JOHN SCHNEIDER, INTERIM MASSINC PRESIDENT: I think this will be an enlightening and even controversial discussion. MassINC promotes the growth and vitality of the middle class. Whether you agree or disagree or are just here to learn more about the great risk shift, we are living through a time of great social and economic change. New rules are being written, creating new opportunities and perils for families. There is some uncertainty about where the economy is going and what it means for economic security.
MICHAEL JONAS, COMMONWEALTH MAGAZINE ACTING EDITOR (MODERATOR): The heart of MassINC’s work and Commonwealth’s coverage has been preoccupation with the path of the middle class. We are pleased to welcome Jacob Hacker to the Commonwealth Forum. He will be joined by a panel of local thinkers and doers. You can then weigh in with your questions. Jacob Hacker’s work has spanned the domestic policy landscape. “The Great Risk Shift” is the title of his most recent book. His ideas on shifting risk have received national attention and figure to play in the coming presidential election.
JACOB HACKER, YALE POLITICAL SCIENCE PROFESSOR: It’s a real pleasure. I have been pleased to learn more about MassINC and Commonwealth magazine. I don’t have copies of my book here. But there is the title and it’s on amazon.com at a heavily discounted rate. I am pleased to come here. Michael has been a great person in talking about these issues. This is a time of great ferment about these issues. They are talking about these security issues in California. In Nevada this past weekend, Democratic candidates talked about proposals for health care reform. The national press said they had trouble staying awake. I have been traveling a lot lately on a book tour. It’s the first tour I have done. It’s a mix of pleasure and humiliation. The pleasure came from the chance to talk with so many Americans interested in these issues and to see my family in Portland, Oregon. Humiliation came in Seattle where I went to an event downtown, a big forum with lots of top people. There was quite a crowd. You could hear the people in the auditorium excited and ready to go. At the front door, it said if you are interested in seeing Jacob Hacker, go to the basement. The people upstairs were there to see a famous mountain climber who has climbed without supplemental oxygen.
I want to launch into a story about a family who were the subject of an article in 2005. Arnold Dorsett makes $70,000 working 90 hours a week repairing air conditioners. Sharon is at home with the kids rather than finishing her nursing degree. Their son has a rare immune deficiency order. They filed for bankruptcy, one of 2 million households that did so in 2005. He said I make good money and work hard for it and felt I had failed when I filed for bankruptcy. He is hardly alone. Half of the bankruptcies in 2005 are due to medical costs and crises. That is not so surprising when we look at statistics. The Kaiser Foundation estimates of health costs are staggering, well over $11,000 for a family policy provided by an employer and $3,500 paid by the employee. The Dorsett’s had insurance and millions of Americans don’t – 47 million is the number in 2005. How many have heard one in three, the proportion of non-elderly Americans that go without insurance every two years and the majority go without insurance every nine months. These are people who are not eligible for Medicaid.
Health care is only the tip of the iceberg. Over the last generation risk has shifted onto American workers and families. We think of social spending here as below the average of other countries. We spend 15.7 percent of gross domestic product on social benefits. OECD has adjusted for relative tax burdens and its figures include publicly regulated and subsidized private benefits. Then the US no longer looks like it’s at the bottom of the pack. Employers serve as mini-welfare states. The federal government encourages them to do so with tax breaks. But today the social fabric that has bound us together is coming undone and that’s why risk is shifting. Let me give you a picture of the decline.
Health insurance in the 70s peaked at 69 percent of private workers. Now it’s just over 50 percent, a huge decline. In pensions the story is not as bleak. Fewer than 50 percent of workers are covered at work. The real shift in pensions is not about coverage. It’s about the shift away from the guaranteed benefit plan toward defined contribution plans. Workers who just graduate high school are less likely to get coverage or pensions. This is not just a problem of those who lack a college degree. We see a decline in coverage for them as well. One in three start their first job without health insurance. Coverage under defined benefit plans has plummeted and defined contribution plans have become more common. There are no guarantees with defined contribution plans. The federal government does not insure them. In short, the plans move the risk and responsibility onto you. Some people do well and others do poorly.
Boston College has constructed a retirement index. Working-age households are at risk of retiring with less than adequate retirement income have risen dramatically. The aggregate trend masks the way this is distributed generationally. Younger Americans are most at risk. Those at the bottom of the economic ladder in every age group are the most at risk. In the book I tell a story about the risk of defined contribution plans. A man worked for MCI and built nearly $1 million in his 401k, most of it in company stock. He was laid off when MCI was bought by Worldcom. A check arrived and he thought he was being bought off. He asked a lawyer why he wasn’t receiving his money. His pension plan was worth $767.14. The lawyer said that at a symposium a human resource manager jumped up and said what should I tell my workers? When I show workers calculations saying they need to have hundreds of thousands of dollars, they say forget it. One speaker said you have to tell him he can’t retire. The lawyer said it was like an auto show where half the cars don’t have engines.
Risk is the lens through which we see so many trends in a new light. It cuts through the happy talk and looks at underlying realities and explains why people are so unhappy about economic fears when the economy is so good. The Rockefeller Foundation has run a series of polls on economic security. In one, three quarters of voters said they were insecure. It’s a major reason for the divorce between positive statistics and negative appraisals of the economy. Since the late 70s ISR has asked workers whether they were concerned about layoffs. In the early 80s, the worst downturn since the Depression, 12 percent said they were frequently concerned. By the mid-90s, the number spiked and it was three times as high in 2005 at 35 percent. One reason is people may be driven by fear.
A Princeton professor has looked at displaced workers and the job loss rate was as high in the most recent recession as in the recession of the early 1980s. The economic consequences of losing a job was much worse. I tell the story of a 43-year-old engineer with three kids who was laid off and took a new job with 40 percent less pay and was then laid off again. He said he was living the American dream. Now he only dreams of getting a job and his marriage is strained. In 1980, 290,000 households filed for bankruptcy; in 2005 it was 2 million. Those who filed were solidly middle class. It’s not a surprise that families with kids are drowning in debt. In 2004, the total debt was 125 percent of their income, the largest on record. They are holding valuable homes but the security of homes is declining. People own less equity. Foreclosures are up and really going up in the last year or two. Not all these people lose their homes but some do. It can cost $50,000 to go through the foreclosure process. We have seen the meltdown of the subprime market. One in five of the loans are at risk of foreclosures. It’s been estimated that 2.2 million buyers will lose their homes. While the gap between Bill Gates and Joe Citizen has grown dramatically, the gap between Joe Citizen in a good year and Joe Citizen in a bad year has grown. There is a greater probability of a 50 percent or greater income drop. You then can’t catch up and it comes back to haunt you.
People who go to college are experiencing as much economic volatility as those who did not go to college in the 1970s. In the 90s, there has been a spike in people who have fallen into poverty over a ten-year period. You can guess that that doesn’t make people feel very good. It’s like giving a toy and trying to take it away. There is a huge psychological effect and ripple effect when people see big drops in income. Research suggests child development is affected by the stability of income. It would be one thing if all this risk came with big rewards. That’s not the case. In 1979, the top 1 percent was around $300,000. There has since been a 176 percent increase at the top and 21 percent in the middle. You hear a joke that the economy is so good that we all have two jobs. Women have moved into the workforce and second incomes help but bring new strains and risk. You have income stability and debt. They are more leveraged. The strain is really palpable.
A Democratic pollster said the other day he has never seen voters more sad and angry. They are facing a future less certain than at any other time in their lifetimes. MetLife fielded a survey on economic risk in November 2006. There is a great deal of pessimism about the direction of the economy. It’s greatest among those earning under $50,000. Most people say their financial life is heading in the right direction. People are more sunny about their own circumstances than the economy as a whole. Some say it’s people thinking they are all above average. The major causes of concern are the things we have talked about: health care, savings, retirement savings, income. Most people believe there is more financial risk, unless they are making more than $150,000. There is a sense that no one is looking out for them. The refrain people hear is “It’s up to me.”
I wrote a New York Times op-ed and received a pleasant reaction on the Chicago Boyz web site. I received scores of letters. One woman whose husband was laid off was working two jobs. She said who is the candidate for people like me? Where is the AARP for families? Parents with young children are hurting. She said I know this is a rant but I am angry and frustrated. Where are our leaders? They have been mostly piling on more risk. What they have offered is far different than what they talk about. I describe the ownership society as giving a lead weight to a drowning man and saying he now has a real incentive to learn how to swim. We need to think about new ways to secure ourselves. We need to recognize the need for insurance and savings. A woman said I am sick of working for the economy; I want an economy that works for me. The goal of the ideas is that if you work hard you should not be insecure. The stories and statistics remind us that the great risk shift is not someone else’s problem it is our problem and it’s our problem to fix.
JONAS: That was illuminating Jacob. It’s a disturbing picture of economic security. Are we all off in lifeboats that are taking on water?
THOMAS KEANE JR., FREELANCE WRITER AND PRIVATE EQUITY FUND PARTNER: There are a lot of anecdotes and I have read the book. Families have suffered through terrible times, overwhelmed by debt. The question is: is this a situation that is significantly worse? Dr. Hacker says yes. He argues there was a time when we were taken care of by our employers, with defined benefit plans and knowing that Social Security would always be there. The risk shift is that things are dramatically worse today. I am not sure that time ever really existed. I did research of my own. I looked at University of Michigan surveys on consumer sentiment that started in 1952. It’s people’s senses of life circumstances. It averaged a high number in the 1950s post-war boom. By the 1970s on the other hand, when we were happy supposedly, it averaged 76.4. In the 80s, it was in the 80s and so far this decade it has averaged 92.2, almost as good as the 50s. Dr. Hacker says he vaguely remembers the 70s. I remember a little bit better. The economy was terrible. The unemployment rate was high. Stagflation was high. People did not feel good. I buy the notion that people face risks and we need to address them, like on health insurance. We may be the model here in Massachusetts. We need some management of employer-sponsored pension plans. I disagree with the prism that things have changed dramatically and we are significantly worse off today. I don’t buy it. I don’t think we are significantly worse off today.
CELIA WCISLO, SEIU 1199 ASSISTANT DIVISION DIRECTOR: Boy, this will be fun. I got to page 160. I felt like this was a positive prism to look through. I was working in the 70s. I am on the Connector Board. I have two defined pension funds from union and public jobs and Social Security will be a nice kicker. It was where I happened to luck out and fall. I think of why the Connector Board was created because of people without insurance. The state pays for personal care attendants who get $10 an hour with no benefits. There are 28,000 of them. The workforce has changed and your book speaks to that. The Connector was a reaction to people without insurance and no risk pooling. It’s to fill the gap between employer-sponsored plans and the lack of those plans and the cutting back on them. We never had plans with deductibles. There is a tremendous cost shift to employees. The stats about growing medical debt are really true and different from the 70s. I found the book refreshing and accurate.
JAMES PEYSER, NEWSCHOOLS VENTURE FUND PARTNER: I am more on Tom’s view. I focus on the work about income stability. I congratulate you on mining some very obscure data over a long period of time. It’s very important work. A lot of commentary about increased exposure to uncovered cost expenses and cost shocks is really important. The solution provided is universal insurance, an additional social insurance to smooth income shocks. In my view that proposal is more of a solution in search of a problem. There is more research that needs to be done. By focusing on income stability, there is the problem on the effect of disrupting standards of living – declaring bankruptcies and selling houses. In terms of standards of living, the more relevant analysis needs to be done on expenditure variation. Deeper analysis on what that looks like would be more relevant to this issue. People plan their lives to accommodate these shocks. Around anxiety, if you look at national polls over 30 years there is remarkable consistency around optimism and skepticism about jobs and losing jobs. I was amazed at how stable those numbers have been. The norm is actually more stability than not. The story is the middle class squeeze and the downward mobility people are experiencing due to technology, globalization and cost factors around health care, housing and higher education. It’s tougher and tougher for people to live out their expectations. Improving K-12 education, addressing costs of heath care and housing, addressing savings rates and addressing the decline of two-parent families and the poverty rate among single-parent households – the best hope for a stable family situation is two-parent families.
HACKER: I have a lot to work with here. The critiques are informed and thoughtful and I agree with aspects of them. Let’s focus on two sides of the picture. The issue of subjective insecurity. Anxiety is measured by polls. I second the notion that we need a lot more research. This has become a hot area and I am glad that I have opened it up to some degree. Subjective insecurity is a difficult question. There is the extent to which polling data is asking the right questions. Educated workers have become more anxious about job loss. I don’t think the University of Michigan index is particularly revealing but I would not argue that there has been a huge decline in consumer confidence. There is a need for more precise measures. There is a fairly high level about the economy today and about benefits and the security of those benefits today. When people discuss the book, they move to income stability and it’s only a limited measure of the trends I am discussing. The shifts in health insurance and pension benefits are not going to show up in measures of income. Consumption trends are not as nearly responsive to income trends as you might think. The thing that should temper our sunny interpretation is there are independent negative effects of income instability. We have seen a much greater leveraging of families. Americans are using debt to finance basic expenses. Education is linked to the story I tell. When families are financially strapped and insecure, it’s harder for them to invest in human capital. Security is a cornerstone of opportunity. We give limited liability to corporations because we want them to take risks.
JONAS: We are getting short on time. More than a decade ago Hillary-Care was buried before it was born. Then we hear about the Bush administration trying to privatize Social Security. There is opposition to big changes in either direction. What does this say about ambivalence toward expansion of state-structured social welfare?
HACKER: These issues will get prominent play. The Democratic hopefuls have made affordable health care a litmus test in the primary. We do see a swing back and forth. Where we stand is we have a structure of social provision that Americans rely on and that people feel good about, but which is eroding. There is a great distrust about government. What is possible is very much constrained by what we have today. The tide is turning for a couple of reasons. I have a slide that shows a compelling reason – if you look at health care, it is Medicare and Medicaid that are the Godzillas of the federal budget. There is a compelling reason to deal with costs in a comprehensive way. If there were not this huge increase in health care costs, the projected budget deficits are much lower.
KEANE: Let me get off of health care. Celia has solved that. I want to talk about pensions. One of the striking things that has occurred is our planning for retirement has changed dramatically. My interpretation about why people plan differently has to do with sociological and political issues. I grew up in a family of 11 and my parents really planned for retirement. They grew up in the Depression and really knew what economic insecurity was about. They were completely focused on this issue. My family, we don’t do anything about retirement. We just don’t care. We never have faced tough economic circumstances. The 80s was nothing compared to the Depression. Since the 1950s, it’s been a line going up with bumps in the road. As a consequence we are just not focused on this issue. When you are 70 or 80, you are not going to be working and you are going to need the money coming from somewhere. The privatizing of Social Security was absolutely nuts. But people weren’t that disturbed. People have a Baby Boomer attitude that they are supermen and nothing will ever happen. Once Boomers reach the place where they are quite scared, you may see something happen, a political change at that point. The Boomers now contribute to a sense that we don’t have to do anything.
WCISLO: How many people have been in their job for 30 years? Two of us. This generation is expected to bounce from job to job and benefits are tied to that. Younger folks are more open to 401ks because defined benefit plans don’t follow them. People are more mobile and the old system, it’s not enough just to go back to what it was. In health care, we are building on an employer-based system. SEIU believes we have to come up with a national model. The same for retirement. People are bouncing between jobs and plans tied to employers don’t provide security. We have to look at job mobility. I am a pragmatist. I am not an idealist. The old system is falling apart and doesn’t meet job mobility problems. But some of my members could pay a third of their salary for health care. It’s a major hit on them. You are right though. People have no idea. They haven’t had problems. They’re lucky. People are in denial about a lot of things in life. How many go to church? We have celebrations and concerns, all professionals and people talk about relatives dying and being 45 and losing their jobs. I do think what you [Hacker] said reflects what I hear in my community.
PEYSER: There are two long-term trends around health care and insurance, which are driven by costs and gaps. Social Security is always on the agenda. We may be over the threshold where something really may be done. There is growing pressure to take action and really get something done. As far as expanding the social safety net, there will need to be more book tours before that is thrown into the mainstream political debate. John Edwards has been clear about health care reform and the need for higher taxes. It’s not a foregone conclusion.
AUDIENCE QUESTION: I am a career counselor. I work with adults and hear stories every day. My question is I try to attend MassINC lectures and read as much as I can, where will the answers come from? Who holds the responsibility to use this research and do something? Is it government, state or federal, private, unions or once again me who has to figure it out? I throw that out.
WCISLO: SEIU is one of the cosponsors of the health care debate. We are going to change the debate on the national level if we can. There needs to be a groundswell to change the dynamic. When we hit the affordability discussion, there will be a whole new groundswell. It takes a combination of politicians, things like the Connector Board, unions, organizations like AARP. We have to find answers for today in this economy. It will be unions and political leaders and the groundswell of frustration from the American workforce.
AUDIENCE QUESTION: I work at The Access Project. We have focused on medical debt, a keystone of this discussion. We did a case study on people with health insurance who have medical debt. People have risks pushed back on them. How do you overcome this personal responsibility ideology that makes it hard for people to understand the real risks and think about solutions?
KEANE: I see the personal responsibility thing differently. When people felt a dramatic risk to their lives, that caused people to push through legislation. It is actually up to you. Politicians listen to a variety of voices. People don’t have that sense of risk right now. We have grown up in a rosy generation. No one is screaming that this thing has to be taken care of. We are seeing a little bit of it in health care because the voices have grown so loud.
PEYSER: There is this polarization between personal and social responsibility. If there is not both, we are not on the same planet. In Jacob’s book, there is a balanced set of recommendations including taking responsibility for oneself. It’s not helpful to create this dichotomy and it’s helpful to find the right balance between the two.
HACKER: It’s a pleasure to have the final word. This is the most substantive discussion of the themes of the books and for that I am really thankful. The balance has tilted too much in emphasizing individual sharing of risk. There is a real threat to the well being of Americans. We need to claim personal responsibility in its place. There are many things individuals need to do on their own, but modernization means creating a new framework of risk pooling and having people feel the confidence to reach the American Dream. People will see that if they work hard and play by the rules, they will be protected.
