TBR: The Great Risk Shift
Today’s book is The Great Risk Shift: The Assault on American Jobs, Families, Health Care, and Retirement And How You Can Fight Back, by Jacob Hacker. Can I just say that I wish I had written this book? It answers the question that a bunch of us wrestled with in the spring — how can we be so affluent, and yet feel like a "middle-class" life is out of our reach? Hacker’s answer is that we’re facing more risk than ever before, so even if we’re doing well today, we worry that it could slip out of our grasp tomorrow.
Specifically, Hacker shows how a range of economic and political forces have combined to increase risk in almost every aspect of our lives:
- Income volatility has increased significantly, and has increased more among the middle- and upper-class than the poor. (The poor still have higher levels of income volatility.)
- Job loss is more likely to lead to long-term unemployment, and re-employment at significantly lower wages and/or in a different industry.
- Marriages are more likely to end in divorce.
- Education is an excellent investment, but also a risky one — students are borrowing more than ever, and going to college doesn’t guarantee a high income.
- Defined benefit pensions are rapidly disappearing, replaced by 401ks.
- More people are uninsured than ever before, and even people with insurance have a higher probability of being hit by large uncovered bills than in the past.
Hacker’s not the first one to say any of this, but he does a really nice job of pulling it together in one package. (One of my few complaints about the book is that when Hacker incorporates true-life stories that illustrate his points, the stories are oddly familiar, because he picked most of them them up from the same newspaper articles that I’ve read.)
The most immediately politically salient part of this book is where Hacker takes on the proposals to privatize Social Security and to shift people from standard health insurance into Health Savings Accounts. Hacker argues that these are part of an ideologically driven "Personal Responsibility Crusade" that is designed to increase risk, even though most people feel like they have too much risk in their lives, thank you very much.
Hacker also makes some proposals for how to reduce risk from its current levels. The simplest is probably his proposal for universal 401ks, that could be portable across jobs, and that workers would be automatically enrolled in unless they opted out. He also proposes that the government would annuitize these accounts when people reach retirement. He also proposes to open up Medicare for people under 65 and to create a system of Universal Insurance that would cover people against sharp drops in income. (Neither of these proposals are described in any detail in the book, which attempts to reach a general audience and so tries not to scare people off with too many formulas.)
Like Warren and Tyagi, Hacker also offers some practical advice — build up some savings, sign up for a 401k if you can, buy life insurance, don’t buy a house that you can only afford with a variable rate mortgage, don’t enroll in a college that you can’t afford to stay in until you finish. He also points out the significance of "loss aversion" — that it’s more painful to give up something that you have than to never have had it in the first place.
If all this isn’t familiar to you, read the book. And if it is, send it to your Congressman.
September 20th, 2006 at 2:02 pm
What is the comparison to? Divorce is more likely than when? Fewer insured than when? How many people were insured 100 years ago?
September 20th, 2006 at 9:52 pm
This book sounds pretty good and I will definately check it out of my library. Opening up medicare to people under 65 sounds like a great idea or a new name for socialized medicine. What irks me is that in my state, NY, alot of politicians are creating children’s medical plans for uninsured families. But what about the parents or caregivers in general? It would make sense to provide some type of afforable health insurance so parents can be healthy enough to take care of their kids.
The sad thing is that this “personal responsibility” attitude has infiltrated so many areas of our society. Just like after Katrina hit the government told everyone request your FEMA preparedness book and kit and you are on your own. Local governments, which have very little monetary resources, are being forced to take on the full burden of protecting the population. It should be the responsibility of everyone and every level of government. I just can’t accept my government telling me it is my responsibility when they are spending my tax dollars in Iraq to build playgrounds.
September 21st, 2006 at 6:51 am
I’m not convinced that things are worse now than they were – large numbers of people have always faced a lot of uncertainty. One thing has changed a lot and that is the security of people who are raised in the middle/upper middle classes that they can follow their parents – I see a lot more downward mobility than there used to be. Much of this results from the success of the society in allowing people who’ve been on the outside to get in – more people are playing musical chairs and there aren’t that many more chairs to sit in when the music stops.
There is an absolutely spectacular comment thread at the blog Half Sigma – http://www.halfsigma.com/2006/09/young_people_ha.html#comment-22683040 – featuring among others a real estate agent working as a stripper because the housing market had cratered and the following:
“So let me get this straight. You guys want to live in a world where:
1) you can major in anything
2) you can party throughout college without studying
3) you automatically get a job which pays enough to live in one of the most expensive cities on earth
4) you don’t need to deal with anyone not exactly like you.
5) economic cycles have no influence on your life
You guys are nuts. Seriously. I have one word for you: Prozac.”
A grim and unpleasant book, but worth a read if you haven’t, is The Women’s Room, the theme of which is the uncertainty and absolute dependence on men’s behavior choices of women in the suburbs in the 50s and 60s. It seems to me that this is better than it was, for many: social mores are against discarding women and the children you have had with them and changes in divorce law have made it more expensive; and there’s a lot more enforcement of child support, particularly interstate, than there once was. So this seems a change for the better in lessening the risk women and children face.
September 21st, 2006 at 9:35 am
For me, one of the things that points to greater uncertainty relative to perhaps 50 years ago is the bankruptcy rate, which is much higher.
100 years ago of course no one was insured; there was no such thing as health insurance. You could pay your doctor in apples, or traded work. But also *everyone* was dying from small cuts that led to gangrene, or the flu. For better or worse, it does seem to change people’s thinking when some can survive and others cannot, based on their insurance status.
We do forget how brutal things have been in the past for the poor. During the Depression, when food costs were still something like 40% of a typical American family’s budget, those just squeaking by had to actually send their kids to bed hungry. I can’t imagine it.
September 21st, 2006 at 12:58 pm
Health insurance 100 years ago? No. Then again, health costs were lower because doctors couldn’t do much. Risk is contextual, and people feel poor compared to the world they see around them. Consider the “middle class” lifestyle presented on TV every day — people feel relatively poor at and risk when they compare themselves to those images, and to their memories (however flawed) of the past, and to their own past history.
Those feelings, however artificial, have a political and economic and social impact.
Death insurance and life insurance — either a pension or a one-time payment — came into existence with fraternal orders, and dates in the US at least to the 1830s.
October 2nd, 2006 at 9:07 am
Some Questions for Jacob Hacker
Jacob Hacker answers some questions for OUP.
January 6th, 2007 at 5:53 am
Here’s another risk: getting on the wrong side of a moral panic and an ambitious prosecutor. Doesn’t happen to a Hell of a lot of people, but when it does, wow. My sports-mad ten-year-old – suppose he gets what we think is a long straw in the college lottery and gets admitted to Duke. And we dig a little deeper than we thought we had to to make that happen, and he gets invited to a party at the lacrosse team house, starstruck, thrilled to be there, and a stripper shows up – yikes! This woman decides she hasn’t been treated right, and screams that she’s been raped, and picks random guys out of a line-up, and a prosecutor who wants to get reelected (lets call him ‘Mike N.’)gets a grand jury to indict him. If our family can come up with $15000 a month for really good defense lawyers to scrutinize everything about the case for flaws, and to get them into the national press, we can save him. If not, it’s twenty years.
My eight-year-old, who has always been just wonderful with young kids, takes a job in a day care after high school, and some hysterical mommy decides that he’s been taking liberties with little Samantha and gets Samantha into the hands of a ‘recovered-memory’ type, and an ambitious prosecutor (lets call him ‘Scott H’) gets him indicted. This is not very different from what happened in several of the national-news day care cases ten-fifteen years ago. Again, really good and expensive legal representation probably keeps the kid out of the slammer, you don’t have the money it’s Concord Prison.
My now-five-year-old gets an accounting degree, and goes to work on Wall Street, and follows the general practice in her firm on something involving options dating and, to get at the principals in the firm, an ambitious prosecutor (lets call him ‘Eliot S.’) gets her indicted. Again, it’s off to the races, refinance the house, ruin for the family.
It’s not terribly frequent, and often the defendants are less sympathetic – but when you read about it, and you think, ‘this could happen to me’ – you get nervous.
Doesn’t fit the Hacker view that it’s new – there have been ambitious prosecutors forever, McCarthy rode the moral panic about Reds to national power fifty years ago on the backs (partly) of innocent schlumps who had maybe been to a couple of lefty meetings. But it contributes to a feeling that lightning could strike, and squirrelling away a lot of money is a good way to prepare.
January 6th, 2007 at 8:16 am
An furthermore (very inside-Washington note coming, everybody else can stop reading) the period of ritual sacrifice of White House aides is upon us again. See ‘size six shoes’ http://www.abovethelaw.com/2007/01/who_will_fill_harriet_mierss_s.php#more. Midlevel aides are going to be hauled before committees and will have to lawyer up, at enormous cost, it will be basically just like what happened to the Clinton aides during the impeachment/ White House travel stuff. The actual big fish won’t suffer so much, but it will be brutal for the little guys.
January 13th, 2007 at 8:13 am
Former prosecutor Randy Barnett has a big post at Volokh about mad-dog prosecutors and what they can do, and refers to the big WSJ post about it: http://volokh.com/archives/archive_2007_01_07-2007_01_13.shtml#1168638846
he closes with “..But the scandal of Duke case does not about the incompetence of either line prosecutors or ordinary criminal defense attorneys, but the politically-motivated misconduct of an elected District Attorney. And it is also about how one’s life can be ruined, or at minimum forever altered, not to mention bankrupted, by a false accusation from which one is eventually vindicated.”
We are going to hear a lot of smug remarks on the theme of ‘the system works’ as the (it seems to me apparently innocent of anything besides being at a party where there was a stripper) Duke lacrosse players get their prosecution stopped. I don’t buy it, really: I take a message that all of us have enormous vulnerability to this kind of thing, the Duke kids’ parents were able to come up with staggering amounts of money to fight the prosecutor, and others to whom the same sort of thing has happened (the Scottsboro boys, some mid-level Federal clerk in the 50s who was in a gay bar when it got raided, day care providers who got indicted on recovered-memory horror stories) were destroyed.
Back to the original point of Elizabeth’s post, the risk shift: Hacker’s theme as I understand it is that middle-middle and lower-middle class folks used to have more security than they now do. I think this is to some extent true, but that we have a plenty of struck-by-lightning risks out there – car crashes, cancer, mad-dog prosecutors to keep all of us awake at night.