A Framework for Lasting Affordability

[00:00:00]to the Kato Institute. My name is Ryan Bourne, Kato [clears throat] RF shaft chair for the public understanding of economics. Uh 2026 has been dubbed the year of affordability ahead of the midterm elections. Politicians across Washington are proposing ways to ease the cost of living. But we at Kato think affordability has become a pretty much an umbrella term for lots of different grievances.

[00:00:23]The biggest source of public anger, I think, has been the result of the inflation surge that we've seen since 2021. Consumer prices are now 28% higher than they were in the first year of the pandemic. And of course, as a result of that, interest rates have risen, too, making mortgages, car loans, and credit card debt more expensive. But that inflation shock has also drawn attention to areas where prices are high in specific sectors that people really care about. housing, energy, childare, healthare, areas where government policy can often [snorts] make matters worse.

[00:00:59]So earlier this year, NATO [clears throat] produced our own handbook on affordability, arguing that these different components of the challenge require different solutions.

[00:01:08]Um, sound money and uh fiscal restraint can help reduce inflation and keep it low, reducing pressure on interest rates. But to our mind, sustainably lower costs require making homes, energy, and services easier and cheaper to provide. And that often requires removing regulations, [clears throat] re-examining taxation, and other barriers that restrict supply and competition.

[00:01:34]Now, we're not the only group thinking about affordability. The problem solvers caucus is another group that's developed a wide ranging affordability agenda.

[00:01:42]It's a bipartisan group committed to finding practical uh of agreement across party lines. And I'm delighted to welcome his two co-chairs today.

[00:01:53]Representative Brian Fitzpatrick to my immediate right is a Republican representing Pennsylvania's first congressional district. He serves on the House Ways and Means Committee, very important committee, and the House Intelligence Committee. Representative Tom Swazy is a Democrat representing New York's third congressional district. He also serves on the ways and means committee at two and their agenda is particularly interesting I think because it both addresses the macroeconomic component that I talked about and some of these microeconomic issues too. So representatives um your agenda starts with quite an admission. It says both parties are responsible for uh part at least part of the affordability challenge we now face. But I want to know when you go back to your districts, when ordinary voters tell you that they're struggling with the cost of living, what do you really think they're getting at when they highlight that affordability challenge? Is it just the legacy of inflation? Is it specific sectors? How do you interpret this and kind of narrow down what you're trying to achieve?

[00:02:55]>> Well, I think it's how hard is it for them to make basic ends meet, right? Uh half the country, perhaps more live paycheck to paycheck. um and they are sitting down at the kitchen table every week, sometimes more often than that, figuring out how to make their budgets work. And those are the people that we really need to be mindful of when we're making um policy decisions. And we talk about affordability, it's it's kind of become a buzzword. And oftentimes when that happens, you get away from actually, you know, um understanding what's at the root cause of it. Really, I think it's three things. It's the cost of products uh and goods. uh it's supply and demand um it's interest rates um but I think the most important component of it is what side of the of the ledger are you on in terms of compound interest is compound interest working for you meaning you have money to invest and it's working to benefit you or are you on the other side of the ledger where compound interest is working against you because you have credit card debt or other [clears throat] debt and you're paying interest on existing debt and that that dichotomy is really the the the bifurcation mark I think in our economy and in our society in terms of how hard it is for people to get ahead.

[00:04:11]>> Now, um there's probably one area of bipartisan agreement unfortunately on Capitol Hill. is to run large bud budget deficits year after year. But an area that the Kato handbook and and your affordability agenda agrees is that um large budget deficits, unsustainable long-term uh fiscal projections are putting pressure on families budgets already through the interest rate channel, arguably through the inflation channel that we've just lived through as well. Um how do we start turning the you know turning that question around? How do we start getting pol the rest of the policymaking community in DC interested in trying to reduce budget deficits?

[00:04:52]>> Part of the deficit issue is to educate the public that high deficits cause upward pressure on interest rates. So when you have high interest rates, it's hard to buy a house. When you have high interest rates, it's harder to lease a car. When you have high interest rates, it's harder for you to borrow to buy goods for your uh company, for your small business. So, we need to do a better job educating the public that deficits, which just seems like, hey, it's a Washington thing, deficits, they're always talking about deficits and debt and is affecting your life. And so the massive deficits that we are experiencing [clears throat] right now actually record deficits right now uh are having a tremendous upward pressure on interest rates. So and and inflation as well. So we just need to do a better job of connecting the dots. And one of the things that Brian and I support is the idea of a a fiscal commission to look at the deficit and come up with a solution in a bipartisan way because you know everybody we can have all these debates back and forth. I'm trained as a CPA but you don't have to be a CPA to know that there's only two choice. Brian's trained as a CPA also. We're both CPAs and lawyers. That's one of the things we share in common with each other is there's only two choices. Raise revenues or cut expenses. That's it.

[00:06:14]both. Yeah. Or both. But there's no other like magic. You either have to come up with more money for the federal government [clears throat] or reduce the expenses or a combination of both. And of course, it's going to require a combination of both to solve this problem.

[00:06:27]>> So, let me ask you about that because your caucus has endorsed a couple of different um potential pieces of legislation. The fiscal commission act just and the sustainable budget act.

[00:06:37]Now, they're quite different in the way they go about dealing with this problem.

[00:06:41]The first sets a target for the debt to GDP ratio that economists tend to care quite a lot about and um tries to make entitlements solvent over the long run.

[00:06:51]Um but it puts a lot of power in the hands of the commission itself. Whereas this the second act, the sustainable budget act uh is much more about trying to balance the day-to-day federal budget within a decade and giving the president uh considerable control. Now, they're very different proposals, but I'm guessing the reason that you've endorsed both of them is because at this stage, you're really trying to bring attention to the issue. But what red lines would you say are necessary in the formation of any commission? What would you be looking for it to achieve?

[00:07:19]>> Well, number one, I I think ideally it's set up like the 911 commission, which I think is really the model of commission, at least in my lifetime, right? They came up with 4142 recommendations. They were entirely bipartisan, equally bipartisan, no currently serving elected officials. uh and for any subpoena to issue any decision to be made had to be a two-party solution, had to be bipartisan. And they came up tremendous recommendations that um thankfully have kept a terror attack from occurring on our on our shores for for 25 years. Um so I think that that's really the model.

[00:07:53]Um and you know, you pointed out the difference of the two bills. One deals more with the long-term debt, the other deals more with current, you know, annual budget deficits. And we have to tackle both and we have to look at the debt to GDP ratio. Um I believe it ought to be a percentage rather than a you know numeric dollar amount because all we keep doing all Congresses have have kept doing for decades is lifting it.

[00:08:16]And you know if you're going to have a debt ceiling which it's arguable if you should because basically the argument there is you you're debating whether or not you should pay debts you've already incurred. That doesn't seem to be a very logical debate to me. Um, but it should be a percentage of GDP because there have been two times in our nation's history where the debt to GDP has exceeded 100%. World War II and today.

[00:08:38]>> And unfortunately, a lot of the advantages that we had coming out of World War II, of course, like demilitarizing, >> bouts of inflation, high economic growth, all of those, we're facing headwinds on all of those different fronts right now. I >> I want to go back to your first question that you asked, Brian. I didn't answer that that question. It's very important for us to recognize that for some Americans, the economy is booming and it's been booming for 50 years. The the Dow Jones has gone up dramatically over the past 50 years. The GDP has gone up dramatically over the past 50 years. The problem is is that we've concentrated the wealth amongst a smaller pop portion of the population and then another part of the population has just been left behind. There are a lot of people that go to work every single day. They work really hard. They're working at least 40 hours a week and they're working 50 weeks a year and they get two weeks vacation.

[00:09:30]Many people working more than that.

[00:09:32]Husbands and wives, spouses working, but they're two different worlds that we're living in. And so when they talk about the K economy, I don't know if if it's backwards this way, but a K, you know, you got one group going up and they're really happy and there's one group going down and they're really unhappy. They're there. It's a tale of two cities. It's a completely different The thing the stock market is booming.

[00:09:55][snorts] Corporate earnings are coming in. They're doing fantastic and they've been doing well for years, but we've hollowed out a middle class and and we have a lot of good programs that protect the lowest income Americans and we've just abandoned this chunk of people in the unhappy and they're looking for an answer. and the solutions being offered to them, whether it's from the the the MAGA movement or from the DSA movement, is that like the whole system stinks, the whole system's rigged, let's tear the whole thing down.

[00:10:31]And those messages have been appealing to people. And I think that Brian and I are are in similar camps in that we think that's not the answer to just tear everything down. The answer is we have to fix what's broken in a system that's not we we're not defending this. I'm not defending the status quo, okay? The status quo is not working for a lot of Americans.

[00:10:52]We have to fix this hollowing out of the middle class and it's going to require us to do a better job articulating solutions to those problems. Uh recognizing the status quo is not working and but tearing the whole thing down is not going to work either.

[00:11:08]>> Yeah. And there's a lot of false solutions out there. You know both parties uh have had senior people advocate various forms of price control which we know as economists tend to have very dilotarious effects on economic activity. Uh lots of new subsidies that are mainly about transferring the costs from one group to another group rather than dealing with the underlying problems. So let's let's move on to some of those specific underlying problems.

[00:11:30]say one one other thing that I'm sorry I'm I'm just reading this now I haven't even discussed this with you before is you know a lot of very wealthy people are paying a lot in taxes people who are making a million dollars a year or $2 million a year or even more than that but they're getting it as a you know a lawyer or a doctor or they're getting a salary they're paying a lot of taxes that's not the problem the problem that are is the people that have accumulated wealth and are having enormous wealth accretion, but they don't take any salary from it. They don't sell any of their assets, so they have to pay capital gains. And they're living off often borrowing, so they can deduct their interest rates, interest expenses, but they have this enormous wealth.

[00:12:16]They're accreing value, but they're not paying much in taxes because they're not taking it out. That's what we have to figure out how to solve. I think tax reform is probably one of the areas that uh would be most difficult to find agreement that type of tax reform in Washington. But one area where um at least if you pred believe prediction markets uh they imply there's a pretty good chance of doing something is on permitting reform for for energy. Um you guys have a lot about this in your agenda. talk about uh strict deadlines, judicial review, less duplication for linear infrastructure and being neutral from all forms of energy generation um you know try and get as many new projects of many different forms of energy generation as possible. We similarly think that uh delay and litigation risks are major barriers um to getting abundant, reliable, cheaper energy. So when you think about that seeming likely over the next year, where do you think there are possible areas where we can get bipartisan reform? What are the big things that you're looking for in the uh in in the energy area where you think we could really do something over the next 12 months?

[00:13:24]>> Take that.

[00:13:26]>> It's really we have to make it easier to build things.

[00:13:28]>> Yeah.

[00:13:29]>> And there's a Democrat named Scott Peters uh used to be the mayor of uh of uh was it San Diego or La Hoya? But anyway, he was a mayor. He's a get things done type of guy. And I've asked him to to really take the lead on this.

[00:13:44]And I would defer to him on on a lot of the specifics, but he's also working with a Republican on problem solvers.

[00:13:50]And we brought the environmental groups in to meet with us, just the Democrats side did. And we said, listen, we have to fix this problem. This is a major issue that we do not you know energy has been the need for energy has either been flat or going down over the past 20 years and for the first time in 20 years the demand for energy is going up dramatically because of the data centers particularly [clears throat] and so we've got this rising demand and we don't have a commensurate increase in supply and I you know I I'm upset about a lot of the projects that were canceled uh that were funded under the uh under the the I forget the name of the bill now, the inflation reduction act, inappropriately named, but um that canceled all the green energy credits. Uh so at a time when we have increasing demand for energy, we cut some of the potential supply. But what I said to the environmentalists is we have to make it easier to build things. And for every 10 projects, you're going to end up with seven or eight green product projects. And you'll end up with some fossil fuel projects as well. But so be it. We have to build more energy supply in our country and to do that we have to reduce some of these barriers that is in permitting. So, we need dramatic permitting reform >> and uh this has been a really fascinating development that peritting reform has become a bipartisan issue which we think is a great development and it's great news but it's interesting to see how it kind of came to fruition because permanent reform historically was associated with fossil fuels right so you saw a lot of people more aligned with the right um right side of the continuum way of thinking pushing permanent reform to want to advance some of these you know pipelines or what have you. Um now with the you know the expansion of green energy and renewable energy um a lot of our Democrat colleagues who wanted to see a lot of these pro pro programs like that were advanced in the IRA and the ARP um move forward you need permanent reform. So you've kind of now have a bipartisan issue on the need to cut the red tape and fix or speed up the process to allow these projects that they care about come to fruition. But to Tom's point, if you believe in all the above in order to meet our demand because we have a supply and demand issue, that's why we're seeing energy costs go up. Um, that's one one key way to do it. And I and it's it's a good development to see it become a two-party issue.

[00:16:09]>> And it's important to understand where a lot of a lot of these uh protections protections or regulations depending on how you view it. One person's protection is another person's regulation. Uh, how do they come up? If you've ever read the the book the power broker about Robert Moses. Who's ever read the book for the power broker about Robert Moses? Okay.

[00:16:29]So in that he built these all these things. He did so many major projects throughout mainly the New York New York area. Enormous projects that it's just amazing. He accomplished so much. But some of the things he did is he just would put a road right through the middle of somebody's neighborhood and it divided a neighborhood in half and really destroyed the character of the neighborhood in the process. And so people said we have to put rules in place to prevent this from happening before. We have to get input from the community. We have to look at the history of the area. We have to do this.

[00:16:55]We have so now we have all these rules in place. And the same thing happened with a lot of the environmental movement. We if you look at the the the what we saw happen in the country in the up until through the 60s and 70s before the environmental movement there was a violent reaction against all these bad things that were happening. So we put all these rules in place. Then we started enforcing the rules in the 80s.

[00:17:14]Then the 1990s we realized we had to start implementing these rules. And then we realized it's become very very difficult to get things. And now we're finally coming around like well we still need protections but we need to make it easier to do the things that we think are positive.

[00:17:27]>> Until now this has been a bipartisan problem as well. I mean one administration delays or cancels pipelines. For the next one it's wind or transmission projects. So it's really it's really hopeful that we're [clears throat] actually seeing some bipartisan agreement about the need for permitting reform and hopefully to try and take some of that presidential veto patter away from some of these uh projects. Now, one area where my Kato colleagues have been pushing quite hard relates to the data centers that you just talked about because we'd like to see in in the permitting reform process um folding in some of the principles that say if a new data center or factory um wants to bring on board its own power, kind of become a grid of one or you know share that power source with a couple of other factories, we should look at reforming regulations and the way the the electricity system works to allow them to do that so that then those pressures are less on the formal grid and something that they can kind of absorb into their manufacturing process.

[00:18:20]So I don't want to put you on the spot but just just an area that might be worth kind of exploring as you continue to look at this issue. Um now one area where we have seen a bipartisan accomplishment of late is on housing. Uh we've just seen the 21st century road to housing act become law on July 11th.

[00:18:39]Now, uh, our scholars here at Kato have mixed feelings on the legislation.

[00:18:44]Really like some of the deregulatory aspects, a bit more uncertain about the effective effectiveness of reforming some of the existing federal programs that we uh oppose to begin with, but it does do a lot of deregulatory things or some deregulatory things. So which parts of it do you expect to result in actual more house building as opposed to just you know changing who receives help for their housing or or renting or how those homes are financed. What what bits are you really excited about for increasing the supply of homes?

[00:19:14]>> Well, I'm excited personally uh about the expansion for veterans uh both the expanded use uh of VA loans and also expansion of the home availability that they are eligible for. Um, I like what it does for the for the lower- income people in terms of rental assistance and expanding their opportunities there.

[00:19:34]Personally, I think in terms of the biggest impact and not many people are tracking this, but the the just allowing the builders to develop uh to um offer up pre-approved plans um rather than having to go through that process over and over again, it sounds like a minor detail that is going to have a a sea change effect on that industry. Um, everybody that that is working in that industry has told me that it's a provision that nobody's talking about that I think is actually going to have the biggest impact on lowering or at least trying to contain the cost of housing.

[00:20:03]>> And how far would you be willing to countenance kind of federal involvement to try and get states and localities to change their own zoning and land use rules? Because there's a difficult question there from a federalist perspective. in my particular district, the kiss of death, that you're you're not going to ever be able to to override local control where I am. But I think that the federal government and the state government should be providing incentives to local governments to encourage them to create more density in certain locations, especially in downtowns around mass transit. Uh it's something I've been working on for years. I I'm I'm home to one of the first suburbs in America, the mass-produced suburbs, Levittown.

[00:20:42]Brian's got a Levittown also in Pennsylvania. That's the thing we sharing. Sharon, he lives in Levittown.

[00:20:47]>> I represent Levittown. Um, and Nassau County was one of the first pl we we were one of the fastest growing places in America. Mr. Levit started the Levit homes in 1947 as a affordable housing for the returning veterans. From 1950 to 1960, we went from 400,000 people to 1.2 million people in our county. Fastest growing county in the country. up to 1.5 million people in the 1970s. Now our population is actually a little bit less than that because we have the same number of homes because we're suburban sprawled and but families sizes are much smaller than they were back in the 50s60s and 70s.

[00:21:25]When you're suburban sprawled, you know, I looked at this a lot when I was the Nassau County Executive is we want to keep most of our land mass, literally 95% of our land mass, 99% even, the same as it is now. single family homes, parks, open space spaces, beaches, but one, two, 3% of our land mass in our downtowns, near our train stations. We need to go up and we need to create what I call cool downtowns. People where young people want places where young people can afford to live and where they want to live, where it's fun. People [clears throat] used to get married from their 20s to their 30s. Now, if you get married, if you get married, you get married in your late 20s, early 30s.

[00:22:09]Nobody from 20 to 30 who's a single person is looking to move out to suburbia. The things that we love about suburbia, it's quiet. Prime is low.

[00:22:18]It's, you know, everything shuts down at 10:00 at night or even earlier. It's not, we shut the roads down for little league baseball parade. Young people are going to be like, "That's boring." You know, I want to go out to a bar and I want to meet somebody. I want to have fun. I got to get to work in the morning. We have to create these environments in these traditional suburban communities that are while preserving suburban character and the quality of life that people move there in the first place but create housing in the downtown areas near mass transit.

[00:22:47]>> So do you think this is the recent bill is kind of as good as it gets or do you expect other bills to come forward on housing with bipartisan support?

[00:22:56]>> I think that you know first we need the leadership where people say affordability is the problem. Okay. So we're saying it, Kato's saying it, many other people are saying, some people are still saying afford affordability is a hoax. I don't think that when you go to the grocery store or when you go to the gas station or when you have to pay your health insurance premiums or when you got to pay your interest on your mortgage, you think that affordability is a hoax. It's a real issue. And so I think that there will be more to happen.

[00:23:23]And I really think that even more than uh legislation uh reducing the interest rates is really the biggest thing that has to happen.

[00:23:33]>> So one area that the caucus explicitly recognizes the difficulties um is in finding labor in sectors like agriculture, construction, healthcare.

[00:23:42]I'd probably chuck in childare as as well and how that raises prices.

[00:23:46]>> Healthare.

[00:23:46]>> Um healthcare. Another one. Yeah. Um, you've endorsed the Dignity Act, which combines border and asylum measures, uh, mandatory e- verify legal status for certain long-term residents. So, I'm guessing that you would argue a serious affordability agenda has to kind of combine resolving the status of people already here. Um, [clears throat] but also explan expand in the future legal supply of workers as well.

[00:24:11]>> Absolutely. Go ahead. Well, uh, we we talk a lot about the great power competition, right, between, you know, China and the United States and and Russia and Iran and, you know, whoever else you want to include in that great power competition. But, um, mostly they that's viewed from the national security lens. Um, the biggest advantage we have is that everybody wants to come here.

[00:24:36]Nobody's busting the doors down to move to China or, Russia or any of these other countries. Everybody wants to come to the United States. We have a potentially endless limitless labor supply which is not only huge in term for the affordability issue. It's important from an economic security, it's important from national security standpoint because it'll strengthen our economy. Uh we are a nation of immigrants. All of us unless you're a Native American, you are an immigrant to this country. The only question is how many generations back and what part of the world can you trace your lineage to?

[00:25:05]So it it's it's made us the greatest country in the world. It's allow us to to to become the world's economic superpower 103 years after the signing of the constitution and the world's currency standard about 50 years thereafter, right? Um because of this brilliant system of government that our founders gave us. Um but we immigration is a big part of that. It's a big part of our economy. It's a big part of our country. And it's been one of the most frustrating things that I've seen out of Congress uh in terms of what's not happening is you keep hearing this term comprehensive immigration reform. How many times have this gang of eight or this bipartisan group biccameal group said we're going to have comprehensive immigration reform? And because they can't get a 100% of the way there, they get nothing. They can't kind of break it up into singles and doubles and get, you know, incremental victories. And that's what I believe the dignity act does.

[00:25:58]This is a two-party bill that is relatively limited in its scope. It's not huge. Um, touches on a number of areas, but I think we have to view it as, you know, a huge advantage we have in this country that people want to come here. We can attract the best and brightest of every industry if we so choose and also still let people in who are claiming asylum and, you know, that's becoming of American values, but also view it as a huge uh economic engine for our country.

[00:26:22]>> Yeah. I mean, a lot of I know a lot of uh contemporary Republicans would say something like, well, you let in more people, that's going to put downward pressure on wages, but that's actually not what most of the literature shows.

[00:26:32]These people are also consumers as well.

[00:26:34]They tend to complement the existing workforce. So, raising productivity, >> right? Yeah. These are the these, you know, immigrants from all over the world help build America, >> and big sources of entrepreneurship and and innovation as well. Now, it would kind of be remiss of me from a Kato perspective not to, you know, signal where we politely disagree on certain things. So, you know, you have sections on healthare, food, childare where your agenda proposes some tax credits and subsidies and investigations of food prices. Um, I I guess we would argue those policies may help some people pay the bill, but they don't reduce the bill itself. They transfer it to another group often with some unintended consequences as well. So we tend to focus on liberating supply as much as possible. You know, allowing more qualified foreign doctors here, recognizing safe medicines approved in other parts of the world. Um removing some some of the much protectionism we have in terms of tariffs and marketing orders and ethanol mandates and things that raise the price of food. Um but we're probably not going to agree on that. But where I would be uh interested is how you define success. So you know economists tend to define affordability as how much you can buy with your incomes. Uh but even prior to uh the Iran well prior to the Iran conflict real wages actually went up on average in 2025 and yet the salience of the affordability issue grew [snorts] stronger over time. Now that says to me that people are really really annoyed about the widespread increase in prices and the legacy of the inflation. But, you know, none of us want to countenance deflation. Um, you don't want to squeeze spending across the economy and risk a recession. So, what come what's a more tangible target that we should actually be looking for? What would if we came back in a year's time and reconvene this session? Um, if I were to say to you, was the last year a success in terms of improving affordability? How would you define that? Like what metrics would you really look at? For me, it's it's the values that we were brought up with in this country that if you work hard and play by the rules, that you will always be able to afford the necessities.

[00:28:46]You'll be able to, you know, afford to educate your children and take your family on vacation and do the things that are, you know, sort of core to the nuclear family in America. I think that's the metric of success. And I would hope that we'd all agree that it should never be the case that somebody's working 40 plus hours a week and can't afford the basic necessities to live.

[00:29:06]Clearly, there's a breakdown in the system if that's a scenario. So, that's how I define it. And for me, it should be a uh success is when left-wing progressives and right-wing conservatives all agree that in return for working hard, you make enough money so you can afford to buy a house, educate your kids, pay for health insurance, and retire without being scared. That's it.

[00:29:30]>> Well, this is certainly a topic that we've explored at Kato over many years.

[00:29:33]I remember I wrote a paper back in 2018 arguing that, you know, a really good sustainable way to get to a a real living wage would be uh to work through all these different sectors and try and find ways of lowering the cost of living rather than always talking about topping up people's incomes with um uh you know, wage controls or subsidies. So, we really appreciate you both being here, all the work that you're doing on this.

[00:29:57]Really glad to have this engagement. I'm afraid that's all we've got time for.

[00:30:00]We're not going to have time for questions today because we do have an event starting in here um in 15 minutes after we leave. So, if you could please leave the auditorium immediately after this finishes. Imagine there's a fire or something and try to get out as quickly as possible. But again, if before that we can just thank uh our speakers, Representative um Fitzpatrick, Representative Swazi for being here.

[00:30:20]Thanks for all you've doing on this topic.

[00:30:22]>> Thank you. [applause] Good job. Thanks so much.