Democrats Find a Potent Political Weapon Named ‘Affordability’

0:28This is Caroline Hyde. Then bring you the most important conversations and analysis in our podcast. Search for Bloomberg Tech on YouTube, Apple, Spotify or anywhere else you listen. Join us every afternoon on your commute home and stay ahead of the tech news cycle. That's the Bloomberg Tech Podcast. I'm Caroline Hyde in New York. And I'm Ed Ludlow in San Francisco. Subscribe today wherever you get your podcasts.

0:55Bloomberg Audio Studios. Podcasts. Radio. News. Real disposable income is up 17 % since 2018. Americans are very wealthy, but I think that they're still living in this paradigm where everything feels really unaffordable. And I think it's going to be really hard for any politician to fix.

1:25I'm Stephanie Flanders, Head of Government and Economics at Bloomberg, and this is Trumponomics, the podcast that looks at the economic world of Donald Trump, how he's already shaped the global economy, and what on earth is going to happen next. This week, we're taking a closer look at the affordability question in the US, how Democrats flipped Donald Trump's cost-of-living message to their advantage during the recent off-year elections, and whether anyone is closer to having a solution. One feature that the Democrats' very different winning campaigns in New York, Virginia and New Jersey all had in common the other week was a focus on high prices.

2:06Recent polling show a majority of Americans aren't feeling great about what is squarely now Donald Trump's economy. In the wake of the longest ever shutdown in the US federal government, many more voters are also worried about the cost of their health insurance going up even higher. Whether you call it affordability or the cost of living, it's a theme that's coming to dominate politics in many industrial economies, but it's taken on a new residence in the US now that Democrats see an opportunity to play all of last year's criticisms of President Biden against Donald Trump. The president floated a couple of his own solutions in the past week.

2:43$2 ,000 checks for every American, minus the really rich ones, funded out of higher tariff revenues, and the introduction of 50-year mortgages. The numbers on the first of those don't really add up, to put it mildly, and his own Treasury Department doesn't seem super enthusiastic so far about the 50-year mortgage plan. We may come back to those in a future episode, but given that it is now the Democrats putting the issue front and centre, I wanted to focus on what policies could really make America more affordable for ordinary families and what it will take for Democrats to credibly promise to deliver them.

3:23Well, to help me answer some of these questions, we've invited Annie Lowry, a staff writer at The Atlantic, onto the podcast. Annie has done more than anyone, arguably, to put affordability on the agenda in recent years, initially with an essay for The Atlantic in 2020 on the great affordability crisis. She's also the author of Give People Money, which was shortlisted for the Financial Times and McKinsey Business Book of the Year Award. Thanks so much for joining Trumponomics for the first time, Annie Lowry. Thank you so much for having me. And Nancy Cook, not coming on for the first time on Trumponomics, a frequent participant, a senior national political correspondent for Bloomberg, who wrote an essay for us this weekend looking at, in her words, how Democrats have turned Donald Trump's economic playbook against him.

4:09Nancy, great to have you on again. Thanks for having me.

4:19I'm going to just start quickly with you, Nancy, just to kind of set the scene in terms of the motivation for you writing that essay. You know, we had these good results for the Democrats last week in the off-year elections. And although there's plenty of people arguing about what lessons are for the party, political lessons, there does seem to be a sort of message lesson, which was that playing the affordability agenda against Donald Trump has been a potent political weapon for Democrats of all kinds in those races. So just give me a sort of quick summary of your peace and how you think affordability is now driving politics in Washington, conversations around the country?

5:01Well, so Donald Trump really won power again by relentlessly going after Joe Biden in the 2024 election over inflation, his handling of the economy. And that was really his message. He positioned himself as the best steward of the U.S. economy, and he won. One of my top priorities will be to quickly defeat inflation and make America affordable again. We will quickly defeat it. We have to bring down prices. And what has happened is that, you know, prices haven't really gone down. Americans still feel very frustrated by their buying power, their inability to afford a home. College prices are still very high.

5:39Every aspect of their life still feels unaffordable. And there's sort of new areas where we're seeing that with electricity prices going up because of AI data centers. But basically, Democrats took what Trump had done against Biden on the economy and did it to him in several sort of key local elections around the country in the U.S. This is not a typical election year. It's an off-cycle election year. But it did give us a foreshadowing of a potentially very potent message that they'll have for the 2026 midterms and then again for the 2028 presidential cycle. Annie, the essay that you wrote for The Atlantic five years ago, I thought, was the first time where someone had pulled together, why people were feeling so downbeat about the economy and priced out of things that they want, the kind of life they wanted, despite on the surface, it seeming like a pretty strong economy.

6:32When you're sort of hearing all these politicians now banging the drum for affordability, how did you get drawn to it five years ago? And how much do you think has actually changed since then? Has anything got better? Has everything got worse? It's a good question. And when I was writing the piece, I had been writing for 13 years at that point, and I know all of us had been covering for 13 years at that point, the problem in the United States economy as being insufficient demand, right? High unemployment, low wage growth, an anemic middle class. and you had the Obama administration, which was aimed really squarely at increasing demand and giving people more money to buy the things that they need.

7:17And I think it really snuck up on us that actually we had supply problems. We had pricing problems. And so in some ways, I think that that piece now, it seems so blatantly obvious. But at the time, I remember I was talking to some housing economists that were talking about housing shortages starting in like 2012, 2013. I remember being like, what are you talking about a housing shortage? Didn't you just see what happened with the collapse? But, you know, economists, I think, had been noting this for a while, that there were price problems, that there were supply problems, and they've only gotten worse.

7:50Really, what I think brought this to the fore wasn't the underlying and really serious problem with housing costs, child care costs, higher ed costs, health care costs, which were really big, it was the big surge in inflation and the cost of like eggs, right? It made people notice, I think. And the fact that you had this just very big jump in rents into everything else that all of a sudden this became really salient. And I think that we're still in this moment where, you know, at this point, real disposable income is up 17 % since 2018. Americans are very wealthy, but I think that they're still living in this paradigm where everything feels really unaffordable and I think it's going to be really hard for any politician to fix.

8:35Well, there are lots of things that have got cheaper over the last sort of 20 years and people always use the example of, you know, toys and all these things that we were getting from China. But there's these very big ticket items that are expensive in many countries, many developed economies, but seem to have a particular issue in the U.S. I was thinking particularly of childcare, you've mentioned housing, medical costs, which have clearly been front and center. Nancy, do you think that politicians are in a position where the governors or congresspeople or the White House, is there actually a capacity to pull the levers on this?

9:12Annie talks about underlying supply issues. Traditionally, presidents like to throw money at staff, often governors and congresspeople want to do that. Do you get a sense when you talk to the people on the Hill that they actually are looking at solutions that aren't just about throwing money at things? I mean, putting increasing demand in Ali's point rather than addressing supply. Well, I don't think that Republicans in Washington, D.C. right now are really focused on the solutions to this. I do think that governors and local politicians and people in Congress could do some things. One of the issues that's facing New Jersey voters that was really salient in their gubernatorial election last week was electricity prices.

9:53And that's a huge issue in New Jersey. I think it will become an increasing issue as these AI data centers sort of take up more and more power and electricity prices will rise. But part of the tricky thing about that is that President Biden had stood up a whole sort of green economy through the Inflation Reduction Act and a lot of policies to try to incentivize the private sector to create more jobs there and create more solar power and incentivize people to buy electric cars. And then Trump has basically undone a lot of that. those policies in the economy. And so it just makes, it means that we're sort of back to electricity as the main source of power for people.

10:30And that means that there's going to be less alternatives, less competitiveness, and that will drive up prices. And so there are things people can do sort of at the margins, but it means that, you know, you can't sort of have this partisan flip-flopping every four years when, or every two years when a new party comes to power and they undo everything that the previous party did. And it risks, Annie. I mean, you said yourself, sometimes what's brought it to the sort of center of people's attention is actually not some of the really longer lasting structural issues that you've identified in that piece.

11:02And currently, what's quite potent for Democrats is blaming all the high inflation, high prices on tariffs. When, as you know, and we've discussed many times on Trumponomics, the evidence on that is pretty uneven. It certainly doesn't explain the kind of that squeezes on living standards and affordability that people are feeling day to day. But obviously, it's a fantastic thing to beat the administration with. If you're a Democrat, you can just blame it all on tariffs. But fast forward a year from now, people will still feel things are very expensive and the tariffs may not be as salient. What are the practical ways that Democrats can be talking about solutions to the affordability crisis rather than only sort of hoping that there will be ways that they can constantly throw this back at the administration?

11:52Yeah, look, I think that one thing that is going to become very obvious next year is if the ACA special subsidies that are due to expire remain expired, millions and millions and millions of Americans are going to see their health care premiums rise really sharply. This is on the Obamacare, the health insurance that we've heard so much about. Yeah. And so I think that that is one place where they'll be able to continue to hammer the Trump administration and allied Republicans on. Oh, OK, they say that they want you to have cheap prices and everything that you want. But, hey, they're raising the price of your electricity.

12:32Hey, you're uninsured now because you can't afford your premium. Hey, those tariffs, you know, that costs sixteen hundred dollars per family. And I do think that the Trump administration is going to be in a bit of a bind if they try to do stimulative policies to sort of relieve some of these pressures, right? If Trump ends up being allowed to and writing these$2 ,000 checks and that leads to interest rates remaining as high as they've been, you know, that's not going to be good. And I think it points to this broader problem, which is that politicians have a tremendous toolbox when it comes to demand side policies.

13:08They really do. They have a ton of stuff that they can do, both, you know, in terms of the realm of monetary policy in the Fed, but also then in terms of Congress and even things that individual governors can do. Demand, right, supply is hard. It's often inflationary to create new supply. It's often really, really slow. And prices are hard, too. One place where the government does have some pricing control that I really do think that you've seen both parties start to exert some interest and some power is in terms of health care costs, right? We actually have health care supply for the most part in this country.

13:43We could probably use more doctors and nurses. I'm not saying that that's not a problem, but the real problem is the prices. And so, you know, as you both know, the federal government has its hands tied in terms of things like negotiating the price of pharmaceuticals for almost all but a very small subset of drugs. Congress has notably tied its own hands. It was John Boehner who did this like 20 years ago. I think that you could see a policy, something like, hey, we're going to do uniform negotiations for prescription drugs. We are going to cap prescription drug monthly co-pays at$35 a month. I don't think that there's any policy that could be more popular among both Democrats and Republicans.

14:22And I do think that's actually something that the government could do. Whereas bringing housing costs down, that's going to take a long time. You face this issue of not having a lot of federal control over that, although there are ways to set policies up to incentivize states and cities to tie financing to ones that sort of make themselves code compliant. But we've seen tremendous resistance in city after city after city after city and state after state after state to doing this. California being the prime example, I think that there's some real policy change happening now. But, you know, they've had a housing crisis for 40 years.

14:58So it's going to take a really, really long time. And I do note that behind all of this, I think, again, is the fact that obviously interest rates are coming down, but they're really high still. Right. So 30 year mortgage rate is 6.2 percent right now. Most people are still mortgage locked if they own their home. So it's a really complicated set of issues. And I think the interplay between interest rates and the amount of demand in the economy is a really important thing to be watching. You know, the high interest rates are part of the reason, along with high construction costs, that we've seen just a complete cratering of housing starts at a time when we really, really want to start filling that.

15:33I think it's a seven and a half million unit housing gap that we have and will presumably still have 10 or 20 years from now. So you're focusing on health, which obviously, I mean, that is clearly the area where, in theory, everyone agrees, certainly in the broader public, there's just a sort of general understanding that these are intolerably high costs. I guess a couple of things I would say in sort of caution is, if you look historically, there's been wide agreement in the US for having a different kind of healthcare system, you know, famously, and for years and years, people have actually said they quite like try a single payer, though that's obviously has never been remotely conceivable in terms of legislation.

16:13and yet there have been things that have got in the way and every reform has managed to be described in a way that makes it less popular. Thanks to lobbying and other things, somehow the lesson gets taken that it's going to increase costs or put your insurance at risk. The extraordinary thing to me and to anyone who doesn't live in the US all the time is that you have Obamacare having had considerable success in lowering the growth of costs. people even with what you would consider to be a good employer insurance scheme are still paying $25 ,000 a year for their insurance. They're still paying significant co-pays, other outlays over the course of the year.

16:55Millions of people still don't have insurance. So I guess even when you've had effective intervention like Obamacare and some of the things that the Biden and Obama administration did to slow the cost of drug prices, increasing drug prices, it doesn't feel remotely like a success to the people on the other end of it. And I sort of wonder, it's a very risky thing to try and take on because even when you succeed, everyone still thinks that their healthcare is really expensive. The average American spends$1 ,500 a year out of pocket. So Americans Republicans collectively spend half a trillion dollars a year out of pocket on health costs.

17:34It's just an extraordinary amount of money. And that's not that's not including insurance costs. That's not including Medicare, Medicaid, TRICARE, all of the, you know, the public policies. You know, the place that has worked, I think, most successfully in the ACA is the Medicaid expansion. And now that is very, very much at risk because Republicans took a trillion dollars from the program. They're going to kick millions of people off by basically increasing the procedural requirements, requiring folks to comply with a work requirement in Medicaid, which some states have tried not terribly successfully.

18:14We've not had a national work requirement in that program. But people on Medicaid, it's been fairly stable in cost, and it's proven itself to be pretty good insurance. I remember, again, 15 years ago in the ACA debates, people would be like, oh, you know, Medicaid isn't really worth having. And now it's like, oh, no, it's really great. The co-pays are essentially zero. It very much covers care. And that's not to say, you know, it can be sometimes hard to find a doctor. There are wait lists, all of these other issues, not to negate that. But, yeah, you know, it's really, really tough in terms of health insurance.

18:46But there are a lot of policy answers. What I would say is that I think that if you were trying to create a bipartisan bill that would start to solve some of these problems, a lot of the fixes are quite technical. And I think that you're completely right to say that anything that can be cast as socialism is sort of immediately ejected out of hand. But I do think that, for instance, covering all children under Medicare, right, just up to the age of 18, you get Medicare. Great. Right. Or expanding Medicaid coverage, lowering the Medicare age so more people get onto those plans, which tend to be much more cost controlled, are all policy solutions.

19:27And again, I think that you just need something that sells it to the American people. It's why I think drug prices are probably a really, really good place to start. And, you know, Trump is trying to do this, right? We're going to negotiate drug costs. You're going to get Ozempic for$70 a month. Like, I think that people would be OK with that, whereas we're going to take away your private insurance and push you onto a public option. And yeah, you know, the ACA was a real Frankenstein bill. The American health system is not what anybody would design if you were ever designing it. I do think that there's like a set of really, really good, effective policies that are not going to win anybody an election.

20:03And then some like treats and goodies that I think could really help folks win an election, regardless of whether they were a Democrat or a Republican.

20:40Transcription by CastingWords policy and the people shaping the European Union right now. And from London, I'm looking at what all that means for markets, money and the wider economy. We've got reporters across Europe and around the globe feeding in as stories break. So whether it's geopolitics, energy, tech or markets, you're hearing it while it happens. It's smart, calm and to the point. And it fits into your morning. You can find new episodes of the Bloomberg Daybreak Europe podcast by 7am in Dublin or 8am in Brussels, Berlin and Paris. on Apple, Spotify, YouTube, or wherever you get your podcasts.

21:28Nancy, when you're listening to people in DC and Democrats are lighting on this affordability agenda, how much are people thinking of this as a positive agenda levers that they could say they're going to pull if they get back and retake control of Congress. And how much of this is purely negative? This is sort of opportunism. You know, you did this to Biden, now we're going to do it to you. Well, I think the politicians, for politicians, it's just an opportunity. It's a political opportunity to sort of bash Trump. Democrats have been looking for a way to counter Trump for a long time successfully, and they haven't really found a message that sticks and that doesn't make them sound shrill.

22:13And so this is a message that they feel like can work. I do think that there's policy people in Washington who are thinking through what an affordability agenda could look like and, you know, are sort of like fixating on different buckets than policy people had before. So I do think people are thinking about how to make housing more affordable, how to make electricity more affordable. You know, when I've covered past elections or past presidential campaigns, a lot of the economic policy has revolved around things like what should the tax rates be or how much stimulus should we do? And I do think that the policy questions that policy people are focusing on now are a little bit different and just really tied to kind of the cost of living things.

22:57And so I think that's a discussion going on in the Democratic Party. And, you know, one of the most interesting things about the Trump White House to me is that he is trying to do some things to bring the cost of living down and doing things that actually are supported by Democrats. I mean, you know, trying to negotiate drug prices is like something that Democrats are into. Or, you know, the White House taking stakes in different companies, particularly related to, you know, some national security areas. We saw them do it with Intel. We saw them do it with U.S. Steel, with some critical mineral companies.

23:31Those are policies that Bernie Sanders and Elizabeth Warren have applauded. And so I do think the Trump administration is kind of walking this dance of like, you know, being very Republican and sort of very hewing to their MAGA agenda, but also trying to dip their toe into things that, you know, other people would view as definitely kind of in this socialist vein. But it's all these politicians kind of trying to figure out how to tackle these very, very complicated and nuanced issues, which, by the way, are just changing as the U.S. economy changes and evolves. And, you know, as we're seeing more AI in the mix, we're seeing corporate people getting laid off.

24:09You know, the U.S. economy, I feel like, has really added this huge moment of transition. And companies are trying to deal with it and economists and policy people, but so are politicians. And, Annie, I mean, one point about this agenda is that although it's a very national debate, you know, the kinds of things that you talked about at the beginning just sound inherently local. And in fact, some of the sort of failings, the supply side failings, if you like, have been bigger in some of these big Democrat controlled cities, San Francisco and elsewhere, New York, for that matter, than they have been in Republican states and localities.

24:51So I just wondered, you know, is there a disconnect there that although we might be talking nationally about affordability, actually the Democrats still have a challenge to show that they can do the local things that you're actually going to need to do to fix these problems? Yeah. One thing that I think that we have seen since COVID roughly, and probably a little bit before that, is that what was originally really a problem of, you know, your Seattle, your San Francisco, your Los Angeles, your D.C., your Boston, has really become a national problem. So we have pretty severe housing shortages in rural counties in the United States now.

25:34We have seen our big cities squeezing families not only to the suburbs, but to less populated areas. So, you know, since COVID, we've seen rural population growth for the first time in a long time, facilitated by the shift to work from home, but also just by this tremendous squeezing of the balloon, right? People have to go someplace and people are moving to these lower cost areas, most notably in the south, Arizona, Texas, where the cost of living is lower. But I have talked to folks who live in the suburbs outside of San Antonio, for instance, and prices are going up a lot there, which is really pretty remarkable.