A Lack of Affordability is a Supply Side Issue

Letter to the Editor

Here’s a Letter I sent to the NYT last week, in response to this article by Jared Bernstein.

Dear Editor,

Jared Bernstein’s recent column correctly diagnoses America’s affordability problem and, when it comes to housing and energy, prescribes exactly the right medicine: increase supply. If only he applied this logic consistently.

With child care, Bernstein argues that because families can pay upwards of $20,000 per year, “the government must subsidize their child care purchases.” But why is child care in particular so expensive in the first place? State licensing requirements, mandated staff-to-child ratios, and onerous regulations on facilities all create barriers that prevent new providers from entering the market. He understands that subsidizing demand while leaving supply unaddressed in the housing market just bids up prices. The same logic applies here.

For health care, his solution is even worse. Capping the price of treatments and prescription drugs might sound nice, but we already know what follows: shortages get worse, reducing access, and quality suffers. Lowering prices and increasing access requires boosting supply. Let’s start by revisiting the Balanced Budget Act of 1997 which capped Medicare-funded residency slots at 1996 levels.

Bernstein knows that affordability comes from expanding supply. He should trust that insight all the way through.

To be fair, he has a longer, extended cut of the article on his Substack where he provides more details than the NYT piece does. But all those details reveal that, for dressed up reasons, he still views child care and health care as somehow fundamentally different from housing and energy in that the only way to increase their affordability is… to boost their demand.

Let’s be real: Mr. Bernstein will never refer to his policies as “boosting demand” but that’s exactly what giving consumers extra cash to buy a particular good does because it is effectively an increase in the consumers’ income but only for that particular good. While this has the advantage of increasing the number of people who will ultimately get the good/service, it will also bid up the price. And what happens as we continue to bid up prices? We get more calls for policymakers to “do something” about the affordability crisis. And what do they do? More of what got them into the very mess in the first place.

This will absolutely not fix affordability. And in fact, Washington’s insistence on being visible instead of being effective is the reason why so many markets have “affordability crises” today. Instead, if you want to see people get better access to a good and bring down prices, the ONLY way to do that is to increase supply. And as a quick note, this isn’t some “zombie-Reaganism.” This is just straight up Econ 101. Shift the supply curve to the right and watch quantity (aka “access”) increase and price fall.