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Romina Boccia

This morning, December 11, I’ll testify before the House Committee on the Budget at a hearing on “Sounding the Alarm: Pathways and Possible Solutions to the US Fiscal Crisis.” The Honorable David Walker (former Comptroller General of the United States), Kurt Couchman (Americans for Prosperity), and Dr. Douglas Elmendorf (Harvard Kennedy School of Government) will also testify as witnesses. You can watch the hearing live on C‑SPAN, YouTube, or the Committee’s website.

The United States is speeding toward a fiscal reckoning, and policymakers seem content to look the other way. How long can a government keep recklessly borrowing without facing the consequences? Not forever—and the bill is coming due. In my upcoming testimony, I’ll address the perilous trajectory of federal debt, which threatens to erode the foundations of economic prosperity, deepen inequality, and undermine national security.

Unchecked borrowing by the federal government doesn’t just live in the abstract world of fiscal spreadsheets and Congressional Budget Office projections. It crowds out private investment, hobbling entrepreneurs and businesses that drive innovation and job creation. It raises the specter of runaway inflation and leads the Federal Reserve down a dangerous path of debt monetization. And when a fiscal crisis hits, it’s not Washington politicians who will pay the highest price—it’s American families.

The writing is on the wall: this path is unsustainable. The warning signs are flashing red. Credit rating agencies have sounded the alarm—Fitch and S&P have downgraded US sovereign debt, and Moody’s has shifted its outlook to negative, citing political dysfunction and fiscal irresponsibility. These are not distant, academic concerns. They reflect a real and growing fear that elected officials are incapable—or unwilling—to chart a sustainable fiscal course.

And yet, Congress remains indecisive. The United States has become a textbook example of how democracies without strong fiscal rules succumb to persistent deficits. But it doesn’t have to be this way. Countries like Germany, Switzerland, and Sweden have shown that effective reforms are possible. With debt brakes and deficit limits, they’ve reined in unfunded spending and stabilized their budgets.

The way forward is clear. Congress should adopt a fiscal stabilization plan with enforceable goals, like achieving primary balance or stabilizing the debt-to-GDP ratio. Entitlement programs, primarily Medicare and Social Security, which account for the entirety of America’s long-term unfunded obligations, must be reformed. Political gridlock is no excuse—establishing a fiscal commission modeled on the successful Base Realignment and Closure (BRAC) process can help Congress adopt necessary changes.

Long-term solutions require structural change. That means institutionalizing fiscal discipline through mechanisms like a debt brake or a balanced budget amendment. And these tools must be flexible enough to account for emergencies or economic downturns. Fiscal rules work best when they have broad-based support, clear targets, and built-in mechanisms to accommodate crisis deficits while aiming for long-term balance.

The stakes couldn’t be higher. Failing to act will leave working Americans footing the bill for today’s excesses, with fewer opportunities and greater economic uncertainty. By committing to reform, Congress can safeguard prosperity and ensure America’s fiscal health as a robust base for economic growth. But time is running out. Will lawmakers rise to the challenge—or will they let the debt crisis define our nation’s legacy?

Watch the Full Testimony Live

Ian Vásquez

Today, December 10, marks the one-year anniversary of Javier Milei in office. The Argentine president was elected promising a paradigm shift that would return his country to the classical liberalism that made it one of the richest countries in the world a century ago.

With that ambitious goal in mind, Milei has achieved much more than most people thought possible in such a short period of time. Such is the case that The Economist approvingly declared, “Milei’s first year holds lessons for the rest of the world.”

It’s worth remembering that when Milei assumed the presidency, Argentina was in the midst of a deepening crisis. This crisis was the result of 20 years of mostly Peronist rule and 80 years of a corporatist economic and political system that strengthened as time went by. Milei inherited a country suffering from more than 200% inflation in 2023, 40% poverty, a fiscal and quasi-fiscal deficit of 15% of GDP, a huge and growing public debt, a bankrupt central bank, and a shrinking economy.

So Milei’s message of freedom and the need for reform is understandable. But he is often misrepresented or misperceived. In fact, as The Economist observes,

“The left detests him and the Trumpian right embraces him, but he truly belongs to neither group. He has shown that the continual expansion of the state is not inevitable. And he is a principled rebuke to opportunistic populism, of the sort practised by Donald Trump. Mr Milei believes in free trade and free markets, not protectionism; fiscal discipline, not reckless borrowing; and, instead of spinning popular fantasies, brutal public truth-telling.”

To address the crisis, Milei has prioritized economic stability, telling Argentines that they will feel more pain before things get better but that there is no better path than thorough reform. The government immediately stopped spending more than it had, and the central bank subsequently stopped printing money. Milei cut spending by 30% and produced a fiscal surplus after his first month in office. Monthly inflation fell from 25% in December last year to 2.7% in October. Central bank debt was transferred to the Treasury, where it is being managed more transparently and on better terms.

Thus, Argentina has not only avoided default but has also generated growing confidence in its economy. Its country risk declined from over 2,100 points in January to around 735 points now. The confidence is also due to hundreds of deregulations that began with a mega-decree last December and the creation of the Ministry of Deregulation in July, which announces deregulations almost daily. We calculated that in his first year in office, Milei has issued some 672 regulatory reforms. That’s 1.84 reforms per day.

The economy has begun to recover, especially in certain sectors such as agriculture and energy. Real wages are improving. Poverty rose, as expected, to 55% in the first quarter. But it has started to fall and has reached 49%, according to a Di Tella University study.

Milei remains a popular president. After falling a bit, his popularity has increased in recent months and is at 52.3%, according to the Tendencias consulting firm.

Much more still needs to be done. After all, Milei started with a highly repressed economy. Argentina’s place in the Fraser Institute’s index of economic freedom was 159 out of 165 countries for 2022. Argentina still has a closed economy with barriers to trade and tight capital and exchange controls. Milei wants to open the economy once it stabilizes further and only then dollarize it and abolish the central bank.

Such measures would be welcomed sooner rather than later and would increase confidence in the economy. No doubt the economy is already in good enough shape to eliminate capital controls and start dollarization without creating too much turbulence in the short term.

The change that Milei has initiated has not only been economic and structural. It has also been cultural. Milei has promoted a shift in mentality away from the socialist and statist ideals that created the Argentine crisis and toward one that is supportive of civil society and the principles on which it relies, including tolerance, equality before the law, freedom, and individual responsibility. A new Reason documentary does a fine job highlighting the battle of ideas that Milei is waging and what’s at stake:

At a time when so many countries are moving in an illiberal direction, Milei has so far provided a salutary example of a better way forward.

Tad DeHaven

Department of Government Efficiency (DOGE) chiefs Elon Musk and Vivek Ramaswamy journeyed to Capitol Hill last week to meet with legislators. Republicans in the House and Senate have been organizing to focus on DOGE, and some Democrats have expressed interest in participating. 

The head of the new Senate DOGE Caucus, Iowa Republican Joni Ernst, sent Musk and Ramaswamy a letter with “a trillion dollars’ worth of ideas for trimming the fat and reducing red ink.” While the ideas listed aren’t specific enough to validate her figure, they contain some good suggestions. 

One idea, however, points to problems with focusing on examples of wasteful spending. A section titled “Stop Giving Away the Farm” bemoans the US Department of Agriculture (USDA) “subsidizing cricket farms or teaching pigs to play video games, that do nothing to support agriculture.” To the average person, that certainly sounds wasteful. Perhaps it is—waste sometimes is a subjective term. 

Last year, the USDA awarded Mighty Cricket, a Missouri company that makes protein powder from crickets, a $131,500 grant. Crickets are inherently nutritious and thus serve as a potentially markable alternative for consumers who eschew animal-based proteins. 

My issue is that food markets free of government interference should satisfy the wants and needs of consumers without taxpayers being compelled to provide financial assistance. Otherwise, it’s fair to say farming crickets for food is an agricultural activity. 

It’s also hard to see how spending $131,500 on cricket farming subsidies is “giving away the farm,” given the roughly $40 billion in total farm subsidies the USDA will provide this year at taxpayer expense. Chris Edwards explains that the USDA administers more than 150 programs that subsidize and support farm businesses, with most handouts going to corn, soybeans, and a handful of other crops. (Iowa is the largest producer of corn and ranks second for soybeans.) The average and median income for farm households is well above that for all US households, and the largest and wealthiest recipients of farm subsidies are the primary beneficiaries. 

Again, taxpayers shouldn’t finance cricket farmers. But it is disingenuous to suggest that a tiny —albeit inappropriate—grant to Mighty Cricket is the main problem with USDA spending while billions flow annually to politically favored commodities. DOGE should use its platform to make this point.

If Musk and Ramaswamy are willing and able to share the gospel of Downsizing Government with Congress, that would be great. At the very least, it’s good we’re finally discussing federal bloat after years of unrestrained spending being treated like a free lunch (it wasn’t). It’s also not sustainable. 

But getting Capitol Hill to agree to substantive cuts will be difficult. 

Twenty years ago, I took a job with a senator after he told me he wanted to cut spending and thought I was the person to help him do it. My first (and last) shot was an amendment the senator offered to cut $11 billion in funding from a 1,000-page, $286 billion transportation bill. It was a relatively small sum, but it was enough for the office phones to ring off the hook with unhappy transportation interests back in the state. The amendment failed, receiving only sixteen votes in support. Walking out of the Senate chamber, the visibly irritated senator looked at me and muttered, “That’s the last g*ddam time I do that.”

Parochial interests blowing up your phones isn’t fun. But whether it’s road projects or farm subsidies, there must be a shared political sacrifice for DOGE to be successful. Hopefully, DOGE, with requisite strong backing from the White House, can convince members to make that sacrifice for the country’s betterment. 

Adam N. Michel

The Congressional Budget Office (CBO) released new estimates on December 4 that show the effects of extending Trump’s first-term tax cuts, which expire at the end of 2025. On the surface, the congressional scorekeeper showed that the “Trump tax cuts won’t help the economy grow,” as the New York Times unhelpfully summarized. That headline cherry-picks a partial result to conclude precisely the opposite of what the CBO estimates show. 

A better summary would read, “Extending Trump tax cuts will boost the economy, despite drag of massive government debt.” That debt drag presents another argument for cutting spending. Fiscal discipline through spending cuts could act like supply-side tax reform and turbocharge other pro-growth tax cuts and deregulation. 

In a recent blog post, CBO Director Phill Swagel summarized two slide decks with separate estimates of the economic effects of extending the Tax Cuts and Jobs Act (TCJA) for individuals and businesses. The New York Times headline fixates on the first set of estimates for extending just the individual tax cuts. 

The first set of slides shows that over time, the economic benefits of keeping individual taxes from increasing—primarily people working more than they would otherwise—are outweighed by the negative economic effect of more government debt. 

In other words, when federal debt held by the public is more than $28 trillion, approaching 100 percent of gross domestic product (GDP), the benefit of mildly pro-growth tax cuts for individuals is outweighed by the economic costs of more debt. 

The second set of CBO estimates turns that result on its head. The 2017 reforms paired tax cuts for individuals with tax cuts for businesses and investors. Some changes, such as the reduction in the corporate income tax rate, were permanent; others phase out or expire next year. According to the CBO, making the most pro-growth business tax cuts permanent—expensing for equipment and research—boosts potential GDP by about 0.4 percent in 2034 (about the size of the debt drag from the individual tax cuts).

Taken together, the CBO’s estimates for making both the individual and business tax cuts permanent imply extending the entire 2017 tax cuts would boost GDP by roughly 0.3 percent in 2034.

The CBO results also show that the business tax cuts are significantly more pro-growth than the individual tax cuts (scaling the economic boost by the size of the revenue reduction). This is consistent with other, more optimistic results from the Tax Foundation, which finds a permanent version of the TCJA grows GDP by 1.1 percent in the long run (with different assumptions about how debt impacts the economy).

The second missing piece of the story is that the economic risks of large government debts are not an immutable fact; the federal debt is a policy choice made by Congress. Making different choices, such as pairing tax cuts with spending cuts, would be massively pro-growth. The debt drag in the CBO model is the product of cutting taxes without offsetting spending cuts. 

When deficits are high, cutting spending is its own supply-side reform. Pairing deficit-reducing spending cuts with pro-growth tax cuts reinforces the GDP-boosting effects of both policies. This is one result found in economist Alberto Alesina’s research on fiscal adjustments; large gaps between revenues and spending can create economic uncertainty for forward-looking investors and consumers who understand that spending levels determine the long-run tax rate. In this circumstance, cutting spending signals commitment to keeping taxes low—as opposed to the current fiscal path with no spending cuts and thus necessary tax increases. In a 2020 working paper, John Cogan, Daniel Heil, and John Taylor show that holding down projected expenditure growth can boost short- and long-run private investment, personal consumption, and GDP growth.

The headline from the CBO’s estimates is that the economic effects of pairing the most pro-growth business tax cuts with individual tax cuts outweigh the very real drag of large and growing government debt. However, this leaves massive economic gains on the table. The more important message for Congress is that signaling fiscal discipline to markets is its own supply-side tax cut that would turbocharge other policies like full expensing, lower business tax rates, and deregulation. 

Jon Hoffman

After a two-week blitz by rebel forces across Syria, the regime of Bashar al-Assad has crumbled, ending nearly six decades of tyranny under the Assad family. Debates over how the United States should proceed in Syria are now front and center for US Middle East policy.

The United States has limited interests at stake in Syria, namely preventing terrorist attacks against the American homeland and avoiding getting entangled in a costly proxy conflict after Assad’s removal. These interests are best protected by withdrawing US troops from Syria and dealing with the emerging government in Damascus at arms-length.

Assad’s overthrow has its roots in the 2011 Arab uprisings that swept the Middle East. Protests erupted in Syria connected with this revolutionary wave. The Syrian uprising was quickly hijacked and derailed by external actors and the emergence of groups such as the Islamic State (ISIS), leading to a yearslong proxy conflict involving the United States, Russia, Iran, Israel, and Turkey that had a devastating impact on the country. As of 2018, it appeared Assad had won the civil war.

He had not. In roughly two weeks, starting at the end of November, opposition forces, led by the Islamist group Hayat Tahrir al-Sham (HTS), captured the cities of Aleppo, Hama, Homs, and finally, Damascus, forcing Assad to flee to Moscow. Russia, Iran, and various regional militias backed by Tehran had been critical in propping up Assad’s regime. 

However, all of these actors have either been unable or unwilling to save the regime. Russia, preoccupied with its war in Ukraine, and Iran, facing an economic crisis and chief elements of the so-called “axis of resistance” overstretched and degraded, failed to save Assad this time.

No tears should be shed for Bashar al-Assad. Like his father before him, he was a ruthless dictator responsible for the murder and torture of countless Syrians. The Syrian people deserve to be free of Assad’s tyranny.

At the same time, a healthy dose of caution and realism should be applied to the uncertainties ahead for Syria.

First is the nature of the opposition forces, namely HTS. An outgrowth of al-Qaeda in Iraq, HTS leader Abu Mohammad al-Jolani (whose real name is Ahmad al-Sharaa) has a long history of extremist behavior, including fighting against US troops in Iraq. Al-Jolani has sought to reinvent himself and HTS, namely by renouncing his ties with al-Qaeda and painting HTS as distinct from the global Salafi-jihadi movement, emphasizing its localized nature. 

HTS desires the establishment of an “Islamic state” inside Syria, but al-Jolani has tried to stress that the group’s agenda remained strictly focused domestically. However, the group is still deeply authoritarian and adheres to a strict form of Islamism. How this manifests itself moving forward—and how the group will react if Syrians reject the creation of an “Islamic state” inside Syria—remains to be seen.

Second is the risk of a reignited proxy conflict inside Syria. Russia, Iran, and Tehran’s regional partners are still consumed by other concerns, though they will likely try to maintain an element of influence inside post-Assad Syria. Arab autocracies across the region—particularly in the Gulf—will be eager to prevent the emergence of a democratic Syria, fearing that it could encourage mobilization across the region and steer developments in a direction at odds with their own respective interests. 

Turkey—which supported the HTS offensive against Assad—is now attacking Kurdish groups in Syria, whom the United States partnered with to fight ISIS, but Ankara views as terrorists.

Israel, too, has already intervened in Syria, immediately invading the country through the Israeli-occupied Golan Heights to establish a “buffer zone” in place of the demilitarized buffer zone that was created in a 1974 agreement between Syria and Israel. Israeli Prime Minister Benjamin Netanyahu—who also claimed the fall of Assad was a direct result of Israel’s actions against Hezbollah and Iran—stated the agreement was void after the fall of the regime. Further Israeli military action in Syria is not hard to imagine.

The United States has no interest in involvement in another ruinous proxy war in Syria. American interests at stake in Syria are limited. Washington should embrace a pragmatic, hands-off approach. This requires removing American troops from Syria and disavowing further military action inside the country, provided its new government abjures anti-American terrorism.

The United States currently has an estimated 900 troops deployed in Syria, leftover from the Obama administration, with the official mission of combatting ISIS. However, as former US Ambassador to Syria Robert Ford noted, the “real (but unstated) reason the US is there is to block Iran from using a road coming from Iraq into Syria.” Despite plans by Donald Trump to withdraw troops from Syria during his first administration in the wake of the destruction of the ISIS caliphate, America’s military presence remained, thanks—in part—to efforts by the Pentagon to sabotage a withdrawal. Unsuccessful, Trump then argued the remaining US military presence in Syria was oriented toward oil, claiming, “We’re out of Syria, other than we kept the oil. I kept the oil.” Yet, US troops were left in Syria, and we did not “keep the oil.”

Such policy incoherence has persisted under the Biden administration, which has maintained America’s military presence in Syria, despite these troops coming under increased attack as a result of America’s support for Israel’s wars in Gaza and Lebanon. Over the past 14 months, these troops have been sitting ducks for reprisal attacks from Iran-backed groups in the region. US troops in Syria and Iraq have been attacked in excess of 180 times over the past 14 months, many suffering traumatic brain injuries—as recently as this week—and three killed at the Al-Tanf military base on the Jordanian-Syrian border in January. 

Withdrawing US troops immediately from Syria is of the utmost importance. American military personnel are in Syria without legal authorization or a clear and achievable mission. They represent a remnant of a failed and counterproductive global war on terror and serve as a dangerous tripwire for war with Tehran. Maintaining a US military presence in Syria is not only strategic malpractice but a direct affront to the lives of American troops. It’s time to bring them home.

Washington should also avoid trying to micromanage Syrian politics. Thankfully, the incoming Trump administration appears to recognize the peril here. Discussing events in Syria, President-elect Donald Trump stated, “The United States should have nothing to do with it. This is not our fight. Let it play out. Do not get involved.” 

Vice President-elect JD Vance echoed this sentiment, claiming “this is not our fight and we should stay out of it,” and that “time will tell” whether groups such as HTS have indeed moderated.

Revolutions often have unintended and far-reaching consequences, and the pragmatic approach outlined by Trump and Vance should guide US policy toward Syria in the months ahead.

The United States should establish arms-length relations with whoever emerges as the head of the Syrian state. But provided the new government does not target Americans, our involvement should end there. As anywhere, Washington’s Syria policy should be restricted to a level commensurate with the (limited) US interests at stake. 

David Inserra

Jeffrey A. Singer

Breastfeeding may have short-term and long-term benefits for both mother and child:

Breast milk transfers many maternal antibodies to the newborn, protecting the baby from infection while the baby’s immune system develops.
Research suggests breastfeeding may reduce an infant’s risk of developing asthma and obesity and may reduce the risk of developing type 1 diabetes by 15 to 30 percent.
It may also reduce the risk of sudden infant death syndrome (SIDS) by 50 percent.
There is also evidence that breastfeeding may reduce the mother’s risk of developing type 2 diabetes, high blood pressure, and breast and ovarian cancer. 

For these reasons, the American Academy of Pediatrics, the World Health Organization, and the United Nations Children’s Fund all recommend exclusive breastfeeding during a baby’s first six months and supplemental breastfeeding until a child reaches age two or older. Yet many mothers face painful and frustrating challenges when attempting to nurse their infants. At the same time, numerous pediatricians and other health professionals lack the training and confidence needed to support breastfeeding mothers effectively.

According to the Centers for Disease Control and Prevention, in 2019, only 55.8 percent of infants in the United States were breastfeeding at six months. Only 24.9 percent were exclusively breastfeeding. Breastfeeding rates are lower among certain racial and ethnic minorities. A March 2023 study found, “Overall, 88% of women reported any breastfeeding; Black (77%) and American Indian (82%) women were least likely to report any breastfeeding, compared to other groups (89%–100%).”

Perceiving the lack of adequate professional support for breastfeeding mothers, entrepreneurial mothers with breastfeeding experience established private-sector voluntary programs to train lactation support professionals and set standards for certifying them at various levels of expertise. A group of mothers in Chicago founded the La Leche League International in 1956, which spun off the International Board of Lactation Consultant Examiners (IBLCE) in 1985. The IBLCE later established the first private, voluntary certification for lactation support professionals, granting them the title of International Board Certified Lactation Consultant (IBCLC). Other private, voluntary certifying organizations arose over time to compete with the IBCLE. For example, the Academy of Lactation Policy and Practice, established in 1999, offers certification as a Certified Lactation Counselor (CLC) or an Advanced Lactation Consultant (ALC).

Certification and credentialing organizations are important for setting standards and providing helpful quality signals to health care consumers. Government-mandated licensing, on the other hand, restricts new entrants to the field, stifles innovation, and impedes patients’ access.

Unfortunately, in recent years, lawmakers in several states have begun licensing lactation consultants. The National Lactation Consultant Alliance (NCLA), allied with the IBLCE, lobbies to erect such barriers to lactation support professionals. The NCLA website states:

NCLA considers licensure of the International Board Certified Lactation Consultant integral to the provision of clinical lactation care to childbearing families. Licensure of qualified IBCLCs facilitates clinical lactation care that is safe, affordable, risk appropriate, and equitable.

Lawmakers in New Mexico, Oregon, and Rhode Island have barred lactation support professionals from presenting themselves to consumers as lactation consultants unless the IBCLC certifies them, thus granting monopoly status to that certifying body. Massachusetts lawmakers are currently considering such legislation.

In 2018, Georgia lawmakers went further. They banned anyone from offering any level of lactation support services to nursing mothers without IBCLC certification. The law never took effect after a challenge by lactation professionals led the Georgia Supreme Court to declare it unconstitutional.

Yet a pattern of improved six-month exclusive breastfeeding rates has yet to emerge among states with licensed lactation consultants.

Some lactation consultants support licensing because the federal government effectively subsidizes it. Federal law requires Medicaid and insurance companies to pay for breastfeeding support only if licensed professionals perform these services. In effect, Congress encourages lactation support professionals to agitate for licensing by offering subsidies if they convince state lawmakers to restrict entry into the profession.

In our new Cato briefing paper, former Cato Research Associate Sofia Hamilton and I describe how the lactation consultant profession arose organically and evolved without government direction or support. We also explain why licensing would reduce innovation and access to lactation support services, particularly in rural and underserved areas. We urge states with lactation consultant licensing laws to repeal them. In states considering licensing lactation consultants, we tell lawmakers, “Don’t just do something; stand there.”

You can read the briefing paper here.

Norbert Michel and Jerome Famularo

In the aftermath of the COVID-19 pandemic, the United States experienced a much higher rate of inflation than at any time during the prior few decades. Like the prices of many goods and services, the cost of housing rose rapidly, with the median home price increasing almost $100,000. (Figure 1.) Unsurprisingly, many potential homebuyers were—and still are —shocked and upset.

As they have in years past, many politicians have latched on to the anger surrounding the recent housing market turmoil. During the presidential debate, Vice President Kamala Harris said, “Here’s the thing: we know that we have a shortage of homes and housing. And the cost of housing is too expensive for far too many people.” Prior to the election, Donald Trump outlined his own solutions, and now federal officials want to implement a host of policies, ranging from subsidies to selling federal land.

But is the United States really facing a housing crisis? Or a shortage of homes? And should Americans really expect recent federal policy proposals to make housing more affordable?

This Cato at Liberty post is the second in a series that examines these questions. (The first post is here.) While the series presents evidence that the United States is not facing a true housing crisis or shortage, nothing in the series suggests that local officials should refrain from relaxing zoning restrictions and other regulations. Elected officials should reduce rules and regulations to make it easier and less costly for people to live. Additionally, federal officials should end the many demand-side policies that place upward pressure on prices across the nation.

Just as important, nothing in the series ignores that many Americans have taken an economic beating these past few years—real wages have fallen, and prices have not reverted to pre-COVID levels. It is no surprise that so many people have been calling for increased government intervention.

As previously, though, if federal officials answer those calls, it will likely increase Americans’ economic burden. Evidence shows that over the long term, people have overcome the many federal roadblocks that increase the nominal cost of housing, but affordability would be much improved in the absence of those policies.

Fortunately, federal officials have an excellent opportunity to make it easier for Americans to afford housing because the lessons learned from the post-COVID-19 inflationary episode are directly applicable to the housing market. In both cases, federal policies that distort both demand and supply result in harmful outcomes. The housing market is just a microcosm of what can go wrong—and how difficult it can be to fix—when the federal government interferes with markets.

This post looks at the basic data behind the housing affordability issue. It focuses on home price data in both nominal and real terms, and it demonstrates how deceptive long-term price trends can be regarding affordability.

As Figure 1 shows, the median home price in the United States has been steadily increasing since the 1960s, with several notable spikes throughout the period. Focusing on the most recent few decades (Figure 2), home prices exhibited two abnormally large spikes above the trend, once in the years preceding the 2008 financial crisis and again in 2020 surrounding the COVID-19 pandemic.

The spike preceding the 2008 financial crisis stands as a testament to why federal officials should avoid expansive policies such as President Clinton’s National Partners in Homeownership. That effort, a private-public cooperative, set an arbitrary goal of raising the US homeownership rate from 64 percent to 70 percent by 2000. It did so by expanding incentives to borrow and lend, a trend that heavily contributed to the 2008 crisis. The ownership rate climbed to 69 percent by 2004 but then steadily dropped for the next twelve years, reaching 62.9 percent in 2016. It currently stands at 65.6 percent, essentially where it stood in 1979. 

The more recent price spike is related to the federal response surrounding the COVID-19 pandemic, and it coincides with the near-record-high inflation that started in 2021. As Figure 2 demonstrates, this spike in home prices went well above the trend, with the median home price rising from $317,100 to $442,600. 

Given this large and rapid price increase, it is hardly surprising that Americans are concerned about rising home prices, much like they were upset about rapidly rising consumer goods prices. Still, these increases are only nominal, and prices did partly reverse. From October 2023 to April 2023, for instance, the median home price fell from $442,600 to $412,300.

Obviously, this most recent value is still well above the pre-pandemic median home price, so any prospective buyer in the market before and after the pandemic will be particularly unhappy with the higher price. However, it is vital that policymakers do not overreact to short-term price movements because doing so could easily cause home prices to rise even more rapidly.

Regardless, these two large price spikes don’t, by themselves, answer the question of whether homes have become unaffordable over time, much less whether there is some kind of structural problem—a crisis—in the housing market. There are, in fact, many reasons to doubt the crisis story.

Looking Deeper

One reason to consider contrary evidence is that while the US homeownership rate was 64.1 percent at the end of the second quarter of 2019, it was 65.6 percent by the third quarter of 2024. So, while home prices rose, a larger share of Americans now own homes. At the very least, whether homes have become more “unaffordable” over time requires more investigation.

A good place to start investigating this question is to examine home prices in real terms, as opposed to simply nominal price movements. Figure 3 presents both the real (inflation-adjusted) median home price and real median household income. As the figure shows, the increase in real home prices is not as steep as the nominal increase presented in Figure 1 and Figure 2. Still, Figure 3 also shows that real home prices have risen at a more rapid rate than income (recently and throughout the period).

Given this relationship between income and home prices, the idea that homes have become more unaffordable over time may seem like the obvious conclusion. Still, even this relationship does not tell the full story. One important factor to consider is how similar homes are now compared to homes purchased in the 1970s. Another factor to consider is whether the makeup of households is the same.

Both factors are critical to the story because homes have been getting larger, and households have been getting smaller. Put differently, people have been buying larger houses and living in them with fewer people. As Figure 4 shows, the median new home size increased 45 percent, from 1,535 square feet in 1975 to 2,233 square feet in 2023, while the average household size decreased 15 percent, from 2.94 people to 2.51. As a result, the total space per person increased 70 percent from 1975 to 2023.

When the data are adjusted for these changes, the evidence shows that homes have not gotten dramatically more expensive over time. In fact, as Figure 5 shows, homes have become slightly more affordable, even with the most recent price spike. When we hold both the average home size and household size constant, the share of household income spent on new homes has been on a slightly decreasing trend since 1975.

This change likely matters very little to someone coming into the market recently, but the long-term trend stands. Just as important, the federal government implemented many policies during this period that put upward pressure on prices, and housing would have become even more affordable over time in the absence of those harmful policies.

Finally, it is important to note that, contrary to conventional wisdom, Americans have experienced solid income growth over the past five decades. Income has not been stagnant, and it is not the case that only the well-off did better.

As we demonstrated last year (and mentioned in our new paper), even Americans at the lower end of the income distribution did better. For example, from 1967 to 2023, the share of households earning less than $35,000 fell from 31 percent to 21 percent, and the share earning between $35,000 and $100,000 fell from more than 53 percent to 38 percent. During the same period, the share of households earning more than $100,000 essentially tripled, from 14 percent to 41 percent. (These income figures are in real terms.)

Obviously, these figures do not indicate that every American has done better or that no Americans have had difficulty earning higher incomes. But the idea that most Americans failed to earn substantially higher incomes (in real terms) over the past five decades is wrong. Naturally, this kind of income growth is consistent with Americans seeking—and purchasing—bigger homes with more amenities.

The next post in this series takes a deeper look at whether changing consumer preferences could have increased housing demand during the past few decades.

Norbert Michel

Leading up to the 2024 presidential election, speculation escalated that a new Trump administration would try to get Fannie Mae and Freddie Mac out of government conservatorship. While it seems that the administration is moving in that direction, this new Politico story provides a glimpse at how difficult it will be to release Fannie and Freddie.

For those who don’t recall, in 2008 America’s largest government-sponsored enterprises (GSEs)—Fannie Mae and Freddie Mac—recorded combined net losses of $109 billion. That total surpassed the GSEs’ cumulative net income over the prior 40 years, and the federal government placed both GSEs in conservatorship, where they’ve remained ever since.

As Politico explains, some Republicans in Congress are exploring opportunities to release the GSEs as part of a deal that extends tax cuts in next year’s must-pass tax legislation. The idea seems simple because selling the government’s stake in the GSEs would raise money that could help “pay” for extending the tax cuts.

But it’s not so simple for multiple reasons.

First, the Congressional Budget Office (CBO) currently views the GSEs as part of the federal government, so releasing them removes a large asset from the federal books. At the very least, the CBO will have to account for whether ending the conservatorship increases or decreases the risk of future outlays for a possible bailout.

Perhaps worse, Congress might have to explicitly state whether the federal government officially stands behind the GSEs’ existing securities. Combined, these securities are worth nearly $7 trillion.

Another major problem is the liquidation preference. This feature of the conservatorship specifies that any funds derived from selling assets must first be used to compensate taxpayers for the bailout, and the GSEs cannot emerge from conservatorship without paying this liquidation preference in full. As former Federal Housing Finance Agency Director Ed DeMarco points out, this feature means that the GSEs would have to raise north of $300 billion to exit conservatorship.

Any reduction in the liquidation preference would be an additional bailout, so CBO will have to score it that way.

Regardless, there’s no lack of irony in these budget-related talks because Fannie Mae was created in 1968 to remove debt from the federal budget. (The Johnson Administration used the 1968 Housing and Urban Development Act to move Fannie’s debt off the federal books.)

The bottom line is that the GSEs have never been truly private companies, and the experiment with Fannie and Freddie has failed miserably. Congress and the Trump administration should craft a plan to release the companies, and any deal should avoid creating smaller versions of the GSEs under new names.

At a minimum, the plan should revoke Fannie and Freddie’s exemption from the requirements to register their securities offerings under the Securities Act of 1933 and provide teeth to the excessive use provisions in their charters.

None of this will be easy, but it is long past time for Congress to end the GSE experiment.

Patrick G. Eddington

In late April 2024, the Congress passed and President Biden signed the most sweeping expansion of the Foreign Intelligence Surveillance Act (FISA) in nearly 20 years. In response to stinging criticism over the law’s increased scope—which even some former Justice Department officials denounced—Senate Intelligence Committee Chairman Mark Warner (D‑VA) promised that a fix to eliminate the over-broad language in the revised FISA statute would be included in the annual Intelligence Authorization Act (IAA). 

But as WIRED reported in July, pro-surveillance hawks in the Senate conducted a behind-the-scenes campaign to scuttle Warner’s FISA reform effort. As we learned over the weekend, the “Congressional Surveillance Caucus” (my term) prevailed in their fight with Warner.

On Pearl Harbor Day, the House and Senate Armed Services Committees (HASC and SASC) released their “compromise” version of the annual National Defense Authorization Act (NDAA), which this year includes the IAA sans any reform of the radically broad FISA expansion that became law earlier this year. 

Because this particular NDAA contains some “culture war” related provisions, it’s unclear at the moment whether the House GOP leadership can get the bill passed via the suspension calendar (which requires a bill to get two-thirds of House members voting in support for passage). If not, the bill could be brought up under regular order under a rule which only requires a simple majority for passage. 

Given that HASC and SASC appear to be treating this as a de facto conference report, it’s unlikely the House GOP leadership would allow amendments to the bill under any rule governing floor debate. The bottom line is that if the bill eventually passes as is, the next chance to roll back the expanded FISA statute will be 2025 when the next NDAA and IAA are up for consideration … and you can count on the “Congressional Surveillance Caucus” to fight any reform efforts tooth and nail.