This post is a part of TPM Cafe, TPM’s home for opinion and news analysis. A version of it first appeared on Project Syndicate.

Following Democrats’ dramatic sweep in state and local elections in the United States last November, a narrative emerged: affordability had become voters’ dominant concern. Elected officials in both parties quickly responded with promises to curtail inflation. Even if successful, however, such efforts would not make life more affordable. That is because the roots of America’s affordability crisis have virtually nothing to do with inflation. It is instead an indirect consequence of the unprecedented growth in income and wealth inequality that has been occurring since the 1970s.

This provides a strong opening for Democrats, because a large majority of voters already favor the pragmatic policies needed to address the issue. By advocating these policies unapologetically, Democrats could avoid the widely anticipated intraparty war between those urging greater focus on moderate swing voters and others favoring more vigorous attempts to energize progressive base voters. In fact, the policy response needed to defuse the affordability crisis will appeal just as strongly to both groups — and will win support from a nontrivial share of Republican voters as well.

An effective solution to any problem requires understanding its origins. Why could parents in the 1950s get by on a single paycheck, whereas many two-earner households now struggle to make ends meet?

When she was a Harvard Law School professor, U.S. Senator Elizabeth Warren and her daughter, Amelia Warren Tyagi, posed this question in their 2004 book, The Two-Income Trap. Part of the answer, they suggested, is rooted in parents’ natural desire to send their children to the best schools. The problem is that school quality, like most other important things we value, is context-dependent: A good school is one that’s better than most other schools in the area; and in virtually every jurisdiction, the better ones are in more expensive neighborhoods.

Parents sought a second paycheck to boost their ability to bid for housing in better school districts. But when all families pursued this goal, the outcome wasn’t what they’d hoped. Their additional purchasing power served only to bid up the prices of houses in better school districts. Half of all children still attended bottom-half schools, as before.

The Two-Income Trap’s analysis is at once elegantly simple and deeply insightful. By itself, however, it cannot explain why families today find it so much harder to get by. The second paycheck let them bid more for housing, yes, but that alone cannot have made housing unaffordable, since it also boosted their purchasing power commensurately. As we teach our students in introductory economics, if your income and the prices you pay all double, you’re no better or worse off than before.

For the same reason, the surge in inflation that occurred during the COVID-19 pandemic cannot explain why so many Americans believe the economy no longer works for them. Prices did indeed rise rapidly during the first years of President Joe Biden’s administration, but comparable wage gains followed, leaving most goods no less affordable than before. Affordability was a problem, but it was one that families faced well before the pandemic, and, then, it had nothing to do with inflation.

Even so, there is little question that inflation has always been politically unpopular, and election analysts tell us that many who voted for Biden in 2020 switched parties in 2024 because of Donald Trump’s promise to curb inflation. During the 2024 campaign, Democrats told voters that price increases had been largely a result of pandemic-related supply-chain disruptions, and that the U.S. had done better than any other industrial democracy at keeping inflation in check. That is all well and good, but the message was ineffective because inflation was not the reason so many families were struggling.

The real culprit was, and remains, something that neither Democrats nor Republicans have shown any willingness to tackle seriously: unprecedentedly high and growing levels of income and wealth inequality. Since the 1970s, economic gains around the world have been heavily concentrated at the top of the income ladder. The wealthy are spending more now on everything simply because they have more money, and this has spawned the changes in spending patterns that have made it much more difficult for low- and middle income families to achieve basic life goals.

More expensive housing has been by far the most important trickle-down consequence of growing inequality. The wealthy have been building bigger mansions simply because they can afford to do so, and many of their slightly less wealthy friends leave gatherings in those mansions thinking they too need a little more living space. They, too, build bigger, and so on, all the way down. Without reference to this dynamic, there is no way to explain why the........

© Talking Points Memo