Jacob Hacker has a simple but extremely compelling explanation for why Americans don't feel more prosperous, even though many standard economic indicators are doing, if not well, then at least not so awfully as they might: "an increasing financial pinch that is putting them at ever greater economic risk." Over the last several decades, since the end of the post-war golden age of economic growth, there has been "a massive transfer of financial risk from corporations and the government onto families and individuals." And, of course, among families and individuals, it's been shifted on to those who are already at the bottom of the heap.
When I started out, I expected to see a rise in the instability of family income. But nothing prepared me for the sheer magnitude of the increase. At its peak in the mid-'90s, income instability was almost five times as great as it was in the early '70s, and, although it dropped somewhat during the late '90s (my data end in 1999), it has never fallen below twice its starting level. By comparison, permanent income differences across families have risen by a more modest, if still troubling, 50 percent over the same period.
The full explanation for this dramatic rise in instability is still unclear, but two causes loom large. The first, and most obvious, is changes in the nature of work. In today's postindustrial economy, less skilled workers are much more vulnerable than when unionized, manufacturing labor was more of the norm. (Not surprisingly, instability is greater for families headed by less educated workers, though it has actually risen more quickly in the last decade for workers who went to college.) Workplace benefits, such as health insurance and pensions, have been on the chopping block. And corporate America increasingly relies on part-time, contingent, and contract workers --- all of whom enjoy precious little security.
The second overarching cause of increased insecurity is a shift we often take for granted: the movement of women from home to work. As mothers have entered the labor force in increasing numbers, families have gained a second income, which most desperately need. But they've also had to take on new expenses and face the increased job insecurity of having two family members in the workforce.
A stunning finding from my research illustrates this double-edged effect: When adjusted to account for the expenses a family of a given size incurs, a family's total income actually falls when a couple starts living together. That's not, of course, because families in which there are two potential earners receive less in earnings. It's because they are likely to receive less in public benefits and to pay more in taxes just as their family size increases --- and so their overall economic standing drops. Divorce and separation obviously aren't good for income security. But it turns out that marriage and cohabitation aren't a guarantee of it either.
All this reveals a truth often forgotten amid talk of "family values": The United States has never done much to deal with the income risks that come from having both mom and dad in the workforce --- from child care costs, to the need for time off to have kids and care for sick family members, to the increased risk to accustomed standards of living that plague families dependent on two jobs. We live in a twenty-first century economy dominated by two-earner families. Yet, social protections for working Americans have changed remarkably little since the mid-twentieth century --- and, when they have changed, they have usually been cut, not expanded.
Hacker also has good ideas about what to do about this.
Conservatives demand a go-it-alone world of personal responsibility. Yet, the truth is that Americans can't cope with insecurity on their own. Private insurance often works well, but it has inherent drawbacks in dealing with big economic risks. Profit-making insurers simply can't offer reasonably priced protection to high-risk groups, provide affordable insurance for the less affluent, or require that everyone has coverage. Only government can.
This is not a radical or new idea. It's called social insurance, and it's already embedded in America's two most cherished programs, Social Security and Medicare. We now think of Social Security as a soft-headed social measure. Back in 1935, however, it was seen as the cornerstone of a system of basic financial security that was essential to making capitalism work. That's why the original name for the legislation was the Economic Security Act.
Today, we need an Economic Security Act for American families. It should begin with the preservation of existing social insurance programs. But it cannot end there. According to University of Pennsylvania social policy expert Julia Lynch, U.S. social programs are more skewed toward the aged than in almost any other nation. The United States doles out nearly 40 times as much per senior citizen as per child and working-age adult. The currently favored response to this imbalance is to cut spending on the aged. But, rather than slashing existing protections, we should instead work to include families in the bargain. That means spending more, of course, but it also means a system that's more family-friendly, more conducive to having kids, more hospitable to obtaining new skills --- in short, more supportive of a large, productive workforce that will lessen the strain on programs for the aged. It also means a system much less imperiled by the demographic shifts that have placed Medicare and Social Security in danger.
Perhaps the most promising idea for creating such a system is a simple proposal I call "universal insurance" --- a kind of umbrella insurance policy protecting families against catastrophic drops in income or budget-wrecking expenses. Premiums would be a small share of total income and payouts would be based on the decline of disposable income from its previous base, with the share of income replaced higher for lower-income families.
Universal insurance could, in turn, be coupled with a less regressive and dangerous form of personal accounts than those advocated by Bush. These tax-free accounts would help families manage unavoidable household expenses before they reached catastrophic levels. Each year --- and upon the birth of children --- the government would contribute small amounts to each account. These public contributions would vary inversely with income, offsetting the regressive distribution of the tax breaks.
Universal insurance would protect Americans before they fell into poverty, lessening the burden on programs for the poor and protecting the dignity of beneficiaries. From the standpoint of income protection, what matters is not whether some are rich and others are poor, but whether all Americans are protected against precipitous drops in their standards of living. Universal insurance would depart from existing social insurance programs in providing general risk protection. Its premise would be that Americans need access to more than existing, highly segmented programs --- programs that not only leave glaring gaps, but also lack the ability to respond to a rapidly changing world of risk.
I even like his slogan: "We still have limited liability for American corporations, but, increasingly, we have full liability for American families". Of course, I don't imagine we'll see anything like this done anytime soon, but if the Democrats are looking for long-term ideas, I think this is a very good place to start. (Via The Decembrist, who implies Hacker's essay summarizes a forthcoming book.)
Posted at September 17, 2004 16:42 | permanent link