Donald Trump’s victory in the 2016 presidential election should be a wake-up call to those who believed Americans’ growing insecurity would remain a sideshow in public life. During the campaign, Trump bested his GOP rivals and then his Democratic opponent in part by tapping into the pervasive economic anxiety that so many voters feel.
To be sure, Trump coupled his calls for middle-class revival with stark appeals to racial resentment, directing white Americans’ anger toward a range of scapegoats. For a Republican candidate, however, his rhetoric was notably favorable toward existing programs of economic protection. He promised to “save Medicare, Medicaid, and Social Security without cuts” and said he would cover everyone with “far less expensive and far better” health insurance than that provided by the Affordable Care Act. In his victory speech, he declared, “We are going to fix our inner cities and rebuild our highways, bridges, tunnels, airports, schools, hospitals. We’re going to rebuild our infrastructure, which will become, by the way, second to none. And we will put millions of our people to work as we rebuild it.”
We now know that these promises were hollow. But we shouldn’t ignore what they tell us: Most Americans are less economically secure than they were a generation ago, and most want a greater degree of protection against the risks of a global knowledge economy. Just as Trump’s improbable victory showed the power and pervasiveness of Americans’ insecurity, his failure to effectively address it shows just how deep — and grounded in current policy and politics — the problems are.
The good news is that these are problems we can tackle — if we face squarely both the extent of insecurity and the degree to which it has been reinforced by what our government has done (and not done) in the face of changing economic realities. The even better news is that tackling these problems won’t just improve Americans’ lives. It will make our economy, and our democracy, stronger, too.
To many economic commentators, insecurity first reared its ugly head in the wake of the financial crisis of the late-2000s. Yet the roots of the current situation run much deeper. For at least 40 years, economic risk has been shifting from the broad shoulders of government and corporations onto the backs of American workers and their families.
This sea change has occurred in nearly every area of Americans’ finances: their jobs, their health care, their retirement pensions, their homes and savings, their investments in education and training, their strategies for balancing work and family. And it has affected Americans from all demographic groups and across the income spectrum, from the bottom of the economic ladder almost to its highest rungs.
I call this transformation “The Great Risk Shift” — the title of a book I wrote in the mid-2000s, which I’ve recently updated for a second edition. My goal in writing the book was to highlight a long-term trend toward greater insecurity, one that began well before the 2008 financial crisis but has been greatly intensified by it.
I also wanted to make clear that the Great Risk Shift wasn’t a natural occurrence — a financial hurricane beyond human control. It was the result of deliberate policy choices by political and corporate leaders, beginning in the late 1970s and accelerating in the 1980s and 1990s. These choices shredded America’s unique social contract, with its unparalleled reliance on private workplace benefits. They also left existing programs of economic protection more and more threadbare, penurious and outdated — and hence increasingly incapable of filling the resulting void.
To understand the change, we must first understand what is changing. Unique among rich democracies, the United States fostered a social contract based on stable long-term employment and widespread provision of private workplace benefits. As the figure below shows, our government framework of social protection is indeed smaller than those found in other rich countries. Yet when we take into account private health and retirement benefits — mostly voluntary, but highly subsidized through the tax code — we have an overall system that is actually larger in size than that of most other rich countries. The difference is that our system is distinctively private.
This framework, however, is coming undone. The unions that once negotiated and defended private benefits have lost tremendous ground. Partly for this reason, employers no longer wish to shoulder the burdens they took on during more stable economic times. In an age of shorter job tenure and contingent work, as Monica Potts will describe in her forthcoming contribution to this series, employers also no longer highly value the long-term commitments to workers that these arrangements reflected and fostered.
Of course, policymakers could have responded to these changes by shoring up existing programs of economic security. Yet at the same time as the corporate world was turning away from an older model of employment, the political world was turning away from a longstanding approach to insecurity known as “social insurance.” The premise of social insurance is that widespread economic risks can be dealt with effectively only through institutions that spread their costs across rich and poor, healthy and sick, able-bodied and disabled, young and old.
Social insurance works like any other insurance program: We pay in — in this case, through taxes — and, in return, are offered a greater degree of protection against life’s risks. The idea is most associated with FDR, but, from the 1930s well into the 1970s, it was promoted by private insurance companies and unionized corporations, too. During this era of rising economic security, both public and private policymakers assumed that a dynamic capitalist economy required a basic foundation of protection against economic risks.
That changed during the economic and political turmoil of the late 1970s. With the economy becoming markedly more unequal and conservatives gaining political ground, many policy elites began to emphasize a different credo — one premised on the belief that social insurance was too costly and inefficient and that individuals should be given “more skin in the game” so they could manage and minimize risks on their own. Politicians began to call for greater “personal responsibility,” a dog whistle that would continue to sound for decades.
Instead of guaranteed pensions, these policymakers argued, workers should have tax-favored retirement accounts. Instead of generous health coverage, they should have high-deductible health plans. Instead of subsidized child care or paid family leave, they should receive tax breaks to arrange for family needs on their own. Instead of pooling risks, in short, companies and government should offload them.
The transformation of America’s retirement system tells the story in miniature. Thirty years ago, most workers at larger firms received a guaranteed pension that was protected from market risk. These plans built on Social Security, then at its peak. Today, such “defined-benefit” pensions are largely a thing of the past. Instead, private workers lucky enough to get a pension receive “defined-contribution” plans such as 401(k)s — tax-favored retirement accounts, first authorized in the early 1980s, that don’t require contributions and don’t provide guaranteed benefits. Meanwhile, Social Security has gradually declined as a source of secure retirement income for workers even as private guaranteed retirement income has been in retreat.
The results have not been pretty. We will not be able to assess the full extent of the change until today’s youngest workers retire. But according to researchers at Boston College, the share of working-age households at risk of being financially unprepared for retirement at age 65 has jumped from 31 percent in 1983 to more than 53 percent in 2010. In other words, more than half of younger workers are slated to retire without saving enough to maintain their standard of living in old age.
Guaranteed pensions have not been the only casualty of the Great Risk Shift. At the same time as employers have raced away from safeguarding retirement security, health insurance has become much less common in the workplace, even for college-educated workers. Indeed, coverage has risen in recent years only because more people have become eligible for Medicare and Medicaid and for subsidized plans outside the workplace under the Affordable Care Act. As late as the early 1980s, 80 percent of recent college graduates had health insurance through their job; by the late 2000s, the share had fallen to around 60 percent. And, of course, the drop has been far greater for less educated workers.
In sum, corporate retrenchment has come together with government inaction — and sometimes government retrenchment — to produce a massive transfer of economic risk from broad structures of insurance onto the fragile balance sheets of American households. Rather than enjoying the protections of insurance that pools risk broadly, Americans are increasingly facing economic risks on their own, and often at their peril.
The erosion of America’s distinctive framework of economic protection might be less worrisome if work and family were stable sources of security themselves. Unfortunately, they are not. The job market has grown more uncertain and risky, especially for those who were once best protected from its vagaries. Workers and their families now invest more in education to earn a middle-class living. Yet in today’s postindustrial economy, these costly investments are no guarantee of a high, stable, or upward-sloping path.
Meanwhile, the family, a sphere that was once seen as solely a refuge from economic risk, has increasingly become a source of risk of its own. Although median wages have essentially remained flat over the last generation, middle-income families have seen stronger income growth, with their real median incomes rising around 13 percent between 1979 and 2013. Yet this seemingly hopeful statistic masks the reality that the whole of this rise is because women are working many more hours outside the home than they once did. Indeed, without the increased work hours and pay of women, middle-class incomes would have fallen between 1979 and 2013.
Not only are middle-class workers getting paid less while working more; family incomes have become increasingly unstable. Although the precise magnitude of the increase in income instability depends on how the variance is measured, my own research has shown that large income drops are substantially more common at the household level than they were a few decades ago — and that this was true even before the post-2008 downturn.
To provide a sense of the change, the figure below shows the share of working-age Americans experiencing 50 percent or greater drops in their family income from one year to two years later. (The two-year interval is because this figure is based on the Panel Study of Income Dynamics, which has only surveyed people every other year since the mid-1990s.) The probability of a 50 percent or greater drop was as low as 2 percent in the late-1960s. It’s risen dramatically since. And while it has oscillated with the business cycle, it has risen through both good times and bad, reaching record levels during the Great Recession. (Changes in the survey probably account for the unusually large spike in the wake of the 1992 recession, but the long-term trend isn’t affected by this.) Moreover, it has risen among those with advanced degrees as well as high school dropouts, among those in the middle of the income spectrum as well as people at the bottom.
We’d expect two-earner families to have greater stability. But with families increasingly needing two adults in the workforce to maintain a middle-class standard of living, their economic calculus has changed in ways that accentuate many of the risks they face. Precisely because it now takes more work and more income to maintain a middle-class standard of living, the questions that face families when financially threatening events occur are suddenly more stark. What happens when women leave the workforce to have children? What happens when a child is chronically ill? What happens when one spouse loses his job? What happens when families themselves fall apart? And what happens to the substantial minority of parents who don’t even enjoy the private risk-sharing of marriage or cohabitation — who are trying to keep up with the married Joneses on a single income? How can they expect to weather the growing shocks that families face?
In short, the new world of work and family has ushered in a new crop of highly leveraged investors — middle-class families. We can see signs of this transformation everywhere. Here are a few.
Bankruptcy: One is the dramatic increase in personal bankruptcies. Between the 1980s and the mid-2000s — when a strict new bankruptcy law demanded by the financial industry radically scaled back eligibility — personal bankruptcy went from a rare occurrence to a relatively common one, with the number of households filing for bankruptcy rising from fewer than 290,000 in 1980 to more than 2 million in 2005. According to research done by Elizabeth Warren when she was a law professor (and, of course, before she was a senator), bankrupt families are pretty much like other Americans before they file: They are slightly better educated, more likely to be married and have children, roughly as likely to have had a good job, and modestly less likely to own a home. They are not the persistently poor, the downtrodden looking for relief. They are refugees of the middle class, frequently wondering how they fell so far so fast.
Foreclosure: Americans have also been losing their homes at record rates. Between the early 1970s and mid-2000s — even before the housing bubble burst — the mortgage foreclosure rate increased approximately fivefold. From 2001 to 2005, an average of one in every sixty households with a mortgage fell into foreclosure each year, a legal process that begins when homeowners default on their mortgages and can end with homes being auctioned to the highest bidder in local courthouses. In 2010, at the peak of the crisis, a startling one in twenty households entered the foreclosure process — compared with less than one in three hundred in the early 1970s. For millions of ordinary homeowners, the American Dream has mutated into what former U.S. Comptroller of the Currency Julie L. Williams in 2005 called “the American nightmare.”
Eviction: The sociologist Matthew Desmond recently cast a spotlight on another pervasive source of insecurity: eviction. The growing gap between wages and rent in America’s cities, as well as declining federal subsidies, have led lower-income renters to spend an enormous and growing share of their income on housing expenditures — in the majority of cases, more than half their income. According to Desmond, a startling 6 to 7 percent of the nation’s 40 million or so renter-occupied households have eviction filings made against them annually, with around 2 to 3 percent ultimately facing eviction — again, each year.
Debt: Though bankruptcy, foreclosure, and eviction are the most dramatic ruptures in the thinly stretched fabric of American family finances, the day-to-day strain is best captured by a simpler fact: American families are drowning in debt. Since the early 1970s, the personal savings rate has plummeted from around a tenth of disposable income to the low single digits (2.6 percent at the end of 2017 — roughly where it was before the financial crisis). Meanwhile, the total debt held by Americans has ballooned as a share of income, especially for families with children. As a share of income in 2007, total debt — including mortgages, credit-card debt, car loans, and other liabilities — was roughly 170 percent of income for the median couple with children that had debt. (About 90 percent of such couples did have debt.) Although debt levels dropped and personal savings rates increased during the Great Recession, they have been trending the other way since 2010 — and are now roughly where they were before the crisis.
When it comes to economic security, this may be the most troubling aspect of the debt story: Millions upon millions of families have virtually no accumulated wealth to tide them over when things go bad. The growing precariousness of family incomes would be one thing if families were building up large nest eggs to sustain them when their incomes went south. Unfortunately, this isn’t happening. According to the Survey of Income and Program Participation, more than 25 percent of families in 2016 couldn’t maintain even a poverty-level standard of living for three months if they were forced to go without their income and to instead rely on their wealth.
But even these estimates are optimistic, because they include housing, which is a difficult asset to turn into cash, at least if a family wants to have a place to live. If the focus is just highly “liquid” assets — checking and savings accounts, money market funds, and the like — the picture is considerably more grim. In 2013, the majority of households (55 percent) did not have enough liquid savings to replace a single month of their income. Indeed, the typical middle-class family would have to liquidate not just its cash and checking accounts but all its investments, including all its retirement accounts, to cover a 25 percent loss in its annual income — a loss that we have seen is surprisingly common.
Take a look at the figure above. It shows both income volatility (at the individual level) and median wealth (at the household level) at different ages for different generational groups, or what social scientists call “birth cohorts.” The cohort in light blue, for example, encompasses people born in the 1920s and early 1930s (the so-called “silent generation”). The most recent cohort, in black, encompasses those born from the mid-1960s up to 1983 (“generation X”). What the figure shows is that income volatility has risen over time for all age cohorts, just as it has risen among all educational and income groups. At the same time, each successive cohort has started off, at age 25, with a higher baseline level of volatility. And they’ve faced this higher level of volatility with less and less wealth. Median wealth has fallen dramatically for those born since the mid-1960s, compared with wealth levels for their parents and grandparents at the same age. Risks are up; wealth to deal with those risks is down. Americans are facing more with less, and they know it.
Economic security matters deeply to people. When most of us contemplate the financial risks in our lives, we do not concern ourselves all that much with the upside risks — the chance we will receive an unexpected bonus, for example. We worry about the downside risks, and worry about them intensely.
In the 1970s, psychologists Amos Tversky and Daniel Kahneman gave a name to this bias: “loss aversion.” Most people, it turns out, are not just highly risk-averse — they prefer a bird in the hand to even a very good chance of two in the bush. They are also far more cautious when it comes to bad outcomes than when it comes to good outcomes of exactly the same magnitude. The search for economic security is, in large part, a reflection of a basic human desire for protection against losing what one already has.
This desire is surprisingly strong. Americans are famously opportunity loving. But when asked in 2015 whether they prefer financial stability or upward mobility, 92 percent of Americans said they wanted financial stability; just 8 percent chose upward mobility.
Economic insecurity strikes at the very heart of the American Dream. It is a fixed American belief that people who work hard, make good choices, and do right by their families have a good shot at stable membership in the middle class. The rising tide of economic risk swamps these expectations, leaving individuals who have worked hard to reach their present heights facing anxiety about whether they can keep from falling. And anxiety is just what millions of middle-class Americans increasingly feel.
Consider a revealing survey conducted in 2009 and then repeated in 2016. The Heartland Monitor Poll asked a representative sample of Americans whether, compared with their parents at the same age, the economy presented them “with more risks that endanger your standard of living.” Even amid the relatively strong economy of 2016, more than eight in ten respondents said they faced more risks (57 percent) or the same level of risks (27 percent) relative to their parents. Just 11 percent said the economy presented them with fewer risks. These responses turned out to be strikingly similar to those provided at the height of the economic crisis in 2009, when 86 percent said more (64 percent) or the same risks (22 percent), and an identical 11 percent said fewer risks.
Meanwhile, the share of people who said they had “more opportunities to get ahead” than their parents had — a sentiment Americans have traditionally endorsed — actually fell between 2009 and 2016, from 54 percent to 44 percent. This is almost certainly a direct result of the financial crisis. As journalist Ronald Brownstein summarized the findings: “The 2008 downturn — and the slow, unevenly distributed recovery that has marked its aftermath — crystallized for many Americans a new normal, one that presents them with reduced economic security and heightened risk even while it provides them with new opportunities and flexibility.”
This sense of “heightened risk” is widespread. In a series of surveys I conducted with a research team in 2009, almost 80 percent of Americans reported being “very” or “fairly” worried about at least one major economic risk. Across a range of economic threats, substantial majorities said they were very or fairly worried, with the greatest fears centering on inadequate retirement savings, cuts in health coverage, and high out-of-pocket medical costs.
The strains reported by middle-class Americans in our poll were staggering. In the 18 months covered by the survey, roughly half of Americans said they had experienced at least one major employment dislocation within their family (involuntary unemployment or loss of more than a month of work due to sickness or injury) and more than half experienced at least one major health dislocation (major out-of-pocket expenses, much higher insurance costs, or loss of insurance altogether). At the same time, Americans were, and continue to be, strikingly ill-prepared for major economic risks. Asked how long they could go without their current income before hardship set in, more than 70 percent said less than six months, and nearly half said less than two months.
As Trump’s victory suggests, the Great Risk Shift has led many to direct their anger outward: to search for scapegoats, to envy those who are perceived as still having a good deal, to see the problem in zero-sum terms (one person’s gain is another’s loss), when in fact increasing economic security would mostly be a positive-sum, win-win bargain. Like right-wing populists in other nations, Trump offers a blunt message to his insecure supporters: political leaders have abandoned you to help the powerful and the undeserving, and your security can only be restored by limiting immigration and trade and putting your faith in a strongman willing to act boldly and speak freely.
Unlike right-wing populists in other nations, however, Trump has also embraced the familiar platform of anti-insurance conservatives. In other rich nations, animus toward immigrants and Muslims gets paired with fervent defense of social benefits for native-born citizens. Trump has the animus part down, but the most consequential policy moves of his presidency have continued the anti-social-insurance campaign of the past few decades. Indeed, if anything, they have intensified its extremism.
A “far less expensive and far better” health plan turned out to be a proposed massive reversal of the coverage gains under the Affordable Care Act. Medicaid was not spared. To the contrary, it bore the brunt of the proposed reductions despite the heavy reliance of GOP-leaning regions on the program. The GOP health care drive was defeated by the narrowest of margins. Yet Trump has continued to try to unravel the coverage gains made under the Affordable Care Act — most recently, by seeking to let states impose work requirements on Medicaid beneficiaries (most of whom already work), which are certain to make it harder for eligible low-income Americans to get and keep coverage.
Far from a populist guarantee of greater security, the signal legislative achievement of Trump’s first year in office was a tax cut that delivered more than 80 percent of its long-term benefits to the richest 1 percent of households. By creating a big new budget hole, the tax law essentially guaranteed new fiscal pressures on popular social policies. And, indeed, his administration’s budget blueprints have all proposed slashing the programs he had promised to “save… without cuts.” From staffing his administration with free-marketeers hostile to Medicare and Social Security to knee-capping the Consumer Financial Protection Bureau to delegating almost all legislative policymaking to the GOP establishment, Trump has doubled down on the personal responsibility philosophy that has brought dislocation and despair to many of his staunchest supporters.
All of which helps explain why Trump and Republican candidates for Congress are far more eager to talk about immigration than insecurity, about hot-button cultural issues than third-rail social programs. Popular support for cutting back the welfare state has always been fragile, because the ethos of individual risk-management does not speak to the widespread desire for a basic foundation of economic security to deal with the risks and challenges of the twenty-first century. It is particularly fragile among the white working class voters who have become an increasingly vital part of the GOP base in recent elections. But a sincere push for greater security is not the only alternative to the individualistic mantra of personal responsibility. Darker alternatives loom as well — ones that substitute tribalism for individualism. If we are to avoid ever greater balkanization of our increasingly diverse society, we must fight for solutions that reflect the reality that we are all in this together.
The starting point for an alternative vision is a simple but forgotten truth: economic security is a cornerstone of economic opportunity. Like businesses, people invest in the future when they have basic protection against the greatest downside risks of their choices. The worker who fears being laid off at any moment may be more productive in the short run. But in the long run, insecure workers tend to underinvest in specialized training; they are more reluctant to change jobs; they try to minimize their sense of job commitment to protect themselves against psychological loss.
Similarly, the family barely scraping by may work more hours; but in the long run insecure families are not going to be able to make the investments in education and other keys to their future that they should. And, of course, none of these costs include the huge emotional, health, and economic losses absorbed by workers and their families when they lose their incomes, their homes, and their dreams.
Providing economic security appears even more beneficial when considered against some of the leading alternatives that insecure citizens may otherwise back. Heavy-handed regulation of the economy, strict limits on cross-border trade and financial flows, restrictions on legal immigration that prevent talented workers from joining our economy, and similarly intrusive measures may gain widespread support from workers buffeted by economic turbulence. And yet these measures are likely to produce not greater economic security, but greater instability and slower growth.
If we acquiesce to the rapid change and frequent disruptions endemic to a global knowledge economy then we also have to accept that many Americans, at one point or another, will be hit with economic shocks they cannot cope with on their own. Providing protection against these risks is a way of ensuring that Americans feel secure enough to take the risks necessary for them and their families to get ahead. Corporations enjoy limited liability, after all, precisely to encourage risk-taking. But while today we still have limited liability for American corporations, increasingly we have full liability for American families.
Students of U.S. public opinion have long marveled at our seemingly inconsistent embrace of government programs of insurance, on the one hand, and the ethic of rugged individualism, on the other. Americans are “operational liberals” and “philosophical conservatives,” the political psychologists Lloyd Free and Hadley Cantril once argued. They want to have their welfare state cake and eat their free-market capitalism, too. But why shouldn’t they? If we are to be encouraged to invest in new skills, strong families, new jobs, and everything else that makes upward mobility possible, we need a broader umbrella of basic insurance, not the ever more tattered and narrow one we’re trying to make work today.
Jacob S. Hacker is Stanley Resor Professor of Political Science and Director of the Institution for Social and Policy Studies at Yale University.
Made possible by