Cost of Living Up? Blame Government
By Beth Cody, Writers’ Group member
Iowa City Press-Citizen
Wednesday, January 17, 2007

I read an article on the other day about a recently-released study: “Middle Class in Turmoil,” produced by the Center for American Progress and the Service Employees International Union.

The study asserted that prices for “big-ticket items” such as housing, health care, college education and transportation have increased to the point that middle class families no longer have enough left over after expenses to save anything. Instead, borrowing to cover expenses has risen.

I do not doubt that this situation is accurately described. But why is it this way and what can be done about it?

I feel certain that the two leftist labor groups responsible for the study would advocate government action, raising minimum wages or mandating benefits, or perhaps even imposing price controls on certain items. But those measures would make things worse, because it is government policies that are responsible for the problem in the first place.

After all, what expenses have risen? Not those of food, clothing and other household goods: the number of hours an average worker must work to afford these things has fallen by around 50% since 1970, thanks to relatively free markets for those items.

So why have the aforementioned “big-ticket items” become more expensive? It is no coincidence that they are all heavily government-regulated industries.

Government interference in the health care market is well-known, Medicare and other socialized medicine programs doing the most harm through waste, fraud and perverse incentives to bill as many services as possible. Health care expense rose only modestly until the 1960s, when Medicare and Medicaid were introduced – the expense has since soared from 5.2% of national income in 1960 to 16% in 2004.

Even in the “private market,” tax breaks encourage companies to offer heavily-regulated (and therefore expensive) health insurance in lieu of higher wages, resulting in the “third-party payer” system in which employees don’t bear the cost of using more services, which encourages overuse and higher prices.

And health care suffers from strangling over-regulation: for instance, the FDA requires drug companies to spend $800 million and 12 years to bring a new drug to market – should we wonder why drugs cost so much (and why thousands die before new drugs are approved)?

In education, college tuition has doubled in the last fifteen years. Government-guaranteed loans have made it possible for families to borrow more than they would be able to in a free market – which allows universities to charge more. Also, subsidies for state universities allow spending on fancier facilities, academic programs with little demand and money-losing athletic programs. Every university now wants a world-class program in every discipline, which simply isn’t necessary for good undergraduate education.

Housing seems to be a relatively free market, but it is indirectly affected by government: First, regulation of housing construction (mandating certain materials, lot sizes, zoning, etc.) makes housing cost more. And the mortgage interest tax deduction encourages the purchase of more expensive houses and discriminates against the poor.

The compulsory government-run school system also causes higher housing prices because in most states (but thankfully not Iowa), children must attend their neighborhood school. Since most public schools are poorly-run (due to lack of competition caused by government near-monopoly) families are desperate to find housing in the few areas with relatively “good” government schools. So housing prices in those areas are bid up until parents must work overtime to live there.

Concerning transportation, taxes cost Iowans 40 cents per gallon of gas, which causes higher prices not just for driving, but also for goods, which must be shipped to local stores. And government-mandated ethanol additives are more expensive and less effective than traditional additives. Also, government restrictions on oil drilling and interventionist foreign policies cause higher oil prices.

And we mustn’t forget the crushing tax burden that takes 45% (yes, almost half) of family income even before all of the aforementioned expenses. Is it any wonder that middle class families are finding it hard to make ends meet? All this government “help” is killing us.

In short, government meddling has made the cost of living unaffordable for the average American. We need to get government out of the economy and let people keep the money they earn.