While the public’s attention is fixed on an external energy shock they cannot control, they are overlooking a far more damaging, self-inflicted wound to their standard of living. The real threat to the American wallet is a domestic policy failure, but it’s not an affordability crisis. The reason is simple: if firms want to stay in business, they must have a sufficiently large pool of customers who can afford to purchase their products or services. If firms’ offerings were truly unaffordable, the market would cease to exist.
The perceived crisis is actually a competition crisis created by government policies that have enabled firms to raise prices for important durable goods, such as housing, and for services, including healthcare and legal representation. Government policy has established entry barriers to protect existing providers and bar low-cost competitors. Costs and prices then rise because protected industries lack the competitive incentive to advance technologically and become stagnant. Government policy reforms are the only way to bring prices down.
In housing, high prices are often a zoning tax. Local governments establish entry barriers by zoning the bulk of residential land for single-family homes, effectively outlawing lower-cost competition from duplexes, townhomes, and accessory dwelling units. These land-use restrictions, combined with discretionary review processes that allow NIMBY interests to veto new supply, ensure that only high-margin, often luxury, developments are viable.
The cost of this anti-competitive behavior is substantial. Estimates suggest that zoning restrictions and land-use regulations now account for 24% to over 40% of construction costs for new housing. In supply-constrained markets like New York or San Francisco, this regulatory tax can add hundreds of thousands of dollars to the price of a median home. While other industries have embraced modular manufacturing, the American housing stock remains largely stick-built on-site—an artisanal, low-productivity method that persists only because competition from more efficient housing types is prohibited by code.
The competition crisis extends into the service sector, most notably in healthcare. Here, the template is applied through certificate-of-need (CON) laws and strict occupational licensing. By limiting the number of hospitals that can be built and restricting the scope of practice for nurse practitioners and physician assistants, the government prevents lower-cost models of care from competing with physician-led systems.
Proponents of CON laws claim they create efficiency by channeling patients into fewer, larger facilities to achieve economies of scale. But by shielding incumbents from the threat of entry, these laws allow competitive slack to build up such that protected hospitals actually operate with higher variable costs than those in competitive markets. Any gains from scale are captured by the provider, while the lack of competition ensures that hospital charges remain higher for the consumer.
Lack of competition is even more pronounced in the pharmaceutical industry. While patent protections are intended to spur innovation, evergreening tactics to restart the patent clock and regulatory hurdles for generics create entry barriers that extend monopolies far beyond their intended life, so prices for life-saving drugs remain untethered from their marginal cost of production.
The legal profession is shielded by unauthorized practice of law (UPL) statutes that provide few benefits to the public. These regulations prevent paraprofessionals and software-driven legal services from offering routine assistance—such as simple divorces or real estate filings—at a fraction of a lawyer’s hourly rate.
Costs for common legal events run as high as $1,500 for a simple contract, $30,000 for a contested divorce, and $5,000 for a simple bankruptcy. By mandating that only those with a three-year Juris Doctor degree can provide even basic legal advice, the state eliminates low-cost competition. Consequently, the industry has seen minimal technological disruption; the billable hour remains the standard because there is no competitive pressure to adopt more efficient, fixed-price delivery models. The most profound cost to the public, however, is not just the high fees but the resulting justice gap, forcing millions of Americans to appear in court with no representation because they cannot afford an attorney and are barred from hiring lower-cost, qualified paraprofessionals to advocate on their behalf.
The solution to exorbitant prices is not more government subsidies, which only further inflate demand against a restricted supply. Instead, we must acknowledge that we have a competition problem and dismantle the entry barriers that government has erected. We must repeal exclusionary zoning to allow housing competition and reform licensing laws to allow more competition in law and medicine. Only by restoring the incentive to innovate can we make the American economy work for the people who actually have to pay the bills.
