Addressing the Affordability Crisis
President Trump has labeled our current “affordability crisis” a “hoax being propagated by Democratic politicians.” To the vast majority of Americans, however, the recent increases in the costs of living are anything but a hoax. The price of groceries are continuing to rise even though President Trump promised to reverse this phenomenon on “day one” of his second term. On top of that, the rising costs of healthcare, which were being addressed by a variety of government programs, is once again a critical problem as a result of the Trump administration’s cuts to the Medicaid and Obamacare programs. Equally, distressing is the rising cost of housing which our president seems to think is “a good thing” even though the vast majority of young Americans can no longer afford to purchase a home. In addition, the array of tariffs which President Trump initiated are making virtually every other item on the shopping lists of Americans more expensive. Adding to these concerns, residential electric bills increased by almost 20% during 2025.
Admittedly, gasoline prices declined by 3% in 2025. This, however, was simply a continuation of their declines in 2023 and 2024 and were the result of an over-supply of crude oil, a slowing economy and the replacement of millions of gasoline-powered cars with electric vehicles. These factors have been tipping the balance of supply and demand in favor of lower gas prices. Looking forward, President Trump opened more federal lands to further oil and gas exploration, but that had little impact in 2025 because oil companies are reluctant to drill new wells when oil prices are dropping. In addition, because of Trump’s threats to start a war with Iran oil prices have climbed back up to where they were six months ago.
Perhaps President Trump’s most promising effort directed at reducing the living costs of Americans has been his negotiations of price reductions with 17 prescription drugs manufacturers covering 43 branded products. These agreements represent an expansion of the program started by President Biden. While this was a significant step in reducing healthcare costs, it must be appreciated that at the time those same 17 companies agreed to implement these prices reduction they raised the prices of over 800 of their other prescription drugs. It’s also important to remember that prescription drugs costs only represent roughly 11% of our nation’s total healthcare expenditures.
While reigning in increases in living costs is an issue of great concern to most American families, in many respects it is a fool’s errand because most price increases are simply the product of supply and demand over which our federal government has little control. Yes, governments can impose price controls, but even those measures only have a short-term impact and can be soon overwhelmed by pent-up demand, a lesson learned from the extensive array of price controls imposed during World War II. As more fully explained below, no single strategy seems to work with respect to all of the necessities of life more affordable.
Food prices are among the most difficult for governments to control. It’s not because the demand for food items tends to outstrip domestic production. in fact, almost 40% of all food produced in the U.S. is wasted and this doesn’t even include food grown in the U.S. which is exported to other nations. Nor is it because farmers have greater bargaining power than those who consume their produce. Indeed, many American farmers are struggling economically and are frequently left impoverished by adverse weather conditions and diseases affecting their crops and livestock.
The problem is that there are disparities on both sides of the market for food items. Many Americans cannot afford to purchase their nutritional needs because they have to compete for food items with those with far greater wealth who are willing to pay more for those food items that are available. Correspondingly, the millions of individual farmers have far less bargaining power than the relatively small number of companies which purchase their produce, process it and distribute it through retail establishments to the American public.
As a result, our federal government needs an array of programs to help farmers economically and be more productive and to make food processing and distribution more efficient. At the same time, it needs programs to make sure that those at the bottom of the income scale are able to secure the food they need to lead healthy and productive lives. Unfortunately, there is a political divide in this country with Republican politicians more intent on helping the nation’s farmers and Democratic politicians more disposed to helping low income families obtain their nutritional needs. Unfortunately, neither political faction seems inclined to curb food waste (a task which is left to not-for-profit entities) or to curb disparities in bargaining power on both the producer and consumer sides of the market.
Healthcare costs pose a very different set of problems. When it comes to health issues, individuals are generally willing to maximize the amount they are willing to pay to avoid pain and suffering. This places enormous upward pressure on the prices charged for healthcare. While our nation’s wealthiest citizens generally have had little trouble obtaining the best available healthcare, its poor more often than not have been compelled to go without seeking professional healthcare. Following the Great Depression the healthcare plight of our nation’s poor gave rise to the creation of a large number of hospitals and medical clinics owned by governmental, religious and other not-for-profit entities willing to serve the nation’s poor. Indeed for the next 70 years, they represented a significant majority of healthcare facilities.
During that period our federal government developed programs and agencies designed to make healthcare both better and more affordable. Specifically, our federal government funded a panoply of agencies and programs to help various classes of U.S. citizens to obtain healthcare services. Principal among these are the programs administered by Medicare, Medicaid, the Veterans Administration and the Affordable Care Act. In addition, it created the Food and Drug Administration which reviews and analyzes medications for safety and efficacy, the Center for Disease Control which seeks to detect and impede the spread of communicable diseases and the National Institute of Health which funds research on health issues and the development of new drugs and vaccines.
While these agencies and programs have done much to advance medical science and enabled over 100 million Americans obtain the medical services they need, they have also had some very important side effects. First and foremost, they have facilitated the development of new drugs and medical procedures which have enabled Americans to live longer and healthier lives. Because the elderly have a greater incidence of health issues, this has greatly increased the demand for, and costs of, medical care.
Still another side effect of the federal government’s healthcare initiatives has resulted in a change in the character of the medical profession. Specifically, the vast expansion of medical services has resulted in medical doctors specializing their practices, hiring support personnel to efficiently expand their practices and to merge their practices into larger and more economically-sound practice groups. The federal government’s assistance in advancing medical science has led to new and expensive technological advances. This, in turn, has led hospitals to acquire more sophisticated and expensive medical equipment which has also added to the costs of medical services. In addition, it has prompted hospital organizations to expand geographically through mergers and acquisitions of other hospitals in an effort to achieve maximum usage of their more advanced medical equipment.
The federal government’s increasing economic assistance to enable Americans to pay for these enhanced medical services has also enticed for-profit entities to not only acquire hospitals and medical practices, but also to further raise the prices charged for medical services. In short, what the federal government started in order to improve the health and well-being of its citizens has initiated an upward spiral in healthcare costs. It has also expanded the role of for-profit healthcare insurers which have further added to the costs of healthcare in the U.S.
Taming increases in healthcare costs, like addressing rising costs of food item, is both an economic problem and a political problem. The fastest and most significant remedy for rising healthcare costs is to eliminate the private healthcare insurers and to replace them with no more than a handful of government entities. This would eliminate as much as 30% of total healthcare spending in the U.S. While eliminating for-profit healthcare insurers would enable medical care providers to charge more for their services, it would also make healthcare more affordable for the vast majority of Americans. The stumbling block to this solution, however, is that private healthcare insurers have a strong political lobby that was able to successfully fight off a similar effort in the 1990s when the problem was less acute.
The market for prescription drugs, albeit related to rising healthcare costs, poses a somewhat different set of problems. The production of prescription drugs in the U.S. is dominated by roughly two dozen large corporations. Even though there are literally hundreds of generic drug manufacturers, the vast majority of them sell their products at very low prices in a market place which economists generally refer to as “perfect competition.” The problem in the prescription drug market is that the new drugs covered by patent protection tend to be more effective than their predecessors which greatly reduces price competition. Thus, throughout the life of their patents, the drug manufacturers are largely free to charge as much as desperately ill consumers can pay. This situation is made even more acute by the fact that the Medicare program, the nation’s largest funder of prescription drugs purchases, until recently, has been largely prohibited by law (the Affordable Care Act) from bargaining for lower prices.
Nevertheless, one might reasonably expect the prescription drug insurers, who represent literally millions of drug purchasers, would have sufficient bargaining power to be able to negotiate more affordable prices for their insureds. This brings us to the real problem which is that there is ample evidence that the high prices of prescription drugs in the U.S. are not the product of free-market activity. Indeed, prices for new prescription drugs have been artificially manipulated upward by two factors. First, there appears to be at least a “gentlemen’s agreement” among the major drug manufacturers not to compete with each other over pricing. In addition, it has become clear that there is a conspiracy among the large pharmaceutical companies, the prescription drug insurers and the pharmacy benefit managers not only to keep prices high, but to increase them roughly every six months.
The result of these two factors is that the prices of patented prescription drugs in the U.S. are roughly 2.7 times higher than the prices of those same drugs in other developed nations. American drug manufacturers contend that it’s necessary for the U.S. consumers to effectively subsidize the drug purchases of those in other countries where drug prices are subject to price restrictions. They contend this price differential is needed to provide them with the income necessary to shoulder the high costs of developing and obtaining FDA approval of new drugs. This argument, however, is largely poppycock for two reasons. First, much of the U.S. research for new pharmaceuticals is funded by the U.S. government and many of the new prescription drugs brought to market by U.S. pharmaceutical companies are developed in other countries. Second, U.S. drug manufacturers are still able to reap average profit margins of roughly twice those of the nation’s largest 350 non-pharmaceutical manufacturers.
Because of the political power of this unholy alliance the federal government until recently has done little to address the high costs of prescription drugs. Shockingly, the Department of Justice has never sought to bring an anti-trust proceeding against the prescription drug manufacturers or their co-conspirators who make large contributions to both political parties. However, as mentioned above, both the Biden and second Trump administrations have begun to bargain with the drug manufacturers to reduce the prices they charge for their new prescription drugs.
As noted above housing costs have become out of reach for a large percentage of Americans. In fact, it’s estimated that the U.S. needs at least 6 million additional housing units which tips the supply/demand balance toward higher housing costs. The result is that almost 50% of American families struggle economically to satisfy their housing needs. The federal government has tried to address this problem by encouraging the construction of more low-cost housing units. These include tax incentives for the production of energy efficient housing units, tax credits to build or rehabilitate housing for low-to-moderate income tenants. These efforts have not been particularly effective for two reasons. First, residential construction companies are able to earn more by building high-priced homes. Second, President Trump has minimized the federal government’s efforts to encourage more low-cost housing units because doing so could reduce housing values which he believes is more in the interests of the American public (by which he means existing home owners).
While having the federal government subsidize the costs of producing goods and services that are limited in supply can have a beneficial effect, it is a tactic which is difficult administer. To be sure, it effectively alters the supply-demand equation and has been successfully employed in the U.S. in numerous situations. Still, it’s not without dangers. This can be seen in China’s recent effort to increase the production of housing units. That experiment didn’t work out well because it resulted in overbuilding and the bankruptcy of a number of residential construction companies. Reversing China’s failed experiment is likely to take several years to overcome the problems it has caused.
Another approach is to have the government fund technological advances that could lower production costs or enable an increase the supply of products that have been experiencing rapid price increases. This approach dates back to the mechanical or industrial revolution and was embellished just three decades ago with the information revolution and is now being supercharged by the AI revolution. To foster that revolution our federal government is offering economic incentives to tech companies to develop more high-powered computer chips and to invest in the generation of electrical energy needed to power AI operations. A recent success story of this approach is the subsidies the first Trump administration offered to encourage the rapid development of COVID vaccines. Using this approach, the highly effective COVID vaccines were brought to market in less than one year as opposed the to roughly four years it had previously taken to develop a viable vaccine.
The widespread increases in living costs that the U.S. is currently experiencing suggests that a more promising overall strategy would not be to focus on reducing costs, but rather to direct more money in the hands of those individuals who lack sufficient resources to enable them to purchase life’s necessities. Stated another way, the problem isn’t so much that living costs are rising too quickly, but rather that the incomes of a majority of Americans have not kept pace with those increases. This is an issue which has been bedeviling our nation for the past four and a half decades and has been propelled by Republican administrations which have embraced “trickle-down” economics.
Under Republican economic policies there have been large cuts in income taxes which distinctively favor the wealthy and reductions in social welfare programs designed to enable the remainder of the nation’s citizens maintain a minimal existence. The result has been that over the past 45 years there has been a transfer of wealth totaling $80 trillion from those whose family wealth is in the bottom 90% of Americans families to those whose family wealth is in the top 1% of Americans. The moral of the story is that price increases are only a problem when they become unaffordable for a significant portion of a nation’s citizens.