A More Sweeping Definition of Affordability

David French asks and answers why we're "so rich" but so discontented.

A friend shared this recent David French oped that asks “How Can America Be So Miserable When It’s So Rich?” For most people who’ve thought about inequality, this isn’t hard to answer. America’s rich on average, but in an economy where the average is skewed “to the right” (i.e., towards very high incomes at the top of the scale) averages don’t describe most people’s experience.

French kinda seems to get this, though he cites a bunch of numbers that I don’t find particularly convincing about how the shares of people in higher real income brackets have gone up over time (and vice versa re lower brackets). But that’s almost always the case. It would only not be the case if real GDP growth reached only the top, which, thankfully, is rare. The economy mostly grows every year and most people get at least something back from that.

Let me show you what I mean, though this isn’t my main point, which is that French has a much more expansive definition of affordability than I do, and I think he’s hit on something important. Since that’s a big topic up in here, I wanted to elevate it.

But first…

The dark line is the share of households with $200K or more in ‘24$; the light line is the share with incomes <$50K, also in ‘24$. The former trends up, as you’d expect; the bottom trends down. There are stagnant periods, like the 1970s and the 2000s, and, not immaterially given the current economic sentiment problems, the most recent years, when the $50K share is about where it was pre-pandemic. But there’s also that nice period of sharp improvement in the 2010s.

Anyway, unless you were under the misimpression that no one ever gets ahead in real terms, I don’t see what these series tell us about how people should feel about the economy. Average living standards have definitely gone up, and tech gains mean that flat screen TVs are relatively cheap. But there are long periods of hourly wage stagnation embedded in those series above, when the only way to get ahead was for families to work more hours. And that means more childcare, which is unaffordable for too many families, especially those starting out. Same with housing, healthcare, insurance, and so on. And here’s where French gets interesting.

After recognizing the one impact of inequality is that it’s increasingly harder for lower-income families to access the lifestyle of higher-wealth families—they can’t afford everything from a non-contortionist seat on an airplane to travel sports to a house where they want to live—he writes:

…“affordability” doesn’t just refer to the cost of a specific good (or even necessarily the rate of inflation at any given time) but rather to the price of entry into what should feel like a normal American life — one that includes baseball games with the kids, a doctor on call, a home you like, and, at the very least, a basic sense that you haven’t been left behind.

Of courses, as French notes, the market caters to and thereby exacerbates these differences. Absent a subsidy from a client, I can’t pay for first class, but I can pay more for a few more inches of leg room, so now we get “Economy Plus” and all the variants therein. Concierge insurance services, special lines at Disney parks, etc…they all work to leave many feeling that even if life isn’t wholly unaffordable—you can still fly somewhere (cramped in a seat with no overhead space after waiting hours in line because Congress is broken¹)—you’re still stuck in a life that leaves you constantly feeling like the living standards you believe you deserve are out-of-reach.

I’d very much add Noam Scheiber’s important new work on how young college graduates feel betrayed by what many view as a broken social contract, opening up a gap “…between the life that many graduates believed they had been promised and their actual prospects. And they’re seething about it.” I’ll have more to say about that in forthcoming posts.

Trump ran on this, blaming the discontent on Democrats, Biden, immigrants, people of color, blah-blah. That is, of course, nonsense. The current state of affairs is consistent with a market economy wherein too many workers have too little bargaining clout, those with great wealth can watch it compound while buying a politics that keeps their effective tax rates below average, while the best the current political system has to offer to the masses is “we’ll make your health care more expensive but cut the taxes on some of your tips!”

This leaves an opening the size of Mack truck for an agenda that address these discontents. And that takes me back to my affordability definition, described here. French hits on the right sociological explanation, but that’s too broad to operationalize in our political economy.

Fortunately, politicians can embrace a more realistic affordability agenda defined by two simple criteria: First, it is focused on a narrow set of essential, big-ticket items that define the affordability problem for many consumers — including child care, housing, health care and electricity. Second, it highlights how these essentials are unnecessarily expensive because the markets for them are flawed in some way.

Each of those areas are amenable to gov’t intervention due both to their essential nature, vs., e.g., travel sports, and their market flaws. See my piece and links therein for policy details.

As I’ve written ad nauseum, until a political party develops and implements this agenda, along with the tax policy to pay for it—a move that I believe will build a political coalition to lastingly support said agenda—we’ll keep cycling through leaders and administrations who fail to get the job done.

One can take some comfort that almost anyone will likely be better than the current crop. But that’s far too low a bar. We must and we can do better.

1. Many economists would point out—aside from the broken-Congress point—that these are really just tradeoffs. People may kvetch about air-travel but revealed preferences show that they’ll take the discomfort for the cheaper tickets. That’s true but incomplete. If it’s just a tradeoff—an acceptable transaction—then why so much discontent?