A Strong Safety Net Encourages Healthy Risk-Taking

From Five Ways of Looking at Risk.

Remember the "ownership society"? Just an election cycle ago, conservatives were urging Americans to give up their antiquated social-insurance programs--Social Security, Medicare, unemployment insurance--in favor of tax-subsidized individual accounts that would vest responsibility for dealing with economic risk in workers and their families. Thankfully, the most extreme elements of that agenda failed, and the vision behind it (of responsive financial markets capable of managing risk with limited government oversight, and the private sector providing inclusive, progressive protections with minimal public prodding) is now discredited.

Yet while the ownership society was a practical and intellectual failure, it was more of a political success than commentators generally acknowledge. Even before the financial crisis, the broad set of economic protections that arose in the Great Depression and expanded in the decades after--sometimes called the "safety net," though in truth the net was never understood to be the bare minimum that the term implies--lay in tatters. Over the last generation, our economy and society have dramatically changed, creating new risks and intensifying old ones. But our public-private framework of economic security has decayed, leaving advocates of the existing policies increasingly defending a Potemkin village of hobbled and out-of-date protections.

If ever there were a time for an alternative to the reigning orthodoxies of risk management, this is it. Now is the time to adopt a vision not of individuals managing economic uncertainties on their own with limited government help but of all of us providing the common foundation for economic prosperity and advancement through smarter and broader sharing of risk. Yes, progressives must unlock financial markets and put them on a stronger basis. But our longer-term goal should be more fundamental: a new public-private partnership that builds upon and extends the basic underlying principle of the New Deal. That principle--even more true today than it was in the 1930s--is that security is not opposed to opportunity but essential to it. In a dynamic and flexible economy, well-designed policies of economic security are critical if workers are going to have the confidence they need to invest in and achieve the American dream.

Consider our failing health-care system, with its spiraling costs and cratering coverage. One in three people younger than 65 in the United States goes without health insurance at some point every two years, and even Americans who have health insurance are at risk of catastrophic costs that can drive them into bankruptcy. Our exorbitantly expensive system weighs down family finances, harms labor-market flexibility, and siphons off money that could be invested in enhanced productivity and skills. In the face of this crisis, calls for health savings accounts or greater personal responsibility fly in the face of the overwhelming evidence--from our own history and cross-national experience--that broader sharing of risk through publicly sponsored public and private insurance would not only head off countless preventable hardships but also slow the skyrocketing growth of health costs and improve our economy and long-term fiscal standing.

Health care is only the tip of a larger iceberg. In every facet of Americans' economic life--their health care, their pension plans, their job security, their family finances--risk and responsibility have shifted from the broad shoulders of government and corporations onto the fragile backs of workers and their families. In an era of partisan polarization and gridlock, we have failed to update our nation's safety net to reflect the changing economic and social realities of our nation. We still have strong benefits for the elderly, but we do very little to help the millions of young Americans struggling to gain a foothold in the job market or buy a home or start a business--the future of our economy and society. Our safety net emphasizes short-term exits from the work force, even though long-term job losses and the displacement and obsolescence of skills have become more common. And some of our social polices still embody the antiquated notions that family strains can be dealt with by a parent, usually a mother, who can easily leave the work force when there is a need for someone at home.

Above all, our safety net is based on the dying belief that job-based health and retirement benefits can easily fill the gaps left by public programs, when it is ever more clear that they cannot. We spend hundreds of billions of dollars subsidizing workplace benefits through the tax code so that employers can serve as mini-welfare states. But, of course, employers are less and less willing to take on these obligations, and less and less willing to provide broad protections on equal terms to their workers when they do. At one time we had guaranteed private pensions that looked much like Social Security; now we have 401(k) plans that place nearly all of the risk of retirement planning on workers. In effect, we have shifted from the traditional "three-legged stool" of Social Security, guaranteed private pensions, and private savings to a wobbly two-legged stool of Social Security and private savings (inside and outside of 401(k)s). Once again, economic common sense and social justice both argue for moving away from our present mess toward the broader and more direct pooling of risk.

George W. Bush's ownership society was based on the belief that "financial innovation" would spread the rewards of economic growth to all Americans through better and broader access to financial assets. Yet the exact opposite has been true. As government and corporations have pulled back, the personal safety net has been fraying, too. There is no need to restate the familiar statistics: bankruptcy and home-mortgage foreclosures are up, savings are down, debt is up, and middle-class incomes have grown slowly in an era in which most of the rewards of economic growth have gone to the richest of Americans.

"Risk" may be the word on people's lips today, but most understand it far too narrowly. Risk does not simply concern the breakdown of our nation's financial institutions; it concerns the breakdown of our nation's social contract. If we are to fix that contract--and our economy--we will have to do more than socialize risk for those at the top of the economic ladder. We will need to reclaim the twin ideals of security and opportunity for all Americans.

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