The Risk Marathon
Jacob Hacker’s data show that the typical American family today is running a risk marathon. Some may make it, but every year more families are falling as the risks catch up with them.
Jacob explains that the predicted probability of a 20 percent or greater income drop among such “average” families was 4 percent at the beginning of the 1970s. By the early 2000s, it had more than doubled to 10.6 percent. See the graphic in the continuation.
This is a powerful change with huge implications. Jacob shows that on the income side alone, families are far more vulnerable than they were a generation ago. Combine that with the data we developed in The Two-Income Trap on rising costs for mortgages, health insurance, transportation, childcare and total taxes. A generation ago the median one-income family spent about half of its income to cover these basic expenses, while today’s two-income family is spending about 75% of its total take-home pay to cover the same costs. In other words, it now takes two incomes instead of one to lay claim to the life that one income purchased in the early 1970s—and the two-income family faces even higher risks of income instability than their one-income parents faced a generation ago.
These middle class families are running a race that fewer and fewer of them will win. They are working harder but their odds of an economic meltdown keep accelerating.
The middle class, once a comfortable designation marked by security and safety, has become high-risk. Kudos to Jacob for producing the data that too many people would like to ignore.
Thank you for making this so clear. More people need to know about it. I am a living example. I have had to deal with a perfect economic storm: the collapse of the textile industry, the transition from mainframe programming to personal computer programming, two long illnesses in the family, the jobless recovery, outsourcing, several bouts of unemployment while trying to learn a new profession. People think it is easy to learn a new profession, but with outsourcing, the entry level jobs have disappeared.
October 16, 2006 7:13 AM | Reply | Permalink
Notice that the trend has been in the same direction for 35 years. It may have had a few blips, but this indicates that it is a systemic issue and not a political one.
Neither party seems to have done anything to alter the fundamental realignment in our society. This could be because they don't appreciate the seriousness of the situation, or it could be because both have become beholding to big business for campaign funds, or it could be because of the decline in the power of organized labor.
What seems clear to me is that if there is to be a change to a post-manufacturing society, the adaption ideas will have to come from outside the political community. Drawing attention to the problem is a good first step, but where are the academics, labor leaders and economists offering solutions?
--- Policies not Politics
Daily Landscape
October 16, 2006 7:28 AM | Reply | Permalink
I don't read it exactly the same way. The trend was essentially flat until the reign of George I. The slope took off steeply at that time. The slope steadied and then reversed under Clinton. Under George II, the slope again reversed sharply. And there we are. Of course, the closeness of fit depends on what actually is being measured here. But on face value it would appear to say that risk has increased the most under the Bush presidencies. It would be interesting to explore further what is the cause of that effect.
October 16, 2006 9:13 AM | Reply | Permalink
The near tripling of risk of income loss is all the more striking if one takes into account a major income stabilizer on the one hand (women entering the work force as, often, a second income) and increased vulnerability of people quite apart from earnings, because of increased risks of being without retirement packages or health care.
John
http://www.haberarts.com/
October 16, 2006 10:07 AM | Reply | Permalink
I think this is a very insightful comment!! I would suggest that maybe this has something to do with the fact that we have constant creeping inflation, which adds up over the years, and continues to eat away at our standard of living. We do what we can to compensate, but it is a losing battle. Eventually, if we keep increasing our tolerance for debt, and continue to depend on a fiat currency, the system will collapse and debts will overcome us. If we could realize that eliminating debt in our lives and our government, that we would most likely be more prosperous without it, we'd change direction for the better.
Jim Anderson
The Truth About Credit
October 16, 2006 4:48 PM | Reply | Permalink
So you are saying that the day George Bush number one took office, the economy instantly changed because of his policy, as it did with number two. And when Clinton was in office, his policies had an equally instant effect on the economy. Isn't it possible that the effect of policies aren't seen in the economy until years later? Doesn't it take a while to turn a gigantic ship like the American economy?
Jim Anderson
The Truth About Credit
October 16, 2006 4:53 PM | Reply | Permalink