Inflation: Why Economists and Politicians Get It Wrong!

"They say Christopher Columbus was the first economist. When he set out to discover America, he didn’t know where he was going; when he arrived, he didn’t know where he was, and it was all done on a government grant." This humor reflects a deeper truth about how economists and politicians often misjudge the complexities of inflation and its impact on everyday life.

Imagine it’s December 2019, and you're at the grocery store looking for spicy Arrabbiata marinara sauce. There are two sizes: 24 ounces for $7.19 and 40 ounces for $10.90. Normally, the store stocks three 24-ounce jars for lower-income families and one 40-ounce jar for wealthier customers. That day, all jars were purchased, leaving one customer without sauce.

By 2020, the pandemic altered the neighborhood. Two wealthy families and six low-income families now lived in the area. Due to supply chain disruptions, the store had fewer jars, and only the wealthier families could afford the premium sauce, while low-income families had to adjust their menus.

Just as the pandemic revealed vulnerabilities in food supply chains, it also exposed the fragility of the housing market. Housing, like marinara sauce, is essential, but its supply is limited, and prices keep rising. And just like the premium sauce, only those with wealth can keep up with these escalating costs.

Vice President Kamala Harris has proposed a federal plan to address this crisis by building 3 million new homes and supporting first-time buyers over the next four years. Homeownership is crucial for building generational wealth, and increasing rates of homeownership, particularly in minority communities, can help close racial and ethnic disparities. This could transform struggling neighborhoods into thriving ones.

However, for this plan to succeed, it must tackle deeper structural issues in the housing market, such as land shortages, restrictive zoning, and burdensome regulations. Without addressing these, even the most well-intentioned policies will struggle to meet demand.

Just like rising grocery prices, the housing crisis won’t fix itself. To curb inflation and meet the needs of a growing population, we need to rethink policies that restrict supply and drive up costs. With flexible land use, innovative construction technologies, and equitable access to affordable housing, we can build a future where the housing market works for everyone—not just the wealthy.