Decades of Subsidies Have Made the Essentials of Middle-Class Life Increasingly Difficult To Afford
The basics of middle-class life are too expensive. But more subsidies won't help.
Perhaps the simplest way to diagnose the problem with American politics right now is that it is out of touch. Democrats and Republicans have spent the better part of the last decade arguing about partisan peccadillos and culture war obsessions, while middle-class concerns have languished. And thus a new movement has risen mostly but not exclusively on the technocratic center-left, intent on refocusing liberal politics in general and Democratic politicians in particular on workaday economic concerns.
This movement has many strains and individual obsessions, but it is united by a shared thesis: The basics of middle-class life—especially but not only housing, education, and health care—have become too expensive, and politicians should seek to remedy this via policy interventions.
Their ask is for politicians to focus more on policies intended to make it easier for nonpoor, nonwealthy Americans to afford what amounts to a consensus middle-class lifestyle: a home, access to health care, quality schooling for the kids. They want the American Dream, more or less, and they want most ordinary families to be able to afford it.
This movement has banded together around a loosely defined "abundance agenda." At its best, this movement offers a critique of poor liberal governance, especially in urban areas. For libertarians, there is much to like and much to agree with, particularly on housing, where some liberal pundits have begun to argue that the most direct path to lowering housing prices is increasing supply by eliminating artificial constraints, like regulatory requirements and environmental reviews on development.
Yet what's notable about all of these middle-class basics is that they have already been subject to decades of policy interventions, often though not always from Democrats. These elements of middle-class life have become unaffordable in tandem with, and in some cases because of, decades of policy interventions designed specifically to make them more accessible and more affordable to the middle class. And today's elected Democrats seem intent on repeating the mistakes that brought America to this point.
Consider higher education, where the presence of decades of federally backed grants and loan programs has coincided with dramatic increases in the cost of college since the 1970s. From 1980 to 2016, higher education costs rose 238 percent, far faster than inflation. Student loan programs designed to make college more affordable have contributed to the escalating price of a degree, making it possible for universities to charge ever-higher tuition fees. A policy nominally geared toward affordability begat decades of unaffordability.
And rather than unwind it, many of today's Democrats seem ready to double down: Hence, President Joe Biden's move to cancel $400 billion in student loan debt and tweak payment rules in ways that will, if anything, further raise the cost of higher education while incentivizing degree choices with lower earning potential.
Similarly, following the passage of Medicare and Medicaid in the 1960s, national health care spending as a percentage of the economy rocketed upwards, rising from about 5 percent of gross domestic product (GDP) in the 1960s to more than 18 percent of GDP.
Some of this was a product of new technology, new facilities and techniques, and new medications. But much of the rise is attributable to the infusion of a vast system of federal funding that previously did not exist, and, as spending that doesn't require specific congressional authorization in general pays for specific services rather than more general health outcomes, has been subject to few meaningful spending controls.
Even as Medicare and Medicaid plowed hundreds of billions of taxpayer dollars into the nation's health care system, the cost of health care for middle-class working Americans grew increasingly difficult to afford: hence, the passage, in 2010, of the Affordable Care Act.
The Affordable Care Act added hundreds of billions more in federal spending, much of it targeted at subsidizing private health insurance; yet in the years after the law went into effect, families making just above the cutoff line for subsidies—about $100,000 a year for a family of four, depending on the year—struggled to afford health insurance. Notably, when former President Barack Obama commemorated the health law's anniversary last year, he lamented that it still struggled to provide the affordability the law's title had promised.
As with higher ed, Biden has tried to remedy the failures of Obamacare subsidies with even more subsidies: The American Rescue Plan, the $2 trillion stimulus plan passed by Biden and congressional Democrats in early 2021, funneled tens of billions into an expansion of the health law's private insurance subsidies—an expansion that was initially scheduled to be temporary, but was extended through 2025 via the Inflation Reduction Act. At best, these subsidies have merely masked underlying premium increases; more likely, they have contributed to those cost increases in much the same way that higher ed subsidies have contributed to the price of college.
To be fair: Center-left proponents of the abundance agenda have often framed their outlook as a necessary corrective to the failures of subsidizing demand, at least where housing is concerned. But outside of housing, it's far from clear that many elected Democrats have accepted this notion. Biden has sometimes talked like someone who buys into the thesis that middle-class life is too expensive, but his administration has generally prioritized expansions of subsidies and spending rather than reforms that address root problems; even his zoning reforms were a flop. In general, Democratic policy makers have been slow or unwilling to reckon with the decades of policy interventions that helped make middle-class amenities like health care and education so expensive, and have reflected little on the idea that piling subsidies upon subsidies will only exacerbate the underlying problems.
Democratic Party leadership is still in the grips of the planner's conceit, the delusion, common to those in power, that market-distorting subsidies and restrictive regulations can successfully manage supply and demand, that prices can be brought down by targeted transfers, that goods can be made cheaper by throwing ever-more government money at them. Which is to say: They are still out of touch with the causes of middle-class problems. To succeed, an abundance agenda will need elected leaders who recognize that when it comes to government, less is more.