Imagine a doctor who treated low blood pressure with medication that lowered it further. When treating a patient with high blood pressure, they prescribed drugs that raised it. We would question whether this doctor understood basic medicine, and rightly so. Unfortunately, this is exactly how Washington approaches economic policy. Across decades and multiple administrations of both parties, the one constant is that Washington will push on exactly the wrong side of the market in sector after sector and then act surprised when the predictable results occur. In education, healthcare, and housing, Washington floods the market with demand-side subsidies while leaving supply artificially constrained. As a result, prices soar and affordability plummets. Meanwhile, in the war on drugs, policymakers have obsessed over supply-side interdictions while ignoring the demand side. As a result, prices rise, consumption barely budges, and drug cartels get richer. Policymakers could not do worse if they tried. (RELATED: The Forces Fueling America’s 45-Year Debt Addiction) Education: Subsidizing Demand While Restraining Supply With the passage of the Higher Education Act of 1965, the federal government began its campaign to make college “affordable” by putting taxpayer money into the pockets of students across the nation. The Congressional Budget Office projects that Pell Grants, authorized under this Act, will cost $38.1 billion, distributed to 7.4 million undergraduate students, for an average award of about $5,120 per student. According to the Congressional Research Service, federal student loan debt now exceeds $1.6 trillion. Despite the bluster of spending on higher education, Congress routinely finds ways to increase spending and expand access to subsidized loans or grants. (RELATED: End US Taxpayer Support for the Higher Education Gravy Train) The theory behind this is straightforward. When college is unaffordable, Congress can step in and give students more purchasing power, thus making college more “accessible.” But this ignores the reality of supply-side considerations. Higher education is an incredibly regulated industry in the United States. Accreditation requirements create serious barriers to entry, making it harder for new colleges to enter the market and absorb some of the increased spending. State licensing boards restrict who is allowed to offer degrees. Creating new facilities, in addition to being expensive, requires navigating a labyrinthian set of regulations and requirements. All of this, in economic terms, makes the supply of higher education in the U.S. highly inelastic, meaning that it does not expand much in response to increased demand. Any student who takes Econ 101 can tell you what happens when policy boosts demand and regulations restrict supply: the price will rise. According to the BLS, college tuition has almost tripled just since the turn of the century. In fact, tuition has grown faster than overall inflation in almost every single year going back to 1980. (RELATED: America’s Universities: A Multi-Generational Perspective) Education Secretary William Bennett noticed the effect of federal funding on education back in 1987, which eventually became known as the “Bennett Effect.” This effect has gone through rigorous testing, the most famous of which is a 2015 study by the Federal Reserve of New York, which finds that for every one-dollar increase in Pell Grant maximums leads to an average of a 37-cent increase in college tuition. Pell Grant recipients might, on net, come out ahead, but for students who do not qualify for these, college becomes less and less affordable. Healthcare: More of the Same but Higher Stakes The healthcare market exhibits exactly the same phenomenon. The only difference is that there are a lot more zeroes involved. On the demand side, Washington has steadily expanded access to insurance through Medicare, Medicaid, and various tax incentives for employer-sponsored health coverage. With the passage of the Affordable Care Act in 2010, Washington added another channel through which to boost demand for healthcare. Looking at BLS data, however, overall healthcare employment has grown at roughly the same rate (2-2.5 percent) each year both before and after the ACA’s passage. In fact, healthcare employment grew more slowly in the years immediately following the ACA’s passage than it did in the years before. While Washington boosts the demand for healthcare, it has stifled the supply, despite graduating more medical students than ever. (RELATED: Trump’s Pivot Could Make Health Care Affordable Again) The Balanced Budget Act of 1997 essentially froze residency programs funded by Medicare at their 1996 levels, creating what the American Association of Medical Colleges refers to as a “residency bottleneck.” According to their 2024 report, they project a shortage of 86,000 physicians by 2036 unless Congress acts to mitigate this. In June 2025, Congress introduced the Resident Physician Shortage Reduction Act of 2025, which would add approximately 2,000 residency slots per year from 2026 through 2032 if passed. Once again, the demand is outstripping supply, and quickly. As a result of all of this, and more, average family premiums for insurance have skyrocketed. According to the Kaiser Family Foundation’s annual reports, premiums have increased by 86 percent, from $13,770 in 2010 to $26,993 in 2025. If the government shutdown of 2025 has revealed anything, it’s that the Affordable Care Act relies on increasingly growing subsidies to maintain its “affordability.” Housing: Subsidizing Buyers Into Bidding Wars Artificially expanding purchasing power in a market with constrained supply simply bids up existing home prices, transferring wealth to current owners and exacerbating price volatility. Governments lean on demand-side interventions — 50-year mortgages, tax incentives, down-payment subsidies, credit-expansion programs, etc. —  to make housing appear more affordable, and in some cases to be more affordable for initial/short periods of time. Tools such as these are politically attractive because they deliver conspicuous, short-run benefits to buyers. In fact, though, they fail to confront the structural forces driving prices higher. Artificially expanding purchasing power in a market with constrained supply simply bids up existing home prices, transferring wealth to current owners and exacerbating price volatility. In effect, policymakers stimulate demand while leaving the underlying scarcity unchanged. (RELATED: A 50-Year Mortgage Is a Financial Narcotic) In contrast, the supply side of the housing market remains heavily restricted through zoning limits, environmental reviews, density caps, and construction-sector bottlenecks. Those constraints prevent builders from responding to higher prices with adequate construction: the very mechanism through which markets relieve shortages. When supply can’t expand, or expands at a relative crawl, even the most well-designed, well-intentioned demand side policies aggravate the imbalance, ensuring that “affordability” gains are swallowed up by higher prices. Sound (and basic) economics, therefore, points to a simple but regularly ignored truth: without generating a freer, faster, and more flexible means of supplying housing, no amount of financial engineering will deliver a sufficient supply of homes to assuage the current shortfall and consequent price increases. (RELATED: LA Is Destroying Its Housing Market) War on Drugs: Getting it Backwards Governments inevitably respond to widespread drug usage by attacking supply: criminalization, interdiction, border enforcement, even military and covert action abroad. Focusing on distribution networks is visible, politically rewarding, and signals action without confronting the deeper drivers (and even deeper economics) of the consumption of illicit substances. Constraining supply in the face of persistent demand simply raises prices, which means that the profit margins of illicit producers are increased and riskier forms of production and trafficking result. The result is that a more lucrative black market is produced, and with it an increasingly violent drug trafficking business; all without a meaningful reduction in drug use. What remains unaddressed in this case is the demand side: the social, psychological, cultural, and economic forces that sustain drug consumption. Reducing demand in this case requires asking exceedingly difficult questions about mental health, despair, social decay, medical overprescription, and the search for meaning or relief, all of which governments are ill-prepared to answer, let alone address. These are costly, complex issues for which no amount of supply suppression can ultimately succeed. Even if it could — and there would be tremendous costs to liberty and prosperity to do so — intoxicants are readily substitutable for individuals seeking an escape, whatever the ultimate reason for doing so. The Common Thread How can we explain Washington’s consistent pattern of getting this so wrong? The answer is remarkably simple once we understand the political incentives at work. Demand-side subsidies in education, healthcare, and housing create concentrated benefits and diffused costs. Students, patients, and homebuyers all get immediate benefits. The costs, which are higher prices for everyone, are diffused throughout all of society and only materialize gradually. Politicians in office can take credit for the benefits, avoid the blame, and stick future policymakers with the task of “fixing” the problems. Supply-side reforms in these industries create diffuse benefits in the form of lower prices for consumers while threatening concentrated benefits. Reducing barriers to creating new colleges and universities threatens existing colleges and universities. Expanding residency programs and allowing nonphysician caregivers to perform more medical care threatens existing physicians’ income. Loosening zoning regulations threatens homeowners’ property values. These concentrated interests can (and do) effectively lobby against reforms. The benefactors of these reforms, i.e., the consumers, lack organized advocates on their behalf. Politicians do not win votes by being effective; they win votes by appearing effective. In the war on drugs, supply-side enforcement is highly visible and dramatic. Coast Guard seizures, attacks on vessels allegedly carrying drugs, DEA raids, and drug busts at the border all garner high amounts of media coverage. Demand side reforms, such as addiction treatment programs and mental health services, are quiet, unglamorous, and easily portrayed as being “soft on crime.” Politicians do not win votes by being effective; they win votes by appearing effective. The pattern is consistent across decades, administrations, and party lines because the political incentives are consistent. Ultimately, the only path out of this cycle is to realign policy with basic economics: expand supply where shortages exist, and address demand where consumption drives harm. That requires political courage, insofar as it rewards long-run outcomes rather than short-run optics, and a willingness to confront entrenched interests that benefit from the status quo. Until the incentives change, Washington will continue treating economic symptoms while worsening the underlying conditions. READ MORE: