As the world steps into 2026, a single term is dominating political discourse and voter anxiety across wealthy nations: "affordability." Often paired with the word "crisis," this concept has become the new battleground for elections. In the United States, Democrats are wielding it as a potent weapon against Trumpism ahead of the November midterms. In Europe, a similar narrative of a "cost-of-living crisis" is gaining traction, forming a transatlantic consensus that prices are fundamentally out of balance. But a critical examination of the data reveals a more complex picture, where phantom concerns blend with genuine problems, risking harmful policy missteps.
The Phantom and Real Pains of Rising Prices
At its core, the idea of an affordability crisis is emotionally powerful but economically fuzzy. Voters, understandably, desire a contradictory mix: low prices as consumers but high wages as workers; restricted immigration yet abundant cheap labour; soaring property values for their own assets but affordable homes for their children. These are the inherent tensions of a successful economy. However, the political response to this anger is where danger lies. If the problem is misdiagnosed, the "solutions" could inflict real damage.
Let's separate perception from reality. People are acutely sensitive to frequent, everyday purchases. The price of a gallon of milk in the US jumped from $3 in January 2019 to $4 now. Similar spikes have been seen in food and energy costs across Europe. Yet, the crucial fact often lost in the outrage is that wages have grown faster than prices for most income groups on both sides of the Atlantic. In pure purchasing power terms, there is no broad affordability crisis. A return to 2019 price levels would require a deflationary economic depression, akin to Greece's experience post-debt crisis—a scenario nobody should truly want.
The Shift to Services and the Asset Inequality Gap
The story deepens when we look at what people spend their money on. As societies grow wealthier, spending shifts from goods to services. When Donald Trump was born, 60% of US household consumption was on goods; today, it's below 40%. Globalised supply chains have made goods like televisions dramatically better and cheaper, a benefit often taken for granted. The shock comes from the cost of services—a haircut, childcare, or healthcare—which have not seen the same productivity gains as manufacturing.
This presents the first genuine affordability problem: the high and sticky cost of services. In the euro zone, regulated prices for services like healthcare and rentals often manifest as a crisis of availability, solved by long queues—an equally frustrating experience.
The second, and more profound, issue is asset inflation. While real wages have risen, they have been dwarfed by the increase in asset values. America's wealth-to-GDP ratio is near a historic high. Consider two individuals in the top 10% of earners. One inherits $1 million a decade ago, invests it in the S&P 500, and now holds $4 million. When competing for "positional goods" like a prime San Francisco apartment, the non-inheritor faces what feels like an affordability crisis. This is fundamentally a problem of affluence and inequality, not general economic malaise.
The Policy Trap and the Risk of Pseudo-Fixes
Solving these nuanced issues is notoriously difficult for policymakers. Building more homes or wind farms to lower housing and energy costs faces the "not in my backyard" opposition. In the US, absurd occupational licensing for florists or hairdressers inflates service prices, defended fiercely by those who hold the licenses. Lowering tariffs would curb inflation, but protected industries lobby hard against it.
In a world that has turned sceptical of free markets and trade, enacting sensible policies is countercultural. The grave risk is that politicians will opt for simplistic, damaging pseudo-fixes. Price controls, a failed policy from the 1970s, loom as a potential mistake waiting to be repeated. Furthermore, the US in 2026 faces a perilous mix: proposed tax cuts providing a fiscal boost, political pressure on the Fed to slash rates, and a Trump proposal to fund $2,000 taxpayer cheques with tariff revenue. This combination of taxing imports and distributing free money is a recipe for stoking higher prices, not quelling them.
Economic narratives, once entrenched, are hard to dislodge. The past decade's story of the "left behind" blue-collar worker justified a range of self-harming policies, despite data showing their real wages were rising. The "affordability crisis" risks becoming another such "truthy" narrative—repeated until accepted, facts be damned. For voters and policymakers alike, the challenge is to discern the real pain from the political phantom and avoid solutions that only deepen the wound.
