Affordability

There is much discussion these days about the issue of affordability. The impact of limited supply and high demand of goods largely because of national COVID-19 lock down policies in the early 2020s produced inflationary pressures reaching 9% which had not been experienced since the 1980s. President Trump used the affordability issue effectively in the 2024 Presidential campaign.  Democrats did the same in the 2025 off year elections, most notably with Democrat Socialist Zohran Mamdani election as Mayor of New York City.

Since retiring as a corporate attorney in April 2024, I have undertaken to bestow upon myself an honorary license to practice medicine. And today I am pleased to report the bestowal of my new honorary degree in Economics! With this honorary degree in hand, I am thrilled to share some good news regarding certain steps that can be taken to address the affordability issue, but the bad news is that some components of the solution will not be popular with President Trump. Let me explain by dating myself and going back to the 1980s.

In 1979, President Jimmy Carter was facing an inflation rate of more than 13%. This development was largely a result of sky-high energy prices, and the ripple effect energy costs have throughout the rest of the economy. President Carter appointed Paul A. Volker as Chairman of the Federal Reserve Board in August of 1979. The Federal Reserve Board under Volker’s leadership raised the federal funds rate to around 20% in late 1980. To no one’s great surprise, this interest rate produced a recession, and President Carter lost the 1980 election to former California Governor Ronald Reagan. The Federal Reserve maintained the 20% interest rate into the early 1980s during the Reagan Administration with another recession in 1981-82 which produced heavy off year election losses for Republicans. During this period, I bought my first house with Seller financing at around 9%! I thought this interest rate was a bargain, and I was thrilled!

I believe it would be fair to say that Presidents Carter and Reagan were a bit more circumspect in their “coaching” of the Federal Reserve and the Federal Reserve Chairman regarding the federal funds rate than the current occupant of the White House!

Well, the good news from the 1980s is that, through Chairman Volker’s efforts and the tax and regulatory reforms undertaken during the Reagan Presidency, inflation was largely tamed with readings in the low single digits for the next 40 years until the early 2020s, and the United States enjoyed an unprecedented era of prosperity. Just for context, the Dow Jones Industrial Average closed in December 1980 at 964 and today it is over 47,000! So how do we get back to the good old days of low inflation, strong GDP, and affordability? Does anyone believe the path for this is to raise the federal funds rate several percentage points even if it results in a deep recession? Somehow, I think this path is likely off the table! So where do we go from here? I have a few thoughts below.

From my perspective, there is no magic silver bullet for solving the affordability issue, but some key steps should be considered sooner rather than later. For starters, consider the use of Tariffs. Just to be clear, a tariff is a tax, and someone must pay it. In most cases, the person paying the tariff is the consumer who purchases the imported product being tariffed.  So, limit the imposition of tariffs to (i) imported goods from countries that enforce unfair trading barriers for American goods and (ii) protecting important national security issues involving computer chips and other technology. There should be no tariffs on imported items which the United States does not produce in abundance such as coffee and bananas. Pray that the United States Supreme Court saves President Trump from himself by siding in favor of the Plaintiffs challenging President Trump’s imposition of Tariffs under the 1977 law entitled International Emergency Economic Powers Act (“IEEPA”)! Continue apace President Trump’s deregulatory initiative in eliminating unnecessary regulatory burdens on business, especially small businesses. The President and Congress should seek to further reduce and reform the federal tax code to encourage small business expansion and job growth. Living standards improve when the private sector expands not when government expands! States and local communities should use common sense with zoning, building permits and regulations, and land use policies to open more land to build additional housing which is so badly needed. More houses on the market should lower the cost of housing which has become out of reach for so many young adults. There is no guarantee that these actions, even if undertaken, will solve the affordability issue. But there is little chance that the affordability issue will solve itself if nothing is done.

God bless you and thank you for the privilege of your time in reading my blog.