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Wednesday, May 21, 2008

Output Growth and Economic Security

I don't think there is much new here, but it's nice to see Robert Samuelson is catching on to the consequences of decreased economic security:

Cause of Middle-Class Anxiety, by Robert Samuelson, Washington Post: We middle-class Americans are in a funk. "The overarching economic narrative of the 2008 campaign is the idea that life for the middle class has grown more difficult," Paul Taylor of the Pew Research Center ... writes. ... By its survey, more than half of Americans believe they either have not moved ahead in the past five years (25%) or have fallen behind (31%). Pew pronounces this "the most downbeat short-term assessment of personal progress in nearly half a century."

It's not that Americans have lost their optimism. About two-thirds say they have higher living standards than their parents..., and by a 2-1 margin they expect their children to live better than they do. But there's an underlying disenchantment that seems to predate today's higher oil prices, falling home values and declining employment.

"When my college-educated, gainfully employed thirty-something friends and I get together, we talk about money," Nan Mooney writes in her new book... "We talk about our inadequate health insurance and whether we can afford it, about how to juggle credit card payments and crushing student loans. ... This wasn't the life I'd expected."

Part of the deceptive sense of falling behind reflects the elastic nature of being middle class. According to Pew, 70% of households now have two or more cars, and a similar share has satellite or cable TV; 66% have high-speed Internet; 42% already have flat-panel TVs. ... More students ... have debt. Health care is expensive... One in 10 households now has a vacation home.

"Progress" keeps draining our pocketbooks. ... But today's middle-class anxieties transcend the well-advertised "squeeze" on incomes. The deeper source of disquiet, I think, lies elsewhere. Middle-class families value predictability, order, and security, and these reassuring qualities have eroded. People worry about rising living expenses; but what really upsets them is the possibility that their incomes or fringe benefits — pensions, health, and disability insurance — might vanish.

Paradoxically, "the lives of individual Americans have grown simultaneously more prosperous and more precarious," Peter Gosselin writes... The share of families suffering a 50% loss of income with a spell of unemployment rose to almost 26% from 17%. Fear of these setbacks has also climbed up the social ladder: not just factory workers and low-paid service employees but also managers and engineers.

Companies downsize. Older workers exit in buyouts. Companies raise health-insurance premiums. The reliable "defined benefit" pension ... has given way to the riskier 401(k)... Corporate protections have weakened...

One result is that bad economic news packs greater psychological punch than it once did, because more people identify with the victims. Change isn't just something that happens to them; it could happen to us. People worry even if they hold well-paying jobs.

We are losing our sense of entitlement. Under the implied social contract, people who "played by the rules" — to use a phrase popularized by Bill Clinton — deserved modest middle-class guarantees: a steady job, rising income, and protection against random misfortune such as sickness, disability, job loss, and accidents. There was a belief that diligence and responsibility were their own rewards. ...

But the prevalence of middle-class ambitions and values creates a vexing contradiction: The advances in living standards that Americans expect require a flexible and competitive economy that weakens the security and stability that Americans also expect.

But the question is how severe the tradeoff is between economic security and economic growth, and I'm not convinced that it's as severe as implied. After the Great Depression, and also after World War II, we had significant changes in the level of economic security (and there were more changes in the 1960s with the Great Society programs), but we didn't seem to sacrifice anything in terms of economic growth, at least not as measured against other countries in the world. Now that security has eroded over the last several decades, it's hard to see how returning to previous levels will somehow destroy our flexibility and competitiveness, and it's not at all clear that modest steps beyond previous levels of security would have any significant impact either, particularly steps like universal health care (which could help businesses as well as their employees). So maybe the contradiction isn't so vexing after all.

    Posted by on Wednesday, May 21, 2008 at 02:34 AM in Economics, Social Insurance | Permalink  TrackBack (1)  Comments (28)


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    Mark Thoma has smart things to say about the assumed tradeoff between a more dynamic economy and a more secure one: After the Great Depression, and also after World War II, we had significant changes in the level of economic security (and there were mo... [Read More]

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