What Does it Mean to Live in A Riskier Society?

Generally it means, more wealth and well being.

Brink Lindsey from Cato is critiquing a book (The Great Risk Shift) by Yale Poli Sci Professor Jacob Hacker in today’s WSJ.  Professor Hacker says that things were better back in the day when we were all in the same boat.  Lindsey responds:

But if we're talking about security from material deprivation, that's a different story. Let's start with the biggest risk of all: that of premature death. Back in 1970, during Mr. Hacker's golden age of economic stability and risk-sharing, the age-adjusted death rate stood at 12.2 deaths per 1,000 people. By 2002, it had fallen more than 30%, to 8.5 per 1,000. In particular, infant mortality plummeted to 7.0 from 20.0, while the number of Americans killed on the job dropped to three per 100,000 workers from 18.

Next, look at the two main indicators of middle-class status: a home of one's own and a college degree. Between 1970 and 2004, the homeownership rate climbed to 69% from 63%, even as the physical size of the median new home grew by nearly 60%. Back in 1970, 11% of Americans 25 years of age or older had a college or higher degree. By 2004, the figure had risen to 28%.

As to consumer possessions, the following comparison should suffice to make the point. In 1971, 45% of American households had clothes dryers, 19% had dishwashers, 83% had refrigerators, 32% had air conditioning, and 43% had color televisions. By the mid-1990s all of these ownership rates were exceeded even by Americans below the poverty line.

No matter how the doom-and-gloomers torture the data, the fact is that Americans have made huge strides in material welfare over the past generation. And with greater wealth, as well as improved access to consumer credit and home equity loans, they are much better prepared to deal with the downside of increased economic dynamism.

Mr. Hacker leans heavily on his findings that fluctuations in family income are much greater now than in the 1970s. But research by economists Dirk Krueger and Fabrizio Perri has shown that big increases in the dispersion of income have not translated into equivalent increases in consumption inequality. In other words, most Americans are able to use savings and borrowing to maintain stable living standards even in the face of economic ups and downs. And those standards are much higher than those of the all-in-the-same-boat era.

Could increased personal responsibility and greater incentive to manage one’s risk remove the moral hazard aspects of social insurance to create more wealth? 

 

Comments

[Evan]

Great point about the effects of "social insurance", but is it feasible in the long run? Interesting citation though, some surprising statistics.