Over the past generation, economic risk has increasingly shifted from the broad shoulders of government and corporations onto the backs of American workers and their families. This sea change has occurred in nearly every area of Americans’ finances: their jobs, their health care, their retirement pensions, their homes and savings, their investments in education, their strategies for balancing work and family. And yet, until the 2008 financial crisis, the extent of this shift was largely missed, and its causes largely unexplored.
Even today, commentators tend to assume that the problem of insecurity is mostly confined to those on the lower rungs of the economic ladder — people who don’t have a college degree, or are trapped in poverty, or live near the “rusted-out factories scattered like tombstones” of which President Donald Trump spoke at his inauguration. Yet as Michael Hobbes makes clear in his stirring piece on the strains facing America’s millennials, the new insecurity has reached into the lives of Americans of all backgrounds, all walks of life and all education levels. Hobbes writes: “Becoming poor is not an event. It is a process. Like a plane crash, poverty is rarely caused by one thing going wrong. Usually, it is a series of misfortunes — a job loss, then a car accident, then an eviction — that interact and compound.” Indeed, the experience of today’s young workers provides the clearest evidence of what I have called the “Great Risk Shift,” the massive downward transfer of economic risk and responsibility that has reshaped the financial lives of so many Americans.
“Economic security and economic opportunity go hand in hand.”
If we are to reverse the Great Risk Shift, we have to remedy the deep mismatch that Hobbes identifies between today’s economic realities and America’s strained framework for protecting economic security. Our framework of social protection is overwhelmingly focused on the aged, even though young adults and families with children face the greatest risks. It emphasizes short-term exits from the workforce, even though long-term job losses and the displacement and obsolescence of skills have become more severe. In many ways, it embodies the antiquated notion that family strains can be dealt with by a second earner who can easily enter or leave the workforce as necessary. Above all, it is based on the idea that job-based private insurance can easily fill the gaps left by public programs, even though it is clearer than ever that job-based private insurance is not enough.
These shortcomings suggest that an improved safety net must emphasize portable insurance to help families deal with major interruptions to income and big blows to wealth. They also mean that these promises should exist mostly separate from work for a particular employer. In an economy where more and more workers are independent contractors (or treated as if they were), the safety net has to move from job to job.
Above all, reversing the Great Risk Shift will require new recognition of an old truth: Economic security and economic opportunity go hand in hand. Just as investors and entrepreneurs need basic protections to encourage them to take economic risks, so do ordinary workers and their families require a foundation of economic security to invest in their futures and seize the risky opportunities before them. All of the major wellsprings of economic opportunity — assets, workplace skills, investments in children — are costly and risky. Providing security can encourage Americans to make these investments, aiding not just their own advancement but the economy as a whole.
Higher education is the clearest example, as Hobbes’ reporting shows. At the same time that the rewards of higher education have become more risky, we have asked students to pay for that education by piling on debt. In essence, our higher-ed policies are telling the next generation of workers they have to make risky investments on the margin. Should it surprise us that so many young workers are so insecure — unable to earn enough to pay back past loans, much less build assets for the future? Should it surprise us that our college graduation rates have fallen from the top of the international charts toward the bottom? Should it surprise us that so many young college grads are living at home? In an age in which a college degree is equivalent to what a high school degree was 50 years ago, we must ensure that every young person in America can go to college without going into debt.
Fixing these problems, of course, will not come without costs, and certainly not without political struggle. Yet against the cost, one must balance the savings. Billions of dollars in hidden taxes are currently imposed by laws that increase bankruptcy rates, mandate emergency room care and bail out the politically sympathetic when things go bad. The elimination of these expenses must be accounted for when tallying up the bill, as should the huge drain that our current system imposes when people do not change jobs, do not have kids and do not invest in new skills because they fear the downside risks.
Not so long ago, economic cheerleaders argued that government was no longer needed to provide basic risk protection — that private insurers could take care of health care, that private employers would ensure everyone had a good pension, that job insecurity was becoming a thing of the past. No one can confidently hold that view today. The only question is whether new policies will be put in place to share the risks of the 21st-century economy across Americans, or whether Americans will be left to cope with these uncertainties largely on their own. The economic challenges facing America’s millennials aren’t “their” problem. They are our problem. And the test of our democracy is whether we can tackle them.