What is “The Great Risk Shift”?

WHAT IS “THE GREAT RISK SHIFT”?….I can see that my last post stirred up as much dissent as assent, and I think I understand why. Criticizing the Democrats is frequently a set-up for mealy-mouthed centrism. But that?s not what I?m advocating. Instead, I want the Democrats to return their roots, so to speak?reclaiming their voice as the defender of middle-class Americans on pocketbook issues. And the way I argue Democrats can do this is by speaking forthrightly about the rapidly increasing insecurity of American workers and their families, and by putting forth innovative ideas that build on the Democrats? proud tradition of broad-based insurance while updating that tradition for the new world of work and family. As I said in my last post, I don?t think this is necessary to win big in November. But I do think it?s essential if Democrats are to build a strong governing majority for the long haul and restore a measure of public faith in government.

I want to talk briefly about increasing insecurity in this post, then take up potential criticisms (or actual ones; see also this one and this one) and provide some ideas about what should be done in posts to come.

Why are Americans so unhappy about the economy, when the basic economic numbers (inflation, unemployment, economic growth) have been pretty good? Because the basic economic numbers don?t capture the pervasive insecurity that Americans increasingly feel. Our economy has?until recently at least?produced strong overall growth and productivity (though not strong growth in middle-class incomes). But it?s also been producing massive economic instability for ordinary Americans, whose jobs, incomes, homes, health insurance, and retirement pensions are ever more at risk.

If you have trouble figuring out why risk makes people anxious and unhappy, consider this simple thought experiment: How much of your income would you be willing to put at risk to get a chance at twice your current income? If you?re like most Americans, the answer is ?not much??and for a simple reason: While you?d love to have more money, your life would be thrown into turmoil if your income dropped by, say, half.

Social psychologists have a name for this phenomenon: ?loss aversion,? which means simply that we dislike losing things we have far more than we like gaining things we don?t have. No wonder: If your family income fell by half, you would risk losing your home, your health insurance, your retirement savings?in a word, your safety net. And with these vital assets would go your dreams for the future. Maybe it?s no surprise, then, that a recent poll found that even opportunity-loving Americans prefer, by a two-to-one margin, the security of having their current income protected to the chance to make more money.

To understand why insecurity is at the heart of public dissatisfaction with the economy requires grasping how much our economy has changed. I?ve discovered that the up-and-down swings of American family incomes before taxes are now three times larger than they were in the early 1970s. Remember that thought experiment about a 50 percent potential income drop? Well, the chance of such a 50 percent drop for an average American?with average age, average education, average personal characteristics, average chance of experiencing job loss, divorce, and the like?is now almost one in six. (The chart below, taken from this report, tells the story.) Find six average people, and the statistics say one of them is going to see their family income fall by half. Back in the early 1970s, you would have had to round up more than fourteen people before one of them faced that risk.

As Jack Beatty recently argued at the Atlantic Online, poverty and inequality are often highly abstract for most Americans?even those who?ve fallen farther and farther behind the top birds in the economic pecking order. Economic insecurity, however, is decidedly not abstract, and it?s being felt by more and more Americans. Which is precisely why the risk shift could become such a resonant political issue.

Is there an alternative? Yes, and Democrats should seize it. But that?s a subject for another post.