Affordability has become a pervasive mantra in American politics. Both President Donald Trump and his Democratic opponents are vowing to stem the rising cost of living. Over the last few decades, while automation and trade have kept the prices of manufactured goods in check, costs have increased significantly in three sectors of the economy: healthcare, housing, and education. Young college graduates, renters, new homebuyers, and parents are particularly exposed to the latter two. They have also cross-subsidized rising healthcare costs through entitlements and employer-sponsored group health insurance pools, likely contributing in part to delayed family formation and rising political discontent.
This inflationary pattern, known as “Baumol’s Cost Disease,” has been attributed to the labor-intensive and as-of-yet automation-resistant nature of these sectors. But another factor is that all three have become increasingly regulated over the course of the last century to the point of quasi-nationalization.
