Risk Shifting

But America's risks don't end in childhood. In fact, the United States today is a far less secure place economically than it was a generation ago, thanks to what the Yale political scientist Jacob Hacker calls “the great risk shift.”7 Hacker points out that “over the past generation, the economic instability of American families has actually risen much faster than economic inequality” (italics his).8

Where the laissez-faire economist Milton Friedman once claimed that cutting back government left Americans “free to choose,” Hacker contends that they have become free to lose instead, as a result of “a political drive to shift a growing amount of economic risk from government and the corporate sector onto ordinary Americans in the name of enhanced individual responsibility and control.”9

Here are some of Hacker's gleanings from government data.

• Personal bankruptcies rose from less than three hundred thousand per year in 1980 to more than 2 million in 2005. (Half of the bankruptcies result from medical bills as companies cut back on health insurance.)10

• During the same period, mortgage foreclosure rates quintupled. (They are even higher now after the 2008 crash.)11

• Eighty-three percent of medium and large employers offered defined benefit plans in 1980. “Today,” Hacker points out “the share is below a third.” Defined benefits, such as pensions, provide a guaranteed level of payment when eligibility begins, as opposed to defined contribution plans which may be lost in the stock market. Defined benefits are inherently less risky for the recipients. (We provide more details on benefit plans later in this chapter.)12

• By 2005, the number of Americans worried about losing their jobs was triple what it was in 1980. (Sadly, many were right and lost their jobs in 2008.)13

• In 1970, only 7 percent of American families saw their income fall by more than 50 percent due to layoffs or other factors. Thirty years later, the figure was 17 percent.14

These last points are particularly significant. Losing something brings greater long-term reduction in happiness than gaining something adds to happiness. In general, people understand this and are “risk averse.” According to a George Washington University survey, Americans are not exceptional in this respect: By a margin of more than two to one, they favor stability of income over risky opportunities to make more.15 Yet despite such preferences, there has been a constant push to increase the economic risks of ordinary Americans in return for a shot at the golden basket. The result is a few big winners, but a multitude of losers, or at least people whose fortunes are ever more precarious.

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