The Great Risk Shift

Over on the Washington Monthly blog, Jacob Hacker has a great series of posts going based on his book The Great Risk Shift:

Why are Americans so unhappy about the economy, when the basic economic numbers (inflation, unemployment, economic growth) have been pretty good? Because the basic economic numbers don’t capture the pervasive insecurity that Americans increasingly feel. Our economy has—until recently at least—produced strong overall growth and productivity (though not strong growth in middle-class incomes). But it’s also been producing massive economic instability for ordinary Americans, whose jobs, incomes, homes, health insurance, and retirement pensions are ever more at risk.

If you have trouble figuring out why risk makes people anxious and unhappy, consider this simple thought experiment: How much of your income would you be willing to put at risk to get a chance at twice your current income? If you’re like most Americans, the answer is “not much”—and for a simple reason: While you’d love to have more money, your life would be thrown into turmoil if your income dropped by, say, half.

Social psychologists have a name for this phenomenon: “loss aversion,” which means simply that we dislike losing things we have far more than we like gaining things we don’t have. No wonder: If your family income fell by half, you would risk losing your home, your health insurance, your retirement savings—in a word, your safety net. And with these vital assets would go your dreams for the future. Maybe it’s no surprise, then, that a recent poll found that even opportunity-loving Americans prefer, by a two-to-one margin, the security of having their current income protected to the chance to make more money.

To understand why insecurity is at the heart of public dissatisfaction with the economy requires grasping how much our economy has changed. I’ve discovered that the up-and-down swings of American family incomes before taxes are now three times larger than they were in the early 1970s. Remember that thought experiment about a 50 percent potential income drop? Well, the chance of such a 50 percent drop for an average American—with average age, average education, average personal characteristics, average chance of experiencing job loss, divorce, and the like—is now almost one in six... Find six average people, and the statistics say one of them is going to see their family income fall by half. Back in the early 1970s, you would have had to round up more than fourteen people before one of them faced that risk...

This is a reality that I experience first-hand among people I know in church and community. On the whole they are middle to upper-middle class boomers and busters with good paying jobs. But there is much insecurity because so many of them have had the experience of losing jobs and taking pay and benefit cuts (or they watched it happen to friends and co-workers) and they know that their economic well-being is constantly at risk. There are no pensions, no loyalty from employers, and lots and lots of hungry Indians and Chinese willing to work the same jobs for lots less (and its not their fault).

I believe, of course, that there is a spiritual response and discipline that helps us weather this uncertainty. But there is also a political response that involves sharing burdens and lessening risks for all. It's what a just society does, and it ought to be at the heart of a society that claims to be based on Judeo-Christian values. But we get all this right-wing talk about an "opportunity" society which is just a big cover for dismantling the social safety-net and letting the poor be crushed, the middle-class evaporate, and rich get richer with no obligation to care about the well-being of anyone else. Except for a little faith-based charity, of course; that always makes one feel better. It's social darwinism unleashed.