The Corner

Economy & Business

A Cost-of-Living Agenda

The editors’ critique of Elizabeth Warren’s student-debt proposal  seems exactly right to me, and comments from others around here have also hit the mark. I’d only add that this proposal, and the rhetoric on higher education among the emerging 2020 Democratic candidates, fits neatly into an important general pattern of dysfunction in our political economy in recent decades, which offers us a way to think about some of the key domestic-policy priorities that any serious Republican eager to speak to broadly-shared voter concerns ought to notice.

Simply put, the three areas that have seen the most inflation over the past generation (a time of very low general inflation) have been health care, housing, and higher education. We might call them the three H’s. And in all three, as the economist Arnold Kling has pointed out in recent years, public policy has played a huge role in that increase in costs by simultaneously restricting supply and subsidizing demand.

In health care, the supply restrictions have especially (though by no means exclusively) had to do with the regulation of health insurance in ways that have restricted options and competition and so have closed off potential avenues for lowering costs. The subsidization of demand, meanwhile, has consisted of the enormous growth of Medicaid alongside new forms of subsidy in the individual market through Obamacare as well as new subsidies for prescription drugs.

In housing, we have seen local, state, and federal policies interact in ways that in many places have restricted supply through tighter zoning while subsidizing demand through tax benefits, pseudo-governmental home-loan subsidies, and various kinds of first-time-buyer benefits. Obviously there was a huge crash in this market a decade ago, but the basic pattern didn’t change in the wake of that crash.

In higher education, the restriction of supply happens especially through the overly narrow accreditation process (which is a function of public policy combined with politically-enabled incumbent control of the process) and subsidization of demand has happened through student loans and assorted tax and other benefits.

Each of these policies is plausibly defensible in itself. And even the combination of restricting supply and subsidizing demand can be defended: If the government is going to provide a subsidy for something, it needs to have some definition of that something so that the money is used for its intended purpose, and that definition is inherently going to constrict and regulate the subsidized good. But the sum of all this has been a lot of inflation in three areas that are crucial to the lives of vast swaths of our society.

A cost of living agenda that tried to counteract this somewhat should have a lot of appeal if our politics ever gets back to thinking in terms of solving problems people face rather than just revving up lots of outrage about how the other party is bringing on the end of the world. There are steps to be taken on both the supply and the demand sides of each of these areas, though political pressures will surely make addressing the supply restrictions more attractive than reducing subsidies for demand. That means opening up more options in health care and higher education through federal policy changes (like broadening the definition of qualified health insurance and allowing lots of experimentation in the accreditation of higher education and the uses of student aid). In housing, the politics of any changes on both the supply and demand sides would be very painful, but that doesn’t make them any less important. In fact, I would argue that housing is a more urgent problem than either of the other two and should be front and center in our state and local politics.

There’s room to pursue an agenda on this front on the right, and with time there could be some interest in it too. But on the left, it certainly looks like doubling down on the restriction of supply and the subsidization of demand is all we’re going to see at this point.

Yuval Levin is the editor of National Affairs and a fellow at the Ethics and Public Policy Center.

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