Review - High Wire

The media does not have a lot of patience with digging out real economic stories. It's easier just to go through the Rolodex and call up the usual suspects, the economists and business leaders who are always quoted in stories or put on TV panels. There's an economist in Chicago who is the go-to gal for every upturn and downturn in the market, so much so that she probably works out of a TV studio. We also have our own version of Suze Orman, a woman who has appeared on local television for decades with financial advice (her stock answer, no matter the situation: invest and diversify - for anything else, check with your own financial adviser).

The problem, of course, is that the media never stands back and takes the longer view. The stories boil down to, how should people deal with today's stock market, and what are individual shoppers thinking? Very occasionally, a newspaper will look at the longer-term plight of a real family, but it's rarely deep enough to help us see what's actually going on.

This blog (among others) has tried to shed some light on some number of larger topics; in particular, I've written several times about how the large institutions of our society have been shifting risk to the less powerful, their employees, their customers, their suppliers, and their stockholders. (It's my belief that this is an outgrowth of financial risk management, which emboldened executives into thinking that risk is a commodity rather than an inherent part of doing business.)

There have been a few books that have tried to chronicle this trend, but the most effective one I have read is High Wire: The Precarious Financial Lives of American Families (2008) by Los Angeles Times reporter Peter Gosselin. (I referred to a review of this book by Robert Solow here; he is at least as complimentary as I.) This book is profoundly sobering in its comprehensive look at the extent to which families are being asked to assume not just greater burdens, but a larger amount of volatility.

Volatility is important because it demonstrates the probability that a family will experience a life-changing reduction in its income. If people were simply losing ground, that could be handled (even though it is incongruous with the supposed leap in productivity we've seen in the U.S.), they would cut back and learn to do without. But an increase in volatility makes it more likely that people will be thrown into a hole with possible long-lasting effects. Gosselin develops a measure of volatility and refers to other studies in the subject; there is general agreement that financial life has become more risky over the past 30 years. This is true at each income level but the very top, but, of course, the upper middle class have a somewhat better chance of withstanding a drop.

But studies aren't going to be what a reader takes away from High Wire. It's the people who Gosselin finds, people who, for the most part, are living the American dream when something happens that irrevocably changes their lives - and there's no backstop for them, no safety net to smooth over the rough spots.

The book is divided into different subject areas, classified by the categories that most affect the average American. I won't go into detail on each - you really should read the book - but Gosselin demonstrates how the ERISA legislation has provided cover for corporations to dump defined-benefit pension plans for defined-contribution ones. This provides an illusion of control, but leaves retirement income up to the vagaries of the market.

The chapters on jobs and "unjobs" are quite affecting. We've become aware of the elimination of lifetime employment; layoffs are far more likely than they were just a few decades ago. The vaunted small business economy, which is touted as a job creation engine, is more illusory than it appears, because smaller companies go out of business far more easily than do large ones. They may create jobs (though, as I've pointed out many times, it is necessary to point out that that function is not an objective but a by-product of increased business), but those jobs are less likely to last for even a fraction of a career.

An "unjob" is one that is by its very nature temporary. It tends not to offer benefits, even at the very highest level, and there is no commitment on the part of the company. It reduces people to contingency workers, eliminating the relationship between a person and his or her work to a transactional exchange. Some of these are lucrative; there's even a market for temporary CEOs, but they still suffer from their short-term nature, making it hard to plan a life. What these jobs do is turn back from one of the great human inventions, division of labor, by turning everyone into a perpetual marketer of self (OK, maybe bees were there first). Gosselin doesn't spend much time on this aspect, leaving it to Barbara Ehrenreich, but it's certainly disturbing to see talented, experienced people spinning their wheels on a variety of money-making ideas when they have proven value.

Many of the programs that used to help the poor have been eliminated or cut back beginning in the Reagan years. Housing assistance has been reduced considerably, as easy-way-out politicians chose to assume that the market would provide. Of course, it hasn't, and those at the bottom of the ladder are the ones who are most at risk as we see the subprime mortgage market implode.

The two sections on insurance, house and health, are probably the most frightening. Very few of us understand the extent to which actuaries (who deal with probabilities over large populations) are being supplanted by risk managers, who attempt to ascertain individual risk, allowing their companies to price accordingly (or stop providing insurance in certain risky areas). Naturally, this removes one of the justifications for insurance, risk pooling, and turns that market into a perverse sort of lottery. The idea that, if you are lucky enough to remain unhealthy or your house doesn't burn down, you might actually pay slightly more than people who don't have that luck, is disappearing. But that implies that bad luck is just that much more devastating.

Reading the chapter on health insurance will convince you, if you aren't already convinced, that we need some serious changes to the process. People are dying because non-medical personnel are making decisions about treatment and payment, and our legal system is geared toward backing whatever decisions are made. That seriously ill people have to spend time wrangling with an insurance company over what is covered and what is not is a travesty in any civilized society.

Education is the ticket to success, at least that's what we're told by virtually everybody. But, as Gosselin says:

Young people are expected to make career calls early on, place large educational bets on those calls - usually with their parents' money - and suffer the consequences if the decisions turn out to have been wrong. If the student or the economy changes along the way, so that the career option chosen at a relatively early age has lost its luster, too bad.

This process was not so problematic in a growing economy, as more jobs were needed in virtually every field. Furthermore, jobs were less specialized (alternatively, credentialism had not taken hold to the extent it has today), so skills were transferable to a degree that almost certainly won't be available to today's students.

We look at the stock market and bless the day(s) that Bush's replacement of Social Security with private accounts fell through. We've already tried to turn far too many Americans into investment professionals, and, frankly, we're just not up for the job. The actual professionals don't do a very good job - why would we be any better? Gosselin is entertaining, but disturbing, when he queries Nobel economics laureates on their own investments, finding that they're as clueless as the rest of us in saving for retirement.

Finally, we're taken to New Orleans in the aftermath of Katrina. Here again, the free market is supposedly handling the rebuilding efforts, with some minimal incentives provided by government. The problem is one of critical mass: Until enough people are convinced to return to make the provision of services profitable, those services won't come back - but the people won't return without the services. Giving no-bid contracts to Halliburton subsidiaries will not solve that problem.

In this review, I've just touched on some highlights. There's a lot more in High Wire, well-researched and well-written. The Introduction is a superior essay on these topics. Gosselin intelligently avoids the tendency to propose programs to "fix" these problems, admitting that many of the most sound ideas have no chance of being enacted. He touches upon some specific proposals that have been offered in the past, such as income-contingent college lending, but concedes that the old ways are likely not returning. If we are, however, to provide more security, especially for the most vulnerable in America, we need to do something: "What has been damaged by some can be repaired by others." Steps in that direction would truly be change we could believe in.