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May 17, 2005
Deal with Risk
In the last few weeks I've read two articles that, to me, perfectly encapsulate the reasons why Social Security reform continues to have the stench of a dead issue, no matter how urgently we need to address it. The first, "I Want My Safety Net" appearing in the May 16th issue of BusinessWeek, nicely lays out just how risk-averse many in our society truly are. The second, "50 and Fired", appearing in the May 2nd issue of Fortune, addresses the increasing uncertainty in the lives of middle-aged white-collar workers. Together, these articles paint a picture of a nation composed of individuals with a tenuous grip on their status, and hesitant to add the to the insecurity in their lives.
I have argued consistently that many of our fellow citizens are risk averse, and that Social Security reform will not succeed until the issue of risk has been fully addressed. According to Raj Chetty, an economics professor with UC Berkeley: "With a far greater portion of family budgets devoted to the mortgage, car payment, and health insurance, a transitory shock to wages becomes much more menacing," he then goes on to declare: "Risk in general has become a much more pervasive issue." In January 2000 67% of Americans considered investing in stock to be a good idea, by April 2005 that number had fallen to 45%; summarizing the views of the electorate, Representative Rahm Emanuel (D-Ill) stated: "They want the Ownership Society -- but they want it with a warranty". According to this article, the core group of those opposed to Social Security reform are a key Bush constituency: white male swing voters (who, it should be remembered, have average incomes and below-average educations). The concerns of Americans for the risks they currently face, their unwillingness to gamble when circumstances are not in their favor, and the defection of a key group of traditional Republican supporters on this issue have combined to make meaningful Social Security reform almost impossible.
In "50 and Fired", the wrenching changes many middle-aged white-collar workers are now facing are reviewed. Individuals that have been able to bounce back from previous layoffs are finding themselves increasingly less desirable to potential employers as they get older. According to workplace consultant Bruce Tulgan, 3.5 million individuals between the ages of 40 and 58 (nearly 5% of baby boomers) left the labor force between 2001 and 2004. Many older workers who do find new jobs are taking a pay cut: a Bureau of Labor statistics survey of "displaced workers" revealed that only 32% of workers over 57 earned as much or more at their new employer. Karen Hochman, chair of the NYC chapter of MENG (Marketing Executives Networking Group) says of the current situation: "You’ve got hundreds of thousands of obsolete professionals who can’t find employment in positions where they’ve been successful. These are people living off retirement savings 15 years before they were supposed to retire. They don’t know what they’re going to do." The people undergoing these career pressures, as well as their loved ones, can hardly be relied on to support reform that further increases risk.
I continue to be supportive of meaningful Social Security reform, but I am dismayed by the tone-deaf approach that has been taken by President Bush and Republican legislators to sell the idea to the American people. The public at large deals with myriad risks every day as our global economy continues to evolve into something vastly more dynamic and competitive than the economy of 20 or 30 years ago. To convince the citizens of this country of the merits of private accounts, someone is going to have to sell the idea that risk is either meritorious or necessary or both. Until someone in government does, I believe substantive Social Security reform will continue to elude us.
Posted by Audi Partem Alteram at May 17, 2005 12:04 PM
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