affordable'" is almost always a call to subidize X, or worse have state provision of X. Sometimes -- a child allowance -- it's a good idea, but usually it just means that there are some supply constraints that need to be removed. It is particularly pernicious in real estate development to include an "affordability" tax on the parties.
I would point out that seniors relying on fixed income do not get "wages" increasing beyond computed inflation. As medical costs rise faster than inflation, the net effect is a slowing. eroding spending power that occurs every year, no exceptions. Yet inflation is increasing other costs, notably food. So every year, some costs, especially medical, increase faster than inflation (as do home rents), so that the ability to buy food and other needed items gets harder and harder. Both political parties know this, but neither does anything to prevent this. It would be simple just to use the basket of items that seniors [have to] purchase to calculate inflation and adjust retirement income accordingly. I understand this is a tax burden on everyone else, but do seniors have to go without healthcare and eat dog food again, a situation made worse by a lifetime of increasing inequality for most of teh population?
"WhenI hear 'affordability' I reach for my revolver."
"X is not 'affordable'" is almost always a call to subidize X, or worse have state provision of X. Sometimes -- a child allowance -- it's a good idea, but usually it just means that there are some supply constraints that need to be removed. It is particularly pernicious in real estate development to include an "affordability" tax on the parties.
I would point out that seniors relying on fixed income do not get "wages" increasing beyond computed inflation. As medical costs rise faster than inflation, the net effect is a slowing. eroding spending power that occurs every year, no exceptions. Yet inflation is increasing other costs, notably food. So every year, some costs, especially medical, increase faster than inflation (as do home rents), so that the ability to buy food and other needed items gets harder and harder. Both political parties know this, but neither does anything to prevent this. It would be simple just to use the basket of items that seniors [have to] purchase to calculate inflation and adjust retirement income accordingly. I understand this is a tax burden on everyone else, but do seniors have to go without healthcare and eat dog food again, a situation made worse by a lifetime of increasing inequality for most of teh population?