The contemporary U.S. affordability crisis—often described through the condition known as ALICE (Asset Limited, Income Constrained, Employed)—is not simply the product of personal failure or isolated economic shocks. It reflects a systemic paradox in which millions of working Americans remain one disruption away from collapse. A medical emergency, rent increase, job loss, or legal dispute can push individuals below a critical survivability threshold, after which interconnected systems—credit, housing, employment, healthcare, and law—begin to reinforce one another, making recovery increasingly difficult and often permanent.
This essay argues that this condition is not accidental, but historically contingent. The collapse of the Soviet Union removed the primary external constraint that once compelled American capitalism to tolerate a class compromise centered on rising wages, affordability, and social stability. With that pressure gone, economic systems were gradually restructured to prioritize capital preservation over human resilience, producing an affordability trap that defines the modern ALICE experience.
Why the Affordability Crisis Became Acute Only Recently
The United States has long contained deep structural contradictions—economic inequality, labor exploitation, and exposure to legal and financial risk—but these tensions did not become socially catastrophic for much of its history. The central question, therefore, is not why such contradictions exist, but why they escalated into a generalized affordability crisis only in recent decades. The answer lies less in a sudden moral or institutional failure than in the gradual removal of stabilizing buffers that once absorbed systemic stress.
For much of the twentieth century, several conditions muted these underlying pressures. A younger population, a less complex economy, and an abundance of industrial jobs allowed risks to remain diffuse rather than concentrated. Housing was relatively affordable, baseline living costs were lower, and a single income could often sustain an entire household. These factors did not eliminate injustice, but they prevented routine economic shocks from becoming existential threats for large segments of the population.
Over time, however, these buffers steadily eroded. Industrial employment was hollowed out and offshored, while the economy became increasingly financialized. Housing, healthcare, and education costs rose far faster than wages, and labor markets grew more unstable, exposing workers to frequent “tail risks” such as sudden layoffs, medical expenses, or legal entanglements. At the same time, social and legal systems became more complex and punitive, raising the cost of error and misfortune. As these pressures converged, risks that were once dispersed crossed critical thresholds and became systemically concentrated.
The result is not a society that has newly become unjust, but one that no longer conceals its injustice. What erupted in recent decades was the visible failure of a system whose contradictions were long managed through favorable demographics, economic growth, and institutional compromise. When those conditions disappeared, the underlying structure was exposed—transforming chronic inequality into an acute and destabilizing crisis.
The Regulatory Myth Behind America’s Risk Crisis
A common diagnosis of America’s economic dysfunction attributes rising costs and declining affordability to excessive government regulation. This explanation, however, misidentifies the source of systemic risk. The problem is not the presence of rules, but the absence of predictable, pre-emptive constraints that allow economic actors to understand and manage risk in advance.
In systems dominated by clear, prospective regulation, boundaries are explicit and compliance costs are known. Risks can be priced, mitigated, and prevented before harm occurs. By contrast, the U.S. relies heavily on post-event judicial accountability, where standards are often ambiguous, interpretations are retroactive, and outcomes depend on jury discretion and open-ended damages. This uncertainty forces firms, landlords, employers, and service providers into extreme defensive behavior, raising prices, restricting access, and shifting risk onto individuals.
Paradoxically, this legal uncertainty functions as a form of regulation far more restrictive than formal rules. Rather than enabling innovation or lowering costs, it creates opaque and punitive barriers that intensify inequality and suppress resilience. What is often described as “too much regulation” is more accurately a system of unmanaged legal risk that distorts markets and amplifies the very affordability crisis it is blamed for causing.
At-Will Employment and the Economics of Fear
American employment law is often described as exceptionally “free” under the at-will doctrine, which allows employers to hire and fire workers with minimal pre-approval or formal constraint. On its surface, this flexibility appears to favor dynamism and opportunity. In practice, however, it conceals a labor market structured not by freedom, but by pervasive fear of retrospective legal exposure.
What employers most seek to avoid is not regulation at the point of hiring, but liability after the fact. Discrimination and retaliation claims, hostile work environment allegations, psychological harm suits, and class-action litigation—often aggregated and packaged by specialized law firms—pose risks whose outcomes are difficult to predict. Standards are shaped by contested facts, evolving precedent, and jury sentiment, while potential damages frequently lack clear ceilings. From the employer’s perspective, each hiring decision carries an unbounded tail risk.
The rational response to this uncertainty is defensive contraction. Firms hire fewer workers, favor contractors and temporary labor, outsource functions, minimize training, and screen aggressively for any sign of perceived instability. These strategies reduce exposure but also narrow access to stable employment.
The consequence is structural exclusion. Those who most need opportunity—workers with uneven histories, health challenges, or economic precarity—are systematically filtered out, not because they lack capacity, but because the system incentivizes risk avoidance over human investment. Thus, the apparent freedom of at-will employment masks a labor market governed by legal fear, with profound implications for inequality and affordability.
Credit Markets Without Guardrails
In the United States, creditworthiness is determined largely by private scoring agencies rather than by public standards. The state does not define minimum approval scores, rejection thresholds, or clear mappings between risk and interest rates. In theory, this absence of formal rules is presented as market freedom, allowing lenders to tailor decisions to individual circumstances.
In practice, however, the lack of stable, pre-emptive boundaries shifts legal and financial risk upstream. Faced with uncertainty over liability, enforcement, and downstream losses, financial institutions respond by hardening contracts with dense exclusions and opaque terms. Rather than pricing risk flexibly, lenders reduce exposure by eliminating marginal borrowers altogether.
The result is a system of credit control without transparency or resilience. Access is governed not by calibrated risk-taking but by over-filtering and exclusion, reinforcing economic fragility for those already near the edge. What appears as freedom in form becomes rigidity in function, deepening the affordability crisis through denial rather than adaptation.
Housing Access Through the Lens of Risk Avoidance
Housing and rental markets operate according to the same risk logic that shapes employment and credit. Anti-discrimination statutes and basic safety standards formally exist, but the most consequential screening criteria—income multiples, security deposits, guarantors, credit thresholds, and documentation requirements—remain largely discretionary. These informal rules, rather than explicit regulations, determine who gains access to shelter.
In an environment of legal uncertainty, landlords respond by tightening screens to an extreme degree. Applicants exhibiting any sign of instability—irregular income, imperfect credit, gaps in documentation—are routinely rejected. Zero tolerance for risk becomes the rational strategy, even when it excludes otherwise capable tenants.
The core problem is not regulatory excess, but unpredictability. When landlords cannot know in advance how rules will be interpreted or applied retroactively, they protect themselves through exclusion rather than accommodation. Screening thus becomes a mechanism of systemic filtering, transforming housing access into a high-stakes gatekeeping process that deepens economic precarity.
When External Constraint Shaped Internal Restraint
Many accounts of America’s economic breakdown focus on capitalist greed or internal design flaws within the system. While these forces are real and consequential, they are insufficient to explain a critical historical shift: why American capitalism once exhibited meaningful restraint—and why that restraint later disappeared.
To answer this question, analysis must move beyond domestic dynamics and look outward. For much of the twentieth century, the existence of a credible external rival imposed limits on how far inequality, insecurity, and exploitation could advance without political consequence. When that external constraint vanished, so too did the structural incentives for moderation, revealing a system no longer compelled to balance accumulation with social stability.
The Cold War as a Contest of Social Legitimacy
The Cold War was not merely a standoff defined by nuclear arsenals or geopolitical maneuvering; it was fundamentally a competition between social systems over which could deliver a better life to ordinary people. At its core, the conflict revolved around legitimacy—whose model of society could credibly claim to offer dignity, security, and opportunity to the masses.
The Soviet Union advanced a powerful ideological narrative: a society without exploitation, where workers were nominally the masters of the state, education and healthcare were free, and employment was guaranteed. Despite profound economic inefficiencies and political repression, this vision carried substantial appeal, particularly in developing nations emerging from colonial rule and among Western working classes facing inequality and insecurity. The promise itself—regardless of its execution—posed a serious challenge to capitalist democracies.
During this same period, the United States confronted visible internal crises, including the Vietnam War, civil rights struggles, urban unrest, and mass anti-war movements. These conflicts weakened America’s moral standing and amplified the contrast between its democratic ideals and social realities. In the global imagination, the Soviet Union was often able to claim the moral high ground not because it had succeeded, but because it articulated an alternative social order against which American capitalism was constantly judged.
Stability by Design: How the United States Chose Legitimacy Over Orthodoxy
Confronted with a global contest over social legitimacy, American elites made a strategic choice that departed sharply from classical capitalist doctrine. To prevail in a system-level conflict with socialism, the United States sought not merely to outproduce its rival, but to undercut its moral appeal. This required compressing inequality, broadening prosperity, and ensuring that capitalism could plausibly claim to work for ordinary citizens. In effect, stability was purchased through deliberate restraint.
One pillar of this strategy was extreme progressive taxation. During and after World War II, top marginal income tax rates reached historically unprecedented levels—94 percent in 1944 and over 90 percent through the early 1960s, with effective rates still exceeding 40 percent. While these policies helped finance wartime debt and Cold War military spending, they also served a political purpose: limiting excessive accumulation, funding public goods, and visibly aligning national prosperity with shared sacrifice. Inequality was not eliminated, but it was actively contained.
A second pillar was the institutional empowerment of labor. Union density surpassed 35 percent in the 1950s, giving workers collective bargaining power that forced capital to negotiate rather than dictate. Wages rose alongside productivity, benefits expanded, and class conflict softened as workers gained a credible stake in economic growth. This balance was not accidental; it was tolerated and, at times, encouraged as part of a broader social settlement.
Finally, the state actively constructed a mass middle class. Policies such as the GI Bill enabled widespread homeownership and access to higher education, while blue-collar employment supported stable, middle-class lifestyles. Healthcare coverage, pensions, and unemployment insurance expanded, reducing vulnerability to economic shocks. The result was an “olive-shaped” society in which the middle class encompassed a clear majority of the population—an outcome less reflective of market inevitability than of strategic choice under geopolitical pressure.
The American Dream as Strategic Power
This strategy proved remarkably effective. By compressing inequality and expanding middle-class prosperity, the United States could credibly claim that under capitalism ordinary people could achieve higher living standards than anywhere else in the world. The “American Dream” was not merely a cultural ideal; it functioned as empirical evidence of capitalist superiority.
The middle class thus became a strategic asset in global competition. Its visibility undercut socialist claims and reshaped international perceptions of legitimacy and success. Ironically, this very success contributed to the Soviet Union’s collapse, as it strained to match American living standards through an unsustainable combination of military spending and rigid central planning, ultimately exhausting its economic and political capacity.
1991 and the Dissolution of Capitalism’s Restraint
The collapse of the Soviet Union in 1991 marked not only a geopolitical victory for the United States, but the quiet end of a domestic bargain. With the disappearance of a credible ideological rival, the external pressure that had once justified inequality compression and broad social investment evaporated. The class compromise that underpinned mid-century stability lost its strategic purpose.
In the absence of an opposing system to compete against, policies that had restrained capital were redefined as unnecessary or burdensome. High progressive taxes came to be viewed as impediments rather than safeguards, labor unions as obstacles rather than partners, and social spending as expendable rather than stabilizing. The “golden hoop” that had constrained accumulation was removed, allowing market forces to operate without the geopolitical limits that had once enforced moderation.
The Post–Cold War Counteroffensive Against Labor
In the years following 1991, economic trends unfolded with internal consistency rather than surprise. Neoliberal ideology gained dominance, capital taxes were cut, public assets were privatized, and globalization accelerated offshoring and labor arbitrage. Union power was systematically weakened, while financialization reshaped the economy around short-term returns and shareholder value as the overriding metric of success.
These shifts reoriented the balance of power decisively away from labor and toward capital. Wages stagnated even as productivity rose, and wealth began concentrating rapidly at the top, particularly within the top one percent. Periods of crisis, including the pandemic, did not reverse this trajectory but intensified it, accelerating accumulation for those already positioned to benefit while deepening insecurity for the rest of the workforce.
ALICE as the Logical Outcome of a Post-Legitimacy Order
With external constraint gone, capital has been progressively freed from social obligation, while the state has increasingly aligned itself with capital preservation rather than broad-based resilience. In this environment, the system no longer operates as a flawed compromise but as a coherent design. Economic security is no longer buffered against routine shocks; instead, risk is individualized and punished. Illness becomes a pathway to bankruptcy, a single arrest can trigger cascading job and housing loss, education entails decades of debt, and a criminal record functions as permanent exclusion from stability.
ALICE—Asset Limited, Income Constrained, Employed—represents the steady-state condition produced by this structure. Individuals may work continuously and comply with social expectations, yet remain perpetually exposed to collapse. Once a critical threshold is crossed, interconnected systems reinforce failure rather than facilitate recovery, locking people into long-term precarity.
This outcome is not the result of policy malfunction or administrative incompetence. It is the logical equilibrium of a system that no longer needs to secure popular legitimacy through shared prosperity. In the absence of an external rival, the incentives that once justified restraint, redistribution, and social investment have vanished—leaving ALICE not as an aberration, but as the predictable end state of a post-enemy political economy.
A Historical Echo: Che Guevara and the Politics of Concession
In August 1961, Che Guevara addressed the Inter-American Economic and Social Council in Punta del Este, Uruguay, where the Kennedy administration unveiled the Alliance for Progress—a multibillion-dollar initiative promising schools, hospitals, and infrastructure across Latin America. Guevara dismissed the program as disingenuous, arguing that the United States had ignored the region’s poverty for decades and discovered its humanitarian impulse only after the Cuban Revolution demonstrated that an alternative path was possible. In his view, the sudden generosity reflected not moral awakening, but strategic anxiety.
Guevara contended that the Alliance for Progress functioned as a preemptive concession, designed to prevent revolutionary contagion rather than to resolve structural inequality. Welfare, he argued, was not benevolence but fear: aid flowed only when the cost of inaction became politically dangerous. The existence of a credible alternative forced the dominant power to moderate its behavior.
This critique resonates beyond Cold War Latin America. The rise of the American middle class followed a similar logic: concessions to labor and broad-based prosperity emerged when systemic alternatives posed a real threat. When those alternatives disappeared, so too did the incentives for generosity. The lesson embedded in Guevara’s speech is not ideological but structural—social compromise persists only when power is constrained by credible exit options.
Summary & Implications
The American middle class was not an accidental byproduct of capitalism, but a strategic achievement forged under unique historical pressure. It helped secure victory in a global contest by demonstrating that capitalism could deliver broad prosperity and social stability superior to its rival. In fulfilling this role, the middle class became proof of system legitimacy rather than an end in itself.
Once that mission was completed, its protection was no longer imperative. The collapse of the Soviet Union was not a historical footnote but the decisive external shock that dissolved America’s internal class compromise. With no competing system to constrain excess or demand legitimacy, the structures that sustained middle-class security were dismantled. The affordability crisis and the rise of ALICE thus emerge not as anomalies, but as the predictable aftermath of a system that no longer needed to prove itself to its own people.