Trapped in the New ‘You’re on Your Own’ World

When the Bush-Cheney administration proposed to replace Social Security with a system of individually accumulated, individually owned, and individually invested accounts, my first thought was that its goal was to take the Social out of Social Security. It took a few minutes longer to realize that it also intended to take the Security out of Social Security.

That attempt failed. In recent years, however, a mixture of public and private policy decisions and impersonal market developments has had the broad effect of shifting many financial risks from established institutions, including even society at large, to individuals who are unable to cope with them in an adequate way. Information may be impossibly difficult for citizens to process; or else the basic information may not be available to individuals or private groups. Sometimes the scale of the possible bad outcomes may be overwhelming. Sometimes the appropriate insurance market cannot function or just does not exist. The result is that individuals and families can be the casualties of situations that once would have been handled by a more centralized and more bearable allocation of risks.

The current turmoil in credit markets and the recession that is sure to follow are likely to drive this trend further. Banks, insurance companies, and other financial institutions have seen too many risks go sour. They will be more determined than ever to push further risks onto those needy borrowers who are too weak and too ignorant to bargain hard. Families, small businesses, and other borrowers of last resort will be under great pressure.

Peter Gosselin’s excellent and thoughtful book, High Wire: The Precarious Financial Lives of American Families, is not the first to explore this territory. Two others that come to mind are Louis Uchitelle’s The Disposable American Gosselin is like Uchitelle in combining social criticism with substantial stories of recognizable people who have been trapped by bad luck or bad judgment in this new you’re-on-your-own world; he differs in covering a much broader variety of risks and risk-bearers than Uchitelle’s focus on workers and job-related risks. Hacker’s book also ranges over many issues, but does not have Gosselin’s expert journalistic use of recognizable cases. (Professor Hacker is currently engaged in a Rockefeller Foundation–sponsored effort to construct a general “Index of Economic Security”—to show empirically how economic security varies over time and across social groups.)

Gosselin, who works in the Washington bureau of the Los Angeles Times, does a fine job of connecting the stories he tells to general ideas and to economy- wide statistical markers, some developed for his particular purpose. He has produced a readable and valuable book. In this connection it cheers me up to see how he has profited from a stay at the Urban Institute, a leading non- ideological research center in Washington. (I am on the board of the Urban Institute, but our paths never crossed there, though we are acquainted.)

A grasp …

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Letters

The Trouble with 401(k)s December 4, 2008