Curbing Rising Living Costs

​ One of the principal issues in the recent presidential election was the rising costs of living. Those costs of greatest concern to American voters were the costs of food, housing and healthcare. Although Donald Trump was very vocal in his criticism as to how those issues were being mishandled by the Biden administration, now that he is about to inherit them, he will have to develop actual plans to address them. So far, most of his suggestions lack specificity and those that don’t may be of little help. Most importantly, the plan mapped out for him by his advisors to curb rising healthcare costs will not achieve that goal. Instead, they will simply place greater responsibility for those costs in the hands of the voters he promised to protect.

The Cost of Food

​ During the presidential election campaign voter concerns over rising food costs were both real and exaggerated. They were real in the sense that between 2019 and the 2024 election food prices increased 28%. This rate of increase was greater than any our nation had experienced since the 1970s. However, they were exaggerated as an election issue by Republican politicians and right-wing media as the rate of increase had largely returned to the more normal level of 2.1% during the 12-month period preceding the election.

          It’s not difficult to identify the causes of the sharp increases in food prices that took place between 2019 and 2023. That was the period during which many businesses were shuttered in an effort to combat the spread of the Covid-19 pandemic and supply chains were disrupted. In the U.S. there were two separate food supply chains: one that packaged food items in large quantities directed at filling the needs of restaurants and the other packaging food items in smaller quantities for home consumption and being distributed through the nation’s supermarkets. Because the pandemic caused most Americans to dine at home, food items normally directed to restaurants had to be repackaged and redirected. This frequently resulted in the shelves of supermarkets remaining depleted for many months. This sudden shift in demand also prompted supermarket chains to raise their prices. In addition, there were also problems in the meat-packing industry where employees working in close proximity to each other were spreading the virus causing slow-downs in production and food deliveries.

          This raises the question of what, if anything, the incoming Trump administration is going to do address the current elevated costs of food. Vice President Harris talked about adopting laws and regulations to discourage price gouging. Such measures are very difficult to fashion and even harder to implement. Perhaps a more effective approach would be to utilize the federal government’s bully pulpit to discourage price gouging. This can be accomplished by holding public hearings excoriating food processors and retail food vendors who have engaged in price gouging as a means to intimidating others from doing so.

          A more long-term approach would be to utilize the nation’s anti-trust laws to attack contractions in the number food producer, processors and vendors which restrict competition. Those laws can also be used to attack price-fixing arrangements among non-affiliated companies in the nation’s food supply systems. Such measures, however, tend to involve protracted court cases that can be drawn out for years, making them unattractive as avenues to achieve immediate relief.

          European countries have tried a number of approaches to controlling increases in food prices including encouraging farmers to produce more food, lowering import duties on food products, encouraging their citizens to limit their food purchases so as to minimize food waste and encouraging food producers and retail food stores to limit food price increases. It’s not clear whether such measures would work in the U.S. as Americans tend to look to their governments to solve their problems. I can still recall President Ford’s ill-fated campaign to encourage American citizens to help control inflation by dispensing lapel “WIN” buttons which stood for “Whip Inflation Now.” Certainly, the criticism of how the Biden administration has confronted rising food costs certainly seems to reinforce the view that stopping inflation requires government action. The sad fact is that 30-40% of the food available in this country is wasted and that is largely outside of the control of our government.

          Trump has announced that he’s going to attack rising food prices by expanding the nation’s energy supply. Specifically, he intends cut regulations that increase the costs of producing fossil fuels. Although energy is consumed in growing and processing foods, it represents only a relatively small portion (approximately 4%) of the costs of producing food items. As such, it will have little impact on reducing the costs of foods. In truth, Trump’s suggestion was probably more motivated by his campaign pledge to fossil fuel producers that he would liberate them from restrictions on their industry imposed by the Biden administration. It also provides him with a talking point to distract from the fact that two of his campaign promises are likely to significantly elevate food costs.

          Specifically, Trump has vowed to impose 10% tariffs on all imported items and a 25% tariff on items imported from Mexico and Canada. The U.S. currently imports a broad range of food products including fruits and vegetables, wines, vegetable oils and various types of nuts, most of which are imported from Mexico and Canada, our nation’s two largest sources of imported items. This will have a significant impact on the prices Americans will have to pay to put foods on their dining tables.

          Equally devastating will be Trump’s plan to round up and deport all illegal aliens. It’s estimated that there are roughly 2 million undocumented workers in our nation’s food supply chain, including 1 million farm workers, 750,000 restaurant workers and 200,000 in food processing plants. The deportation of these workers will have a devastating effect on food prices as there is no surplus of unemployed workers in this country to fill their jobs and most U.S. citizens are unwilling to perform the functions currently being performed by undocumented workers, especially at the level of the wages they are paid.

The Costs of Housing

​          Home prices are said to have increased 50% over the past five years and increased housing costs are reported to have been responsible for two-thirds of overall inflation during the past year. It has been estimated that the U.S. is currently in need of an additional 1-4 million additional housing units. The principal problem, however, seems to be that much of the housing that is currently available is financially out of the reach of many working-class Americans.

          This housing shortage has a number of causes. It likely started with the collapse of the housing bubble in 2008. As a result many American families lost their homes and their life’s savings. The collapse of the housing market also caused the two federal housing lenders (the Federal Home Loan Mortgage Corporation and the Federal National Mortgage Association--better known as “Freddy Mac” and “Fannie Mae”) to be placed into receivership, vastly reducing the availability of housing loans to low-income families.

          A second problem has been a shortage of construction workers and increases in building material costs, prompting many home builders to concentrate their resources on building homes valued in excess of $1 million for which they could realize larger profit margins. A third problem was the Covid-19 pandemic which caused many American workers to work from their homes and resulted in their migrating out of large cities and into suburbs causing dramatic increases in the prices of single family homes.

          All of those changes, in turn, reduced the availability of low-cost housing, a problem that was exasperated by the Fed’s increase in interest rates to fight the nation’s recent rise in inflation. It has been estimated that the median cost of housing today is $426,000 and that today’s home-buyers need an annual family income of at least $100,000 just to purchase a “starter home.”

​          Trump has proposed a number of actions which he says will reduce the costs of homes by 50%. At the top of his list is to reduce “burdensome housing regulations.” He asserts that this alone will cut housing costs by 30%. The problem is that housing regulations are principally established by local governments and to a lesser degree by state governments. The role of the federal government has largely been confined to providing funds to finance home mortgages to which it attaches certain restrictions. The real problem is not the restrictions placed on housing loans for low income home buyers, but rather the demise of the two federal agencies that facilitated such loans.

          Trump also claims that he will bring down inflation and interest rates, although his plans for reducing inflation are modest, at best. More importantly, he will have no authority to reduce interest rates which are controlled by the Federal Reserve Bank. In reality, there is relatively little that Trump (or any president) can do to reduce the costs of housing.

​          Trump’s second proposal is to open ten tracts of federal lands to be used for housing developments. He claims that this could cause housing costs to decline by 10-15%. The problem is that the vast majority of lands owned by the federal government are found in the large states located west of the Mississippi River which are removed from developed communities. Thus, in addition to constructing housing on these sites, whole commercial areas would also have to be developed. This would require the federal government to subsidize the costs of developing those commercial areas as well.

​          Trump’s third proposal is to prohibit banks and other lenders from providing mortgage loans to illegal aliens. According to Trump, this would produce a decrease in the demand for housing which would cause a 5% decrease in the price of housing. The problem with this suggestion is that illegal aliens are not significant owners of residential housing. More importantly, illegal aliens play an important role in the construction industry and if they are deported as Trump has vowed, the cost of constructing additional housing will surely increase. Lastly, Trump proposes to amend the federal tax code to provide tax cuts to real estate developers who build low cost housing. While this would likely work, he only estimates that it would decrease the cost of housing by 2%-5%.

​          You’ll have to excuse my skepticism as to the likely impact of Trump’s proposals. During his first administration he had a plan to effect renewal in blighted urban areas by creating “opportunity zones” in which residential developers would receive tax breaks for constructing housing within those zones. The result was that developers only chose to build in those zones which bordered on major commercial areas and ignored those areas most in need of being renewed. As a result this undertaking helped developers without addressing the problem of urban blight.

Taming Runaway Healthcare Costs

​          By far the area of the nation’s economy most out-of-control is its healthcare system. This past June I wrote an article entitled“Our Sick Healthcare System.” In that piece, I compared the costs and medical outcomes achieved by our healthcare system with those of other developed nations. What I found was that in the U.S. healthcare costs are twice those in other developed nations and that patient outcomes are not as favorable.

          At the heart of our problem is that we have an essentially private healthcare system in which the healthcare costs are the responsibility of each citizen, most of whom purchase private health insurance to protect themselves against large and unexpected healthcare costs. By contrast, the vast majority of developed nations have government-run healthcare systems in which the government is responsible for providing its citizens with healthcare. This enables all of their citizens to have access to healthcare while roughly 8 percent of U.S. citizens currently have no healthcare insurance and therefore no access to healthcare. 

​          How our healthcare costs came to be so expensive is a long and convoluted story which essentially began during World War II when the U.S. imposed wage and price controls to keep inflation from getting out of control. In order to attract workers (as most able-bodied men had departed to fight in the war), U.S. businesses began offer their employees healthcare insurance plans which were not covered by wartime restrictions on wage increases. Thus, private medical insurance became the way most Americans chose to satisfy their healthcare needs.

          In the 1960s the federal government began the Medicare Program which provided seniors with healthcare coverage. This was an important step as most Americans obtained their medical insurance through group plans sponsored by their employers which were no longer available when they retired. About the same time the Medicaid Program was begun under which the states provided medical insurance to those low-income individuals who were not eligible to participate in the Medicare Program. These legislative achievements were initial steps in making our governments responsible for the healthcare needs of their citizens their citizens

          Also in the early 1960s thalidomide was found to cause birth defects prompting the FDA to significantly tighten its requirements for approving prescription pharmaceuticals. This greatly increased the costs of bringing new prescription drugs to market and subsequently has been used as an excuse by the pharmaceutical manufacturers to continuously raise their prices. In fact, most pharmaceutical companies regularly increase the price of their prescription drugs every six months.

​          While medical malpractice litigation can be traced back to 1800, it exploded in the 1960s with the formation of a medical malpractice bar. This put in motion a chain of events that led to an increase in healthcare costs from 4% of our nation’s GDP in 1960 to 17.3% in 2022 and is currently projected to continue to rise to 19.7% of GDP by 2032. That chain of events can be summarized as follows:

• Medical malpractice claims rose as the medical malpractice bar expanded;

• In response, medical professionals and hospitals began to purchase medical malpractice insurance;

• Medical malpractice insurance policies attracted more malpractice claims and jury awards continued to rise;

• In response, malpractice insurers raised their premium charges;

• To contain costs from malpractice claims, hospitals and medical professionals began to practice defensive medicine, relying less on their interviews with and observations of their patients and more on diagnostic tests;

• To further help avoid incidents of malpractice, hospital and medical professionals purchased expensive diagnostic equipment;

• Hospital and medical professionals raised their professional fees to cover their growing expenses for purchasing, maintaining and operating this equipment;

• In response, healthcare insurers began raising their rates to be able to cover those higher fees;

• As medical professionals were faulted by juries for not using the latest available diagnostic equipment, hospitals and medical groups began mandating the use of a plethora of diagnostic tests and procedures in attending to their patients;

• As medical costs continued to rise, healthcare insurers further increased their premium charges and looked for ways to deny and delay payment of medical insurance claims;

•     Medical insurers also began changing the way they reimburse medical costs, assigning specific amounts to doctor’s efforts and their use of specific medical procedures;

•   This caused medical providers to increase their reliance on medical tests and procedures to make up for the lower compensation rates accorded to the efforts of medical practitioners;

• In 2006 Congress enacted Medicare Part D under which prescription drug coverage was added to the Medicare Program;

• With the adoption of the Affordable Care Act in 2010, the federal government prohibited healthcare insurers from disclaiming medical claims based upon “pre-existing conditions; and

• This precipitated further increases in healthcare insurance premiums to help insurers cover their rising costs from having to pay claims which could no longer be denied.

           Although Donald Trump has reconciled himself to living with the Medicare Program, he has long desired to repeal the ACA, most likely because it was Obama’s principal achievement as President and Obama had ridiculed him at the 2011 White House Correspondents’ Dinner, something Trump is not prone to forget. Even though Trump recognizes that the ACA has gained a high degree of public support, he still may try eliminate it either by having the Republican controlled Congress repeal it or by trying to have the Supreme Court again do his bidding.

          For the most part, Trump seems to be intentionally vague about his plans to arrest rising healthcare costs. Indeed, he has only said that he will be guided by the following four principles, none of which provide even a hint as to what he actually intends to do:

• Promote competition and transparency;

• Enhance flexibility and choice;

• Focus on deregulation; and

• Enhance national security with America First policies.

          The Center on Budget and Policy Priorities has published an article in which it points to the following objectives being urged upon Trump with respect to healthcare spending:

• Repeal the federal government’s premium tax credit (PTC) enhancements that have been in place since 2021 and have led to record enrollment in federally funded healthcare insurance programs;

• Repeal the Medicaid expansion enacted in the ACA which provides federal subsidies to states that elected to cover roughly 18 million adults with incomes up to 138 percent of the poverty line (just over $20,000 a year for an individual);

• Reduce Medicaid funding in a way that will necessitate deep cuts in the scope of the program over time and change the fundamental federal-state partnership for funding Medicaid;

• Impose burdensome work requirements and eliminate Medicaid coverage for those who don’t satisfy those requirements;

• Make it harder for those eligible to enroll in the Medicaid Program by adding red tape to the sign-up process; and

• Eviscerate federal healthcare protections for people with pre-existing conditions which would make existing private healthcare coverage more expensive or even unavailable for many people.

            You may have noticed that the above list of recommended actions will have ZERO impact on either reducing healthcare costs or even moderating increases in those costs. Instead, they are measures solely designed to transfer the costs of healthcare from the federal government back to the individuals receiving healthcare services. They will also place healthcare beyond the economic reach of a large number of Americans.

          Thus, at best, they will cut federal spending and give the Trump administration some fiscal breathing room to extend the 2017 tax cuts that heavily favor the wealthy. In short, they will reverse the efforts of the past 60 years to make the health of the nation’s citizens at least the partial responsibility of the nation. In that sense, they are no different from cutting progressive income taxes and replacing them with regressive sales taxes or import tariffs, all in an effort to restore the Gilded Age. Lest you forget, that was when ours’s was a nation of the wealthy, by the wealthy and for the wealthy.