Gen Z are arriving to college unable to even read a sentence—professors warn it could lead to a generation of anxious and lonely graduates.

Affordability is a fuzzy term that can mean whatever feels true. Telling people to stop complaining and be happy with their lot—the Marie Antoinette strategy—is not working for a White House where the tone and decor increasingly resemble Versailles. Maddeningly, voters want contradictory things: low prices when they shop, high wages for themselves; not many immigrants but lots of cheap labour; rising house prices when they own and lower ones when their children want to buy.

Successful economies are filled with tensions like these. Politicians will naturally say what polls well to win elections. If the only downside of the affordability story were that voters punished incumbents for high prices, that would not be so bad. Yet if the problem is misdiagnosed, the risk is greater that harmful policies will be introduced to “fix” it.

That is because talk of an affordability crisis mixes phantom concerns with real ones. Start with the imagined problems. People are sensitive to the prices of things they buy all the time. A gallon of milk cost $3 in American stores in January 2019 and now costs $4. Food prices have shot up in Europe too, as have energy prices. However, wages are growing faster than prices up and down the income spectrum on both sides of the Atlantic. In this sense there is no affordability crisis. 

There is more to the affordability story than the price of milk or electricity, though. As societies grow richer, the share of spending on goods shrinks and spending on services increases.

Although both goods and services are included in inflation numbers, services remain stubbornly resistant to the huge productivity gains seen in manufacturing. In the euro zone the affordability conundrum in services presents itself in a different way. Because the prices of services such as health care and home rental are more regulated, the problem is availability more than affordability, and it is often solved by queuing—which does not feel good, either.

That is the first true affordability problem. The second is that though real wages have indeed risen, they have not gone up as fast as assets have. The wealth-to-GDP ratio is close to an all-time high in America.

These are fundamentally problems of affluence, not of economic malaise. That makes them tough for policymakers to solve. To bring down the prices of housing and energy, for example, governments need to make it easier to build more homes and wind farms. Almost everyone favours this—but only in someone else’s backyard. Prices of services in America are inflated by absurd occupational-licensing rules—which licenced florists and hairdressers fiercely defend. Lowering tariffs would slow inflation, but firms protected by tariffs lobby strenuously for their preservation.

Enacting sensible policies is hard and even countercultural in a world that has, at America’s insistence, turned against free markets and international trade. The danger is that politicians reach for pseudo-fixes that make things worse, such as price controls.

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