Social Insecurity

SOCIAL INSECURITY….Peter Gosselin of the LA Times has a piece in today’s paper that’s must reading. It’s very long, and sometimes fairly complicated, but he’s tackling a subject that I think is central to understanding what’s happening in America today. As the headline puts it, “If America Is Richer, Why Are Its Families So Much Less Secure?”

As Gosselin points out, although average incomes today are higher than than they were 30 years ago, income growth has slowed dramatically in recent years while income volatility has skyrocketed:

During the 1970s, families in the economic middle enjoyed a comparatively favorable run. Although their incomes generally swung up or down as much as 16% a year, they ended each year an average of 2% ahead of where they began. The result by the decade’s close was that the reward of extra annual income had more than covered the potential loss from a single year’s sudden plunge.

But the story during the 1980s and early 1990s was basically the reverse. The volatility of families’ income nearly doubled to as much as 30% a year. But now, instead of growing amid all the ups and downs, average family income dropped at an annual rate of 0.3% in the 1980s and an even steeper 2.3% in the early ’90s. The bottom line: more risk for less reward.

Although volatility remained high in the late 1990s, with typical annual swings of as much as 27%, incomes finally began to grow again, improving families’ odds of being able to get ahead. But the good times didn’t last. Since 2000, incomes have reversed course and fallen about 1% a year, according to recently released census figures. In other words, things are back to the unattractive equation of more risk for less reward.

Gosselin’s story alternates profiles of two struggling families (one high income and one middle income) with explanations of what’s happening and ? more important ? why. And while his take is fundamentally nonpartisan, it’s pretty easy to see how George Bush’s “ownership society,” far from helping to address this problem, will merely exacerbate it.

Is increased volatility a price worth paying for an arguably more vibrant economy? Maybe. But you need to know the entire story before you decide, so take a few minutes and read this piece. It’s important.