Public debate often casts economic dislocations as short-lived problems – wild swings in prices, employment or growth that will be resolved once the overall economy regains its footing. Election results in early November suggest voters may feel differently. Candidates who focused directly on affordability did well because households may be responding, at least in part, to something more permanent: years of declining economic well-being that won’t be reversed once the headlines continue to appear.
For decades, policy conversations often accepted a simple assumption: that it was reasonable to tolerate short-term turmoil in exchange for long-term stability. In this model, policymakers adjust course—sometimes modestly, sometimes not at all—while workers, small business owners, job seekers, and caregivers hope to weather the turmoil. In theory, these shocks should recede, with greater benefits simply bandaging the complaints of lower-income groups, until overall indicators point to a clear return to normalcy. In reality, however, the way families experience these shocks and their consequences is very different. While some economic disruption is indeed inevitable, recognizing the disconnect between what overall indicators paint and the ripple effects felt by households is a necessary step in identifying policies that can improve affordability.
Americans are certainly feeling the effects of the economic shock reflected in the headline statistics every day, but there are many reasons why an improvement in these headline numbers does not mean an improvement in household finances. For example, most people don’t budget for the 80,000 goods and services tracked by the Consumer Price Index (CPI). They have far fewer expenses to manage, such as rent, groceries, childcare, utilities, insurance, and a few other expenses. If the weekly grocery bill increases by $40, that’s often the new number they have to live with.
Even when market forces eventually drive prices down, time rarely goes completely backwards, and wages often fail to keep up with the new cost reality. Rent increases do not automatically reverse when inflation cools. Childcare prices won’t necessarily fall because of a slowdown in CPI. Shocks to necessities are rarely one-time disruptions, and even if prices rise only once, they disappear after the crisis subsides—more often, they create lasting increases in the cost of living, raising the baseline against which every subsequent financial decision by working Americans is made.
The recent price surge highlights how rare true reversals are. this food consumer price index Showing prices are slowing, but not reversing from their 2022 peak, is a frustration that grocery shoppers are experiencing firsthand. For example, milk prices briefly fell from $4.20 per gallon in January 2023 to $3.86 in May 2024, only to stabilize around $4.00 in August. By November 2025, consumers will pay 25% more for the same goods than in 2019. Egg prices tell a similar story: Despite falling back from the worst spikes in January 2023 and March 2025, as of September 2025, egg prices were still about twice their pre-inflation levels.
Housing does not provide peace of mind. this Zillow Observed Rent Index (ZORI) Shows rents rising more than 15% in 2021. Growth slowed between 2022 and 2025, but rents did not fall back to 2019 levels; instead, they recovered from a higher baseline to roughly the same rate as before the pandemic. The end of the inflationary shock does not mean a return to affordability, but a return to price action. For many working families, this means Faster than CPI-U accumulation This has been the character of necessity costs over the past two decades.
Even if the one-time shock dissipates, the damage households suffer in the interim could slow its progress for years. A temporary hit to purchasing power could force households to take on additional debt or delay saving for college or retirement, effects that are not clearly reflected in today’s headline indicators. From this perspective, a one-time shock at the macro level can easily become a permanent shift in a household’s financial situation.
This distinction partly explains why voters respond so strongly to campaigns focused on affordability. They may not reject long-term thinking outright; rather, they may be reacting not just to today’s “sticker shocks” but to the reality that, over the long term, their long-term lives are defined by cumulative, irreversible shocks—none of which are clearly reflected in revenue metrics.
For policymakers, the implications are simple: For households, there is usually no one-time effect. The shock may disappear from inflation tables or unemployment charts, but Americans will continue to feel its consequences long after the data normalize. Furthermore, even if the shock is resolved at the national level, local communities may continue to struggle if key employers downsize or if reduced spending within the community leads to a more prolonged economic slowdown.
From a macroeconomic perspective, shocks often appear to be indeed temporary. After the 2008 financial crisis, unemployment finally fell. Gross domestic product (GDP) rebounded after the lockdown in 2020. As the supply chain recovers, CPI growth will slow down in 2022. From this perspective, the economy appears to overcome each disruption in turn, reinforcing the view that these are temporary events.
But this “recovery” story fails at the household level far beyond what policy leaders consider. 2021, Households report getting through initial COVID-19 slowdown by delaying progress on financial goals: Either dip into savings set aside for other things, take on additional debt or postpone bills, or make plans to delay retirement. But in 2023, when the economic slowdown gives way to inflation, consumers are once again relying on savings to pay for rising grocery costs—Nearly one in five people are relying on funds they did not intend to use for day-to-day purchases.
Overall indicators do not show how much financial well-being households lost during these periods, how long it took to rebuild, or whether they would rebuild at all. This is a critical blind spot: The indicators policymakers rely on were never designed to measure the compounding, irreversible nature of shocks at the household level.
Research by my colleagues at the Ludwig Institute for Shared Economic Prosperity (LISEP) and others shows just how big the gap is. When inflation rises in 2021, much of the debate treats rising prices as a temporary concern, overshadowed by the risk of a recession. But for many, the pressure has been building for years. Over the past two decades, basic expenses have exceeded median wages. For a family of four, between 2001 and 2023:
- rent: 40% saw a 125% increase in rent.
- Health care: The annual health insurance premiums borne by middle-income workers have more than tripled.
- Childcare: The average price of a center nursery has doubled.
- salary: The median nominal wage for a typical worker increased by just 92%, resulting in a 4% decline in purchasing power for households with budgets focused on necessities.
These are not short-term fluctuations. They are structural and cumulative increases in the cost of essential goods, coupled with lagging wage growth. This combination gradually erodes families’ room for maneuver. So when inflation for groceries and consumer goods spikes in 2021, even for a relatively short period of time, low- and middle-income Americans have little headroom to absorb the inflation.
That’s why focusing on headline inflation ignores larger, ongoing threats. Unavoidable increases in expenses have been driving up household cost structures for decades. The consumer price index underestimates growth in many necessities, while labor market indicators tend to overestimate the prevalence of living-wage jobs. Add to that higher barriers to home ownership and education, and the financial path forward becomes even steeper. Consumer behavior reflects this reality. New tariffs introduced in 2025 are described as temporary “trade adjustments” but Analysis by Yale Budget Lab This year alone, consumer prices are estimated to rise approximately 1.7%, increasing the cost of the average household by $2,300. Even if these increases eventually subside, the impact will fall on households that have been squeezed for decades, and many no longer expect prices to come back down—they’ve been burned out on a regular basis.
In a recent survey44% believe tariffs have made goods and services more expensive, and a quarter said they have switched to buying generic or private label goods in response. These are not the actions of households expecting a quick return to pre-earthquake conditions.
Against this backdrop, new shocks—whether from AI-driven disruption, federal layoffs, or additional trade policy changes—are likely to hit already stretched households. Even well-intentioned policies can have unintended consequences if they are not evaluated through the lens of household balance sheets. Focusing only on short-term affordability or focusing only on long-term reforms that may never materialize misses the point; both are important because households must make both short- and long-term decisions.
After more than two decades of declining well-being for most low- and middle-income households, there is a clear need for structural reforms to bring costs in line with wages. Short-term fixes alone are unlikely to address the root causes of affordability and, if misguided, may even be counterproductive. Effective leaders should recognize that working-class families need both immediate breathing space and policies that can lead to long-term stability.
Ultimately, policies must be judged not just by their overall performance in the economy as a whole or their political resonance, but also by their ability to enhance the financial resilience of households across all income groups—helping households progress in good times and avoid lasting setbacks in hard times. Until our measurement tools directly capture these realities, policymakers will continue to rely on short-termism, intuition, and ideological biases rather than evidence.
While intuition and such biases can influence elections (and often do), effective policy and national well-being require something more precise: an economic framework that recognizes that few shocks are truly “one-off” for the households that must absorb them.
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