1. Bad Ways to Improve Housing Affordability with AEI’s Howard Husock

2. A conversation with the co-chairs of the Congressional Problem Solvers’ Caucus on the American affordability challenge

3. An interview with Aaron Brown on his book, Wrong Number

   
   

The vice president’s criticism is mostly a strawman. I don’t know any economists who advocate GDP maximization. In fact, most economists talk about ill-defined concepts like “social welfare” all the time. The limits of GDP as a proxy for human welfare are emphasized in any 101-level economics course, including this study aid for high schoolers. As my colleague John Cochrane tweeted last month: “GDP answers the question posed to it…. What is the total value of goods and services produced in the market economy…. It is a terrible measure of things it wasn’t designed to measure: consumer surplus, welfare, non-market activity, happiness, etc.”

What economists have emphasized is that GDP is highly correlated with many non-economic outcomes we care about, including life expectancy, literacy, sanitation, and a host of other obviously good things. In other words, GDP is not and doesn’t pretend to be synonymous with human welfare, but formal economic activity appears highly related to that. Anyone proposing policy that crushes output in the name of another objective should therefore be wary of dismissing falling incomes or consumption as mere accounting trivia.

In any case, it’s especially laughable to claim that policymakers prioritize maximizing GDP over all else. A quick review of Congressional Budget Office and Joint Committee on Taxation bill scorings shows that GDP projections have little bearing on whether a bill becomes a law. Of 17 bills scored with respect to GDP since 2000, four passed, one of which was thought to produce a long-term drag on GDP. Of the 13 that failed, nine were projected to boost GDP, including three bills to liberalize immigration. Imagining what America would look like if a true GDP-maximizer had been at the reins drives the point home: Vance’s appraisal of economic policy is off the mark.

The clearest case that politicians prioritize things other than GDP is the tax code. A GDP-obsessed government would fund itself in whatever way did the least damage to output. The evidence here provides a fairly clear ranking, succinctly summed up in this OECD paper. Corporate income taxes do the most damage to growth, followed by personal income taxes, consumption taxes, and finally property taxes. We’d expect to see the government fund itself entirely with a flat, broad consumption tax and recurring taxes on land or immovable property if it were so occupied with GDP, but instead, the majority of government revenue comes from individual income taxes.

It would also spend far less on redistribution and transfer payments, since these don’t increase output. Abolishing them would avoid the distortions that spring from both the taxes that fund transfers and the benefits themselves. Programs like these aim to reduce income and wealth inequality, but those goals mean nothing to GDP. Actual lawmakers from both parties, however, have instead built and defended a vast welfare and entitlement state precisely because they care about things other than GDP.

Trade and procurement rules tell the same story. Buy-American restrictions are a deliberate choice to limit potential suppliers to American companies, strictly raising prices, lowering consumption, or both. Scrapping them could have grown GDP by $22 billion. Eliminating the protectionist Jones Act would likewise raise US GDP by between $19 billion and $64 billion, according to one OECD study.

Likewise, politicians don’t maximize GDP when they preserve national parks or forgo drilling for natural resources on public lands. Evidently, they place a value on wilderness, biodiversity, or scenic views independent of economic output. GDP-maximizers would never countenance something like an environmental review, either. But instead, Congress passed the National Environmental Policy Act in 1969, subjecting projects to years of delay. States have their own energy permitting regimes, too, and the combined effect is that we’ve made parts of the country endure unforced energy scarcity with GDP as collateral damage.

On the topic of permitting, GDP-maximizers would have also ended building permitting and zoning. Cutting land-use rules in America’s most productive cities could raise GDP by around 8 percent. Instead, states and localities nearly doubled the quantity of zoning and land-use regulations between 1980 and 2010. GDP-maximizers would have preempted and ended most occupational licensing, too, instead of allowing it to grow from covering 5 percent of workers in 1950 to 25 percent today.

Lastly, sheer GDP is significantly influenced just by the number of people in an economy. So, liberalized immigration policy would tend to grow GDP if only because it would make for more workers and consumers.

Liberal immigration policies can grow GDP per capita, too, by improving the ratio of working-age to total population and the employment rate. It can also grow GDP by welcoming entrepreneurship, giving talented workers access to capital in a new country, and adding workers with skills complementary to those of existing workers. That’s partly why, of the 17 dynamically scored bills above, the three immigration reforms were all projected to raise GDP. But instead, Washington has resisted immigration reform bills for reasons unrelated to GDP.

Taken together, the proposals drive home how absurd it is to think America has been governed by GDP-maximizers. They wouldn’t fit neatly into either the Republican or Democratic platform; more likely, both parties would reject nearly all of them. And it’s hard to imagine any lawmaker supporting the whole list, let alone any of the presidents of the last fifty years.

Of course, that is because we are not, and have never been, governed by GDP-maximizing robots. Instead, we’ve always been governed by people who prioritize other interests over economic output and who grant special-interest carve-outs whose diffuse costs dwarf their concentrated benefits. None of that has anything to do with GDP as such.

I thought it was a great explainer. Do listen!

Speaking of which, I appeared on Vance Ginn’s Let People Prosper show this week to discuss Cato’s Handbook in a more general discussion about affordability.

Advocates for new government programs make federal spending sound simple: the government will collect as much money as it needs from taxation and then steer it to individuals, businesses, and nonprofit groups to achieve a stated objective.

In our new Policy Analysis, Federal Government Spending is a Leaky Bucket, Chris Edwards and I show how deluded this optimistic view is. From the moment the government collects taxes, right up to the moment it pays out any benefits, the main objective of the spending is undermined by waste, inefficiencies, and other costs to society that lower the net benefits of the program.

The paper’s name takes inspiration from economist Arthur Okun, who famously likened government welfare programs to a leaky bucket. But the lesson from his anecdote applies to almost all federal spending, whether it’s buying weapons, funding infrastructure, or subsidizing health care. Our paper provides a comprehensive list of ways government programs leak resources.

Leaks Raising Money

Every dollar the government collects in taxes is money Americans can’t spend for themselves. That is the direct cost, but there’s more damage from raising revenue than that. Taxes bring what economists term “deadweight losses” by deterring economic activity that people would otherwise voluntarily engage in. They also push people toward other forms of unproductive tax avoidance or evasion, and impose compliance costs on the payees. All these effects add costs that should be considered in any cost-benefit evaluation of a program.

Leaks Within Government

More resources leak at the level of Congress and government agencies. Waste accumulates in the legislative process as members of Congress trade votes for pet projects that could never have passed on their own. Congress also often bakes-in cost-raising requirements that make achieving the program’s objective more expensive, like Davis-Bacon rules (which raise highway construction costs by 20 percent) or Buy American provisions (which require parts of the government to source costlier, US-made inputs).

Without the discipline of market feedback, politicians make central planning errors, like funding expensive rural broadband to improve connectivity rather cheaper new satellite tech. And even when a program is approved and funded, agencies often fail to deliver on the objectives for public choice reasons. Add to that a range of direct overhead costs for administration, eligibility checks, and program delivery at federal, state, and local level, and there are many ways government activity sees funds lost from the central goal of delivering on the main objective.

Leaks Spending Money

Spending itself can create deadweight losses. Welfare phase-outs as high as 50 percent discourage work, while federal flood insurance and disaster aid invite people to build in dangerous places and ensure the real cost of natural disasters will be greater in the future. Government programs also often crowd-out private sector alternatives to the programs, funnel money to people who don’t need it or would have engaged in the desired behavior anyway, and create opportunities for fraud and improper payments. Add to this the hours of compliance for recipients of the programs and the wasteful lobbying activity they generate, and leaks on the recipient side add up quickly.

Bigger Buckets Make Bigger Leaks

The overall result is that, for many programs, for every dollar of economic cost – both direct and indirect – the country may receive only 30 cents of real benefit. Or, inversely, some federal government programs run on a cost-benefit ratio of about three to one. And this gets worse as the government expands.

It’s a well-known economic insight that the deadweight losses from taxes tend to grow with the square of the tax rate, meaning each new dollar of tax revenue tends to be more harmful. Plus, as the government grows, it inevitably suffers from Congressional oversight being spread thinner. Congress has neither the time nor expertise to allocate resources efficiently in all the areas it regulates.

Not all federal spending is waste, of course, but the government should more urgently get to work plugging what massive leaks do exist. Many programs’ costs outweigh their benefits and should be eliminated, and policymakers should vet new programs far more rigorously than they do now to achieve value for money. On this front, a war on waste is not enough. There are many more leaks that need plugging.

I had a previous post explaining the logic behind Fifa’s use of soft dynamic pricing and an official resale market for pricing match tickets. It’s clear that most Europeans don’t like the prices that have resulted. But, as I explain in my column for The Times (UK - paywall) this week, the economics of ticket demand in rich, populous American metro areas with a limited number of games per city, coupled with Fifa’s desire for revenue, was always going to make this World Cup pricey.

One can wish that Fifa had sold tickets far below many people’s true willingness to pay, “for the good of the game” or “for inclusivity and fandom” etc, but Fifa was never going to leave vast sums of money on the table and let third party touts/scalpers take more of the surplus. And that is the clear trade-off here.

A lot of the criticisms of Fifa seem self-contradictory. Some talk as if they have mispriced the matches, and we’ll see tons of empty seats and lost net revenue. Others talk as if they should just not aim to profit maximize to begin with. Some people also think they’ve been withholding tickets and trickling them to third-party sites to avoid reducing their own headline prices.

But the prices on resale platforms don’t suggest yet that this is happening at scale. Most group stage matches are nearly sold out in the primary market and in the resale market prices have been going up recently, not down. Some prices might fall somewhat as we get towards the first matches and resellers cut their losses. But even, say, Cape Verde vs. Saudi Arabia, where prices have fallen, still has a minimum price for bad seats at around top-tier Premier League price levels (at $130).

Even if other prices do fall substantially from here, they aren’t going to be cheap by soccer standards. Outside of a few games between no-hopers, I suspect a lot of people hoping ticket prices will collapse amid the threat of empty seats or Fifa flooding the market with withheld inventory are likely to be disappointed.

Some other tidbits on prices:

• Government Hypocrisy: Ontario had passed a law stopping World Cup tickets in Toronto from being resold above face value, forcing FIFA to cap resale on its official marketplace. But the City of Toronto itself used its host-city privileges and taxpayer money to buy thousands of tickets, plus millions in hospitality inventory, with the explicit aim of reselling them as a revenue-generation strategy. In other words, private arbitrage is treated as exploitation, while public-sector arbitrage is fiscal responsibility.

• Prices Are Always Bad, OK? The NYT-owned sports publication The Athletic has been running a drumbeat of negative stories about the World Cup, especially around ticket prices being too high. But its latest story moans that prices aren’t high enough! The complaint is that “the states of Missouri, Georgia and Florida [decision] to waive taxes on World Cup ticket sales will mean at least $57.8 million in lost revenue for American taxpayers.” The food is terrible and the portions…so small!

• Yes, Prices Are Up A Lot on Qatar 2022: Playing around with some of the major countries, I calculate that it would be, on average, 5-10 times more expensive in crude dollar terms to follow your team right through the group stages to the final this year compared with the last World Cup. This is in part because there’s now one extra match in this year’s enlarged tournament. But it’s also because the ticket prices are just a lot higher. [See below for a ChatGPT-assisted summary for England prices….yes, I can dream].

That $25 per hour marketing is somewhat misleading, though. Their Living Wage for All Act would primarily set the minimum wage at two-thirds national median hourly earnings, subject to a phase-in cap not to exceed $25 by 2031.

For most years, that’d just make the minimum wage two-thirds the national median, and the “$25 by 2031” pledge little more than a red herring. Minimum wages wouldn’t reach $25 until 2038—much later if median wage growth significantly lags our upper-bound estimates based on CBO projections.

Notwithstanding the phase-in cap, pegging the minimum wage to two-thirds the national median would’ve meant a $16.34 minimum wage in 2025 and a wage floor close to $20.22 in 2031. That would still be an extraordinary increase, which previous evidence suggests could be very destructive.

Khanna’s launch video offers two justifications for such an aggressive move: the need for the federal minimum to catch up to rising prices, and the desirability of minimum wages tracking worker productivity.

Inflation-adjustments

First, he says the inflation-adjusted 1968 federal minimum wage was $14 per hour in modern, 2026 dollars. Methods of inflation-adjusting can yield slightly different results, but using the consumer price index, we think the real February 1968 FLSA wage floor was actually a bit higher at $15.22 in inflation-adjusted, January 2026 dollars.

Yet even though the federal floor today sits at just $7.25, that doesn’t make his conclusion that “workers today are making half what they made in 1968” true. For starters, just 1% of workers made the federal minimum wage in 2024, as market wages have grown significantly without changes to the federal floor. But also, state and local policymakers have raised their own minimum wages significantly, making the federal floor irrelevant for most workers.

As we show in a recent briefing paper, the population-weighted effective minimum wage – the greatest of each locality’s federal, state, or local floor averaged across all working-age Americans – was $12.13 in January 2026. The population-weighted median was $13.73 (more Americans live in states with $15+ minimum wages than the federal floor). Most Americans today therefore live under a minimum wage much closer to the real 1968 value than Khanna lets on.

And why does Rep. Khanna compare the current federal floor to the 1968 one? Probably because 1968’s FLSA regime was the highest real wage floor in US history. Had he averaged over the full 90-year history of the federal minimum wage, the figure is only $9.92.

Even if you cut off the historically low, depression-era minimum wages, the average real minimum wage since 1950 is $10.49. And even taking off the period since 2010, the average only rises to $11.16.

The modern effective minimum wage factoring in state and local laws is higher than all of these. You’d need to cherry-pick only 1960-1980 to average a higher federal floor of $12.78, and even that is far afield of Rep. Khanna’s $14. The real federal minimum wage has almost never been as high as $14.

Productivity-adjustments

Khanna doesn’t just want a return to the 1968 wage floor, though. His second step brings in productivity. Since average real labor productivity has increased 2.5x, he argues “the average worker is producing two and a half times more value than they were producing in 1968, yet they’re being paid half as much.” That justifies a $25 minimum wage for him.

The problem is that comparing average productivity to the minimum wage is apples and oranges. Minimum wages don’t bind average workers. They affect the lowest paid workers, who tend to cluster in sectors with productivity levels, and sometimes productivity growth, well below the economy-wide average.

Historic productivity gains in oil and gas extraction, for example, raise economy wide labor productivity, but they have little direct bearing on the productivity of those in lower wage sectors like fast food, childcare, or retail cashiers.

Labor productivity of couriers and messengers or warehouse and storage employees have decreased since 2010. Demanding higher minimum wages in these industries, even while productivity has fallen, is a recipe for layoffs or lower hiring.

In truth, even sectoral productivity is too blunt a benchmark. Within any given sector, productivity gains accrue unevenly. Even if median productivity rises, a similar number of workers’ marginal product can remain just at or above the minimum wage if the variance of worker productivity also expands. That’s exactly what we might expect from a dynamic and diversifying economy.

Tying the minimum wage to middle-band worker productivity therefore risks overshooting the marginal product of the least productive workers. The result we’d expect is disemployment, whether through layoffs, hour cuts, or lowered future hiring. That’s because paying above a worker’s marginal product will be a losing proposition for employers, so they will reduce demand for workers, at least if they can’t recoup costs by trimming back on other aspects of their employment bill.

Consequences of a 67 percent of median hourly pay wage floor

Minimum wages set too high or increased aggressively have a real capacity to do harm. Studies of even moderate minimum wage increases tend to find degraded non-cash compensation or working conditions to offset the cost. That’s one reason why, if we are to have this form of price control, at least a federalist approach might limit the damage.

Local leaders inevitably will have more intimate knowledge of their labor markets and can (at least in theory) tailor their intervention to local conditions. A $25 federal floor would override all that local calibration while hitting hardest in low-cost areas where market wages are furthest from two-thirds of the national median.

Rep. Khanna’s district would be relatively fine; the San Jose-Sunnyvale-Santa Clara MSA regularly has the highest median hourly wage of any metro area in the country, $40.41 in 2025. But other MSAs with local economies less productive than Silicon Valley inevitably won’t fare as well. As we show in our policy brief, the Living Wage for All Act would raise minimum wages as high as 95 percent of local median wages in America’s most impacted MSAs. They wouldn’t be lifted up, so much as priced out.

The UK currently has just this national policy of linking the country’s minimum wage to two-thirds of median hourly pay. Even the UK government’s reports into the policy notes a host of problems created through wage “compression,” whereby the policy distorts relative prices of different jobs and discourages people to move up and take more responsibility.

Such a policy across the diverse U.S. economy would be extremely risky indeed.

Our new briefing paper shows this premise is misguided, and the bills in Congress motivated by it carry significant risks.

The minimum wage most Americans face isn’t $7.25

Most libertarians and many economists would say the real minimum wage is $0—the wage if you don’t have a job. But the belief that workers and employers should contract freely doesn’t seem likely to return any time soon. The federal wage floor is thus $7.25.

But the truth is, even this is an irrelevance to almost all workers. First, real market wages have increased from productivity growth in certain sectors and spillovers into other sectors, leaving most market-clearing wages far higher than the federal minimum. Even among the 20 states that still adhere only to the federal minimum wage, BLS data show 10th percentile hourly wages still rose, on average, 5.4 percent from 2010 to 2025.

Second, minimum wages in the U.S. today aren’t set solely, or even mostly, at the federal level anyway. As a result of these two forces, only 1 percent of hourly workers today make the federal minimum or lower.

States can and do set higher floors, and many allow cities and counties to go further still. Once you account for this—weighting each jurisdiction by the working-age population subject to it—we calculate the effective minimum wage faced by the average American worker at $12.13 as of January 2026, not $7.25. The weighted median was even higher: Michigan’s $13.73.

Far from stagnant since 2009, the minimum wage faced by most Americans has grown. The national average EMW grew 62.8 percent since January 2010, 8.4 percent growth after adjusting for inflation. While it’s trivially true that the federal minimum wage hasn’t changed since 2009, that fact about federal law doesn’t capture much about economic reality for most workers.

That makes a higher federal floor a risky proposal

What most economists find destructive about a minimum wage isn’t its absolute dollar level so much as its bite. Minimum wage bites are typically measured by how high a wage floor sits relative to median hourly pay. That better captures how much of a labor market would be directly affected by a change.

A $17 wage floor in San Jose, the American metro with the highest median pay, would be a lesser disruption affecting relatively fewer workers. Half the metro already had an hourly wage above $40 in May 2025.

The same wage floor in rural areas or areas specialized in less productive sectors than Silicon Valley would be a direct shock to a huge share of workers. Some would get raises to the new minimum, but many others would lose their jobs, lose hours, or lose fringe benefits and other perks if $17 per hour simply isn’t viable. A recent Employment Policies Institute poll showed that economists continue to think these disemployment effects would be greatest at larger bites; 73 percent oppose a minimum wage up to $15 and 96 percent oppose one higher than $20. This chimes with older survey results from the Kent Clark Center at the University of Chicago and academic work about the risks of larger increases.

Because state and local minimum wages have already risen sharply in high-productivity, high-price level areas, some of those places would be unaffected by a much higher federal floor. The hardest hit areas would be rural, lower-wage areas often specialized in service industries—exactly the places where local policymakers have declined to raise wage floors because they have good reason to think it would be damaging. We project the most affected metro areas would be rural parts of Texas, Arkansas, and Alabama. Meanwhile, 56 cities and counties, the District of Columbia, and the whole of Washington state already have minimum wages above $17 (as high as $21.65 in Tukwila, Washington).

A $17 wage floor imposed in 2031, the policy called for in the Raise the Wage Act, would therefore push minimum wage bites to 75-80 percent of local median wages in the hardest-hit metros discussed above. The Living Wage for All Act, which would peg the federal minimum to two-thirds the national median wage, would drive bites higher than 90 percent. High bites would likewise concentrate in certain industries more than others: fast food workers, hosts and hostesses, ushers, cashiers, and dining room attendants would all see bites at or above 100 percent under the LWAA. In other words, more than half of workers in those sectors would be directly affected (with many others indirectly affected as employers would likely seek to maintain meaningful pay differentials).

Conclusion

The effective minimum wage most workers face has been rising for years through state and local action. It’s now at one of its highest real levels in American history. We don’t think high state and local wage floors are a good idea either—they still eliminate job opportunities, especially among the young and unskilled, while creating a whole range of distortions. But their existence seriously undercuts any supposed need for a higher federal floor too.

A high federal floor wouldn’t rescue a neglected labor market like its supporters claim. It would override a patchwork of local choices and bind most severely in the places where the economic case for caution is strongest. For low-wage regions and vulnerable workers, a high federal floor is more likely to destroy jobs than to be an effective anti-poverty tool.

The full briefing paper, including our full methodology, metropolitan statistical area-level bite calculations for 2010-2025, and projected impacts of proposed legislation, is available here.

Britain’s war on supermarket prices is what happens when years of high inflation make politicians economically unserious.

The Treasury has reportedly asked large grocers to cap the price of staples such as bread, milk and eggs in return for regulatory relief, in a (nudge nudge, wink wink) “voluntary” arrangement. It is extraordinary. After years of pretending inflation was just a series of passing supply hiccups, policymakers now face households furious about the permanent jump in the price level. And with Donald Trump’s Iran war threatening another cost spike on food and inputs like fertiliser, ministers are staring at the most politically visible prices in Britain and asking supermarkets to make them less embarrassing.

Rising food prices hurt, obviously. Official figures show food and non-alcoholic drink prices up 3.0 percent over the year to April, down from 3.7 percent in March. That may rise again. But the notion that ministers can meaningfully ease household budgets by leaning on supermarkets to suppress a few staple price increases is delusional. Money is fungible. Groceries feel especially painful because housing and energy — the big-ticket costs that also feed through into everything else — are devouring pay packets. The best medium-term food relief would not come from Treasury price lists, but from building more homes and rethinking net zero costs, thereby leaving households with more disposable income for everything else.

Especially because there’s no large supermarket profit reservoir waiting to be tapped. British food retail is brutally competitive, low-margin, high-volume business, selling a raft of different products at different price points. The Competition and Markets Authority found average operating margins for Tesco, Sainsbury’s and Morrisons of about 3.0 percent in 2023/24, with discounters lower still. Tesco’s £2.4 billion pre-tax profit sounds scandalous only to people who do not understand denominators. On more than £70 billion of revenue, it is evidence of scale, not monopoly rents.

That means shareholders will not be footing the bill for “voluntary” price controls that force participating firms to sell some products at a loss. Someone else will. If ministers promise to protect farmers and other suppliers, while keeping retailers whole, the costs must land on other customers, taxpayers, or suppliers outside the covered categories. Indeed, that the state proposes reimbursing big grocers by relaxing regulations or delaying levies proves really this is redistributing pain rather than eliminating it.

Yet protecting retailers’ bottom lines does not make price controls harmless. The objection is not that floating prices be allowed to fatten profits. It is that prices are information. A rising egg price tells millions of people, in a single number, that feed costs, energy costs, disease, logistics or demand conditions have changed. That signal encourages economising, substitution, better stock management and new supply. A price cap, in contrast, lies. It tells shoppers that scarce goods are more abundant than they really are.

The consequences would be a disaster. Set a price cap below the market-clearing level and quantity demanded exceeds quantity supplied. Supermarkets then either ration through queues, purchase limits, luck and loyalty apps, or they run out of stock. If basic milk, bread and egg prices are controlled, demand then spills into premium versions, substitutes and goes towards independent retailers. Those prices rise faster, given the extra demand. Large supermarkets invited into a “voluntary” scheme get regulatory indulgence and a halo of virtue. Smaller shops, without the same scale or Treasury access, will get accused of gouging if they charge market prices, given the CMA’s new powers.

That is not the end of it. When buyers and sellers are willing to trade at a higher price, many still will — only now in black markets that must be policed. Then comes the bureaucracy of the controls themselves. Is the Treasury really going to define which brands, pack sizes and line items qualify, monitor prices across thousands of shops, and punish non-compliance? What about when the suppliers themselves get involved amid contract renegotiations? All this takes time and vast resources.

The cope on this is “Britain has had price controls before.” But wartime controls are not a model for peacetime abundance. In war, economic efficiency is subordinated to defeating the enemy. Even then, controlled prices came with ration books, rafts of inspectors, subsidies, queues, criminalisation and black markets. The lesson of wartime is not that price controls work. It is that when prices are suppressed, liberty and convenience are sacrificed too in the service of the bigger goal of beating Nazis.

Nor will this tame inflation, whatever ministers claim. Ask the Hungarians. They capped the basics in 2022 and still suffered the highest inflation in the EU. Why? Well, because inflation is not a spreadsheet of individual prices that Whitehall can pin down one by one. It is a sustained rise in the general price level, arising when nominal spending runs ahead of productive capacity. Holding down a few selected prices does not really change total spending or the economy’s supply potential. It just distorts relative prices, shunts demand into uncapped goods, and lets ministers pretend they have fought inflation when they have merely rearranged it.

That this is even being considered in the UK is especially galling because government has spent years making food retail more expensive and less flexible. Higher employer taxes, aggressive National Living Wage rises, packaging levies, reformulation rules and restrictions on promotions have all added costs. Then add expensive energy policies, town-centre-first planning rules, arcane business rates and legal risks over warehouse and shop-floor pay. Ministers are squeezing one of Britain’s great consumer success stories — then blaming supermarkets when the costs show up on the shelf.

Britain’s supermarkets are not price villains. They are a world-class logistics machine, turning global sourcing, discount competition, data and ruthless inventory management into low prices. It is regrettable that past inflation and now the Iran war are pushing food costs higher. But suppressing that reality will not make it disappear. At best, price caps will hide scarcity, distort competition and deepen the fantasy that governments can legislate inflation away by fixing the prices of life’s basics.

That’s a remarkable development. Biden oversaw an inflation peak of 9 percent which Trump hasn’t approached, yet Trump’s disapproval has surpassed Biden’s worst. As two of us explained last month, Biden’s disapproval peaked after it became clear disinflation would stall above the Fed’s 2 percent target.

Voters didn’t just want lower inflation though; they wanted prices to fall. Trump promised exactly that before the 2024 election, telling a Pittsburgh rally, “A vote for Trump means your groceries will be cheaper.” Prices didn’t fall, and monthly inflation has yet to even hit the Fed’s target once under Trump (nor did it ever hit target the second half of Biden’s presidency). That alone explains much of the deteriorating approval across Trump’s first year.

More recently, inflation has accelerated again. The consumer price index increased 0.6 percent in April after rising 0.9 percent in March, meaning prices are up 3.8 percent in the past year. Energy prices led the pack, rising 3.8 percent in one month. The PCE price index, the Fed’s preferred inflation metric, rose 0.7 percent in March too, also driven largely by energy prices.

Some of those price rises were to be expected. War in Iran has driven gasoline prices 28.4 percent above year-ago levels, and that mostly explains the 20.7 percent surge in the highly salient airline fares. But the concern with oil shocks is that they can pass through into virtually all other prices. This is because oil products are common inputs in several industries and significantly determine the cost of transporting goods and services. The evidence suggests that such price pressure is already broad-based: core goods are up 2.7 percent from a year ago, services 3.3 percent, and groceries nearly 3 percent higher.

These numbers are particularly problematic for Trump given that this is an election year where affordability will be at the forefront of voters’ minds. Economists usually look to metrics like real earnings to measure affordability because they track whether wages have kept up with inflation. Those metrics are also gloomy. The BLS’s real earnings report shows real hourly earnings fell 0.5 percent in April. Some workers appear to be compensating by picking up extra hours—the average workweek rose 0.3 percent—but the combined effect is real average weekly earnings still fell 0.2 percent.

Until this month, despite inflation remaining stubbornly above the Fed’s 2 percent target, wage growth had outpaced price increases over the previous 12-month period. This recent inflation surge has now pushed consumer prices above cumulative year-on-year wage gains. April 2026 inflation caused real wage growth since April 2025 to dip negative, erasing any wage gains that had built up the 11 months prior. In aggregate, consumer goods are slightly less affordable today than a year ago—the first time this has happened in three years.

In January 2026, Trump’s net inflation approval was -27 percent. That’s bad but roughly where Biden ended his presidency. It’s now at -44 in an almost 20-point deterioration in just four months. With no relief in sight from either tariffs or energy prices, Trump’s already-historic inflation disapproval may have further yet to fall.

The Congressional Progressive Caucus yesterday released their “affordability agenda.” The American people want policies to defuse inflation and lower their living costs, but what they got was a longstanding left-wing wish list dressed up in affordability garb: more subsidies, mandates, price controls, state-directed production, and lawsuits against businesses that charge prices politicians dislike.

The agenda promises to cut costs for prescription drugs, utilities, gas, childcare, housing, and groceries; improve worker wellbeing with more paid time off and higher overtime pay; ban “surveillance pricing”; and abolish super PACs.

Two things stand out straight away from the list of proposals. First, nothing here would lower inflationary pressure as a macroeconomic phenomenon, which is what drove the affordability anger. Second, in specific markets, there’s scant economic analysis of the structural and policy factors that drive high prices. Most proposals implicitly blame villains like Big Oil, Big Pharma, Big Grocery, Big Tech, utilities, landlords, employers, and billionaires for high prices. This populism means many simpler ideas to lower prices through expanding supply get ignored.

Start with utilities. The so-called Lowering Utility Bills Act targets regulated monopolies where returns are set by regulators, not markets, and promises to lower bills by squeezing those administered returns further. Allowed equity returns would be pushed to the bottom of a federally defined “reasonable” range and certain cost recovery would be curbed. Disallowing lobbying expenses, political spending, private jets, and penalties from ratepayer bills will be popular, but will only marginally affect rates. The advertised $500 savings per household really depends on the indirect price controls, state regulators adopting similar policies, and the utilities absorbing this without creatively shifting the burdens. This means the savings are uncertain. And as power demand surges from data centers, electrification, and grid modernization, underpricing capital also risks deterring the very investment needed to make electricity cheaper and more reliable over time.

Gas prices are another hot issue today. Ro Khanna and Sheldon Whitehouse want a refundable “gasoline price rebate” income tax credit financed by a per-barrel excise tax on crude oil to ease households’ squeeze. They call it a tax on “windfall profits” because it kicks in when Brent crude prices rise above their 2025 average. But the policy only cushions some households after the fact, and then only when the rebate exceeds any pass-through they endure in higher fuel prices. It doesn’t lower the pump price. Indeed, by taxing barrels precisely when oil is scarce and prices are high — as now with the Iran war roiling global markets — it risks raising the marginal cost of crude supply into U.S. refineries.

Other proposals more obviously risk prices moving in the wrong direction entirely. The proposed clampdown on grocery store “price fixing” just empowers state attorneys general to pursue Robinson-Patman price-discrimination claims. In plain English, this would make it easier to sue suppliers for offering large retailers better wholesale deals than others. But those discounts are often how efficient retailers keep shelf prices low. Introduce that legal risk, and many suppliers won’t extend Walmart’s lower cost deals to everyone. They’ll just end them, worsening affordability.

Similar confusion arises in the Stop AI Price Gouging and Wage Fixing Act. It targets personalized online pricing, which unfriendly lawmakers call surveillance pricing and equate with price gouging. But, overall, we’d expect individualized pricing to mean lower prices for thrifty shoppers with a low willingness to pay and higher prices for those happy to pay more anyway. Legislation pressuring more uniform pricing would help the latter group—who would often be those on higher incomes—not those struggling to make ends meet. The net affordability effect for low-income consumers could well be negative.

The labor proposals aren’t really affordability policy at all. The PTO Act would mandate paid leave at one hour per 25 worked, up to 80 hours annually; the double-overtime proposal raises the overtime premium from 1.5x to 2x base pay. Both will benefit some workers. But mandated benefits and higher overtime costs make employing people more expensive. Employers will respond with some combination of higher prices, fewer hours, slowed hiring, lower wage growth, more automation, or less flexibility. You cannot make labor-intensive services cheaper by making labor more expensive.

The childcare proposal pushed by Rep. Ocasio-Cortez and Senator Warren is even more aggressive in raising labor costs. The Child Care for Every Community Act creates an uncapped entitlement whereby every covered child gets access to federally supported care, the federal government pays at least 90 percent of costs, low-income families pay nothing, and other families are capped at 1 to 7 percent of income. That lowers out-of-pocket costs for parents of eligible kids. But the bill also mandates national standards, richer services, facility rules, training requirements, and compensation comparable to public-school or military child-care pay. In other words: it raises the cost of supplying childcare, then hides the invoice by giving it to taxpayers.

The drug and housing supply ideas at least begin by acknowledging that supply matters. Yet even there, progressives reach instinctively for state capacity over market liberalization. The drug bill creates an HHS Office of Drug Manufacturing to produce select medicines and sell at a government-determined “fair price.” That may help reduce prices in some thin generic markets, at least if (and it’s a big if!) the nationalized producer is efficient. But why not first remove the barriers blocking private generic and biosimilar competition? Why not speed approvals, recognize drugs cleared by trusted foreign regulators, and attack genuine patent games?

Housing follows the same playbook. The ambition for building millions of homes is the one genuinely promising plank. If Congress helped states and localities legalize and accelerate construction where people want to live, that would be real affordability. But the proposed agenda also doubles down on demand-side subsidies like down payment assistance for first-time buyers and guaranteed rental assistance. In a housing market throttled by zoning, permitting delays, parking mandates, and local vetoes, more subsidies throw gasoline on the fire. It helps some homebuyers to bid more, but further drives up market prices for others.

As a national affordability agenda, this is a dud. It is not a plan to make America cheaper by liberating supply in core markets, let alone getting and keeping inflation low. It is a plan to make government bigger and to hide various bills via regulatory-grounded and tax-and-spend redistribution.

As our own Handbook on Affordability showed, there’s plenty of ideas for removing government barriers to supply or competition to lower prices or broaden options for households. At a time when most Americans are angry at the recent price level surge, redistributing high prices across other consumers and taxpayers is not only economically damaging, but also unlikely to ameliorate discontent.

The Federal Reserve has found another inflation spike it would rather not fight. The Iran war has pushed up energy prices, which has helped lift headline PCE inflation to 3.5 percent. Policymakers’ argument is that this is the rare inflation burst that really is transitory. It’s not too much nominal spending pushing up prices, but a one-time rise in the price level as expensive energy squeezes the economy’s capacity to produce.

In theory, this is defensible. The Fed can tighten monetary policy, slow total economy-wide spending, and offset some of the price pressure from higher energy costs. But it cannot conjure up more oil. Provided inflation expectations remain anchored, monetary policymakers have a reasonable case for looking past a temporary energy-price spike rather than squeezing the whole economy to counteract it.

Jerome Powell recently stated the standard case for keeping calm. “Energy shocks tend to come and go quickly,” he said, and “the tendency is to look through any type of supply shock.” A strict 2 percent inflation target during an oil shock would require suppressing nominal spending to offset a jump in energy’s price. The argument is that the Fed would be compounding the output fall: adding a demand squeeze to a supply squeeze, and so risking recession to prove its anti-inflation credentials.

This is the strongest case for advocating a nominal GDP target, or something close to it. Nominal spending equals prices times real output. If an adverse supply shock pushes real output below trend, targeting a stable nominal spending path may mean inflation drifts temporarily higher. That is not “letting inflation rip.” It is refusing to make monetary policy amplify the output reduction of a real shock.

The problem, however, is symmetry. If central bankers commit to look through negative supply shocks, they should also look through positive ones. Otherwise “flexible” inflation targeting becomes biased towards above-target inflation.

That is, if oil prices fall, productivity accelerates, or new AI technology makes firms more efficient, real output potential can rise faster than expected. Under the same “look-through” logic, inflation should then run lower, allowing consumers to reap the benefits of productivity through slower price growth.

Sadly, that is not how policymakers usually think about it. Nonfarm business productivity rose 2.2 percent in 2025, a much faster rate than almost the whole of the 2010s. Oil prices fell significantly last year too. Scott Sumner asks the obvious question: if policymakers really “look through” supply shocks that they have no control over, why did almost nobody call for inflation to run below target ? On the same logic used for oil price spikes, he wrote, it was “appropriate for inflation to run below 2% during 2025.”

The same asymmetry is also shaping the AI debate. Fed chair nominee Kevin Warsh has presented AI as a major positive supply shock, calling it “the most disruptive moment in modern economic history” and saying he was confident it would improve output. The White House agrees. Kevin Hassett says AI-induced productivity puts “downward pressure on inflation.” But both imply that this gives room for the Fed to loosen monetary policy, rather than the Fed “looking through” these developments over which it also has no control.

They may be right about AI’s growth dividend. But if stronger-than-expected productivity growth is a positive supply shock, the first-order lesson of the Fed’s Iran war stance is not that it gets “room” to ease and offset any disinflation. It is that inflation should be allowed to fall, provided nominal spending stays on track. In fact, when inflation is already above target, treating hoped-for productivity gains as permission to loosen monetary policy banks disinflation before it even arrives.

My worry is that there’s an obvious asymmetry developing here. Negative supply shocks? Look through the above-target inflation. Positive supply shocks? Ease policy to prevent below-target inflation. Heads, inflation overshoots. Tails, we still don’t go below target.

If this is how the Fed uses its discretion, it is instituting a clear inflation bias. The FOMC’s own framework affirms that long-run inflation is primarily determined by monetary policy and reaffirms a 2 percent PCE target. That does not require the Fed to react to every oil-price move. It does surely require symmetry for both signs on a supply shock.

The Fed has already erred in an inflationary direction recently. From 2021 onwards, it let talk of negative supply shocks obscure the more important fact that money was too loose and nominal spending then exploded. The public is still paying for this conceptual error through a permanently higher price level. A central bank that now tolerates overshoots from bad shocks while preventing undershoots from good shocks is not practicing flexible inflation targeting. It is building in yet higher inflation over time.

What can be done to keep inflation on target? A monetary policy rule, as Cato’s Handbook on Affordability suggests. Congress should bind the Fed to objective, transparent monetary rules and require public justification for any deviations. If we were to formalize something like a nominal GDP target, the Fed would then be bound to the look-through logic in both directions.