American Dream costs are constraining household budgets, even when other economic indicators look good.
Over the past decade, the gap in perception between the average American and Washington as to the health of the economy has only grown wider.
Just 29 percent of registered voters rate the economy either good or excellent, while a whopping 70 percent rate it “only fair” or downright poor. And just as the Biden administration did, President Trump has responded by pointing to topline numbers showing that things are not that bad, really.
Gains made in the job market and in the fight against inflation are real, not illusory. Yet middle-class Americans keep reporting that they’re struggling to keep their noses above water. Democrats, meanwhile, have gleefully seized on Hormuz-induced increases in gas prices to explain the feelings of economic malaise.
But while higher gas prices are painful, these parallel economic realities are a more persistent phenomenon than any individual price shock, and the reasons are more structural than immediate.
At least four of the largest stressors on the aspiring middle-class family aren’t tied to weekly or monthly economic indicators. Instead, they are found in the costs of basic middle-class staples: housing, health care, education, and childcare. For many, these costs are unavoidable and have been rising at rates well above inflation and wage growth for decades.
The problem is that they are not luxury goods to forgo when money is tight — the proverbial avocado toast, or the fancy car. Rather, these products are seen as fundamental to rising in the middle class — a home, good medical care, a college education for your children, and the ability to either forgo a second income while children are young or give them adequate care while still going to work. Paying for them is stretching families thin, even when other economic indicators are good. And when they aren’t, household finances teeter on the edge.
The median monthly mortgage payment is just over $2,000, while childcare (for a single child) runs at about $1,500. A family health-care premium averages $550, and that’s assuming employer contributions. Median U.S. household take-home pay is $5,200.
That math leaves the typical dual-income family with a mortgage about $1,000 a month for everything else. That includes budgeting for a fourth, wildly inflating staple: either saving for college tuition or, for many Millennials and Zoomers, making a student loan payment. That $1,000 also must cover groceries, gas, transportation, utilities, and unexpected expenses. Economists can quibble over the applicability of particular statistics, but common sense tells us that American families dealing with this financial reality will not feel very prosperous.
In this context, it’s hardly surprising that half don’t have $1,000 saved for an emergency, or that people have become hypersensitive to short-term price shocks.
One problem is that the industries tied to these four budget-consuming expenses represent some of the most heavily regulated and subsidized sectors of the economy, which has contributed to their cost trajectory.
The ratio of home prices to income is at a historic high, indicating a simple truth: the average American who doesn’t already own a house will struggle to buy one.
Some of that pain could be alleviated by deregulation. According to the National Association of Home Builders, regulations account for nearly a quarter of the price of building a new single-family home and 40 percent of the cost of multifamily dwellings. But it’s hard to imagine that the now decades-long disconnect between the growth of wages and the rise in housing prices can be wholly reversed by deregulation alone.
America’s health-care system is now such a Gordian Knot (Obamacare pulling it tighter) it seems impervious to constructive solutions. Republicans’ plan seems mostly to be to give up trying.
Still, the Trump administration has made important moves around the edges, including pushing transparency in pricing for both medical services and prescription medications. Others have suggested “medical wallets,” delivering Obamacare subsidies directly to the patient rather than through the middleman of insurance companies.
Childcare is one of the most heavily regulated and subsidized industries in America. Elaborate rules about facilities, zoning, and staffing go well beyond ensuring children are well cared for. The Mercatus Center has estimated that cutting regulations could save families as much as $1,800 a year without sacrificing outcomes for kids.
Even better would be eliminating childcare costs entirely by enabling more women to care for their children — which a plurality of women say they prefer — by encouraging flexible, at-home, and part-time employment arrangements compatible with childcare responsibilities, and not passing over male heads of household for promotion for “diversity” purposes.
The fourth inflationary cost is education.
More parents than ever have concluded that the public schools they pay taxes to support can’t be trusted to deliver a competent education and, worse still, have become centers of woke indoctrination. Especially in states without expanded school choice programs, that adds private tuition or homeschooling costs to budgets.
And for the majority who still use the public school system, many aspiring to the middle class or above add contributions to college savings accounts to spare their children from the student debt cycle.
Democrats have ready answers for these problems, ones that could push the government further down the path to financial ruin and/or drive prices up even more: loan forgiveness, free college, free childcare, government health care.
Unless Republicans have a more focused plan to deal with what could be called “American Dream costs,” those solutions will largely remain uncontested. When socialist ideas inevitably fail to help, voters will simply whiplash between electing Republicans and Democrats both promising “affordability” without delivering.
To understand why voters keep screaming at whichever party is in power about the economy even in statistically “good” conditions — it’s the inflation of the American Dream costs, stupid.