- Affordability is at the top of mind for voters this campaign season, with politicians promising they’ll make stuff cost less
- What’s lacking in these promises is an explanation of what is driving prices up in the first place
- If they can’t articulate the cause of the problem, they can’t be trusted with solving it
The “affordability crisis” is arguably shaping up to be the top issue for this election season. One can barely go five minutes on social media or television without hearing a political candidate promising that they’ll make stuff cost less.
But what makes stuff cost more?
It only makes sense to identify the cause of rising prices first in order to combat them.
When it comes to the rising cost of living, the 800-pound gorilla in the room is the Federal Reserve. Money is involved in virtually every transaction in the economy, so a manipulation of the amount of dollars circulating in the economy is bound to have a direct impact on how many dollars it takes to acquire goods and services.
Even a cursory look at the money supply’s recent history can explain why America’s households are struggling more and more to keep up with rising prices.
In response to the Covid shutdowns, the Federal Reserve created three trillion dollars out of thin air in just six months. That was an increase of roughly 20 percent of all the money created in the nation’s history in half a year. Moreover, from February 2020 to May 2026 (latest data readily available), the money supply grew by $7.5 trillion, an increase of 49 percent in just over six years. About one out of every three dollars in existence was created since 2020.
During that time, the U.S. dollar has lost 30 percent of its purchasing power. Basically, that means it takes $130 dollars today to buy the same basket of goods you could buy for $100 in 2020.
When the Federal Reserve injects trillions of dollars into the economy, the result is far more dollars chasing the goods and services available for sale. As Milton Friedman has famously said, “Inflation is always and everywhere a monetary phenomenon.”
A major driver of this money creation has been the federal government’s deficit spending. The Federal Reserve has stepped in to “monetize the debt” by digitally printing money to buy government Treasuries. Selling Treasuries is the federal government’s primary means of borrowing money to finance their deficit spending. From February 2020 to April 2022, the Fed’s holdings of Treasuries more than doubled from $2.4 trillion to $5.7 trillion.
It is therefore hard to take seriously the claims about making stuff cost less from politicians who cheer or otherwise support increasing government spending, which creates the very deficits that fuel inflation in the first place.
This inflation of course impacts households differently, depending on their consumption patterns. Specifically, inflation is more devastating to low-income workers because they spend a higher share of their income on consumer goods while being less likely to see their incomes keep up with rising prices.
When it comes to specific products seeing dramatic increases in prices, it’s important to remember basic lessons from Econ 101. Prices rise for a product when demand increases or supply is restricted (or both), other factors held equal.
Demand for health care, for example, is inflated by third-party payment systems. About four out of every 10 dollars spent on health care expenditures in the United States come from Medicare and Medicaid. Government insurance programs largely shield patients from the cost of care.
Furthermore, private health insurance plans that cover everything down to annual checkups shift costs from point of care into monthly premiums. Insurance customers spend thousands each year on premiums, incentivizing more trips to see medical care providers to feel they are getting their money’s worth.
In a 2017 survey, doctors said more than 20 percent of medical care was unnecessary. Meanwhile, another 2017 report estimated such unnecessary care costs roughly $200 billion annually. This result is in part because the doctors are protecting against malpractice claims, but this is also made possible because patients are avoiding most of the direct costs. If someone else is paying, why not consume more tests and treatments than may be necessary?
On the supply side, 35 states including North Carolina have Certificate of Need (CON) laws that require medical care providers to get permission from a state commission before opening or expanding facilities or adding certain medical equipment such as MRI machines. This expensive and time-consuming process serves to limit health care supply, helping to drive up costs.
Similarly, housing regulations make it more expensive and difficult to build new housing. A 2021 study by the National Association of Home Builders (NAHB) estimated that government regulations accounted for 24 percent of the final price of a new single-family home in 2021 and can add an extra six months to the permitting process for new home construction.
North Carolina Gov. Josh Stein recently issued an executive order to create a new position of Senior Advisor for Housing Policy in the governor’s office while acknowledging the state’s lack of housing supply as a source of rising prices.
A growing population also exacerbates the problem from the demand side, but a free, competitive housing market would much more rapidly be able to meet the increasing demand.
When examining daycare affordability, we see the same factors at play. This 2025 report by the American Enterprise Institute links government regulations to increasing costs, finding “[c]hildcare is more than twice as expensive in states with the most restrictive regulations than in states with the least.” These supply-restricting regulations are combined with tens of billions in annual federal government expenditures for childcare programs like Head Start and billions more in state government subsidies and programs. Such expenditures and programs inflate demand and fill up slots, making nonsubsidized seats far scarcer and therefore more expensive.
This campaign season it will be difficult to escape political candidates promising to address the affordability problem. But if they can’t explain what is causing the problem in the first place, their promises should be dismissed as empty campaign rhetoric.
