Review: Jacob Hacker – The Great Risk Shift

by Henry on October 16, 2006

Review: Jacob Hacker, The Great Risk Shift: The Assault on American Jobs, Families, Health Care, and Retirement and How You Can Fight Back. Available from Powells , from Amazon .

In his ethnography (PDF) of Grover Norquist’s weekly breakfast meetings, Thomas Medved tells us how Newt Gingrich sold reluctant conservatives attending the meeting on Medicare reform.

The debate up to this point functioned largely as a prologue for the day’s special guest, former Speaker of the House Newt Gingrich. Here to mediate between the fiscal conservatives who disliked the bill and the free-market conservatives who saw in it the seeds of health care privatization, Gingrich spoke out in favor of the Medicare reform act. His primary message to the group was that they must start “thinking like a majority” by accepting the logic of incremental progress. That’s how the welfare state was built, he said, and that is how it must be dismantled. Citing his own efforts to “stop Hillary-care” and promote the Contract With America as examples of incremental progress, Gingrich said Medicare reform is a step toward a more conservative country because it “moves you toward choice.” Gingrich saw other benefits in the legislation as well. He cited in particular a major “shift in plate tectonics” now that the American Association of Retired Persons (AARP), the largest voluntary organization in America, was on the Republican side of an issue and against the Democrats. And there was yet another hidden advantage: Gingrich predicted that the bill’s passage would “break up the collectivist language” of union members because when employers adopt the strategy of giving Health Savings Accounts to their non-union employees, the unions would start fighting for them. In general, Gingrich said, we can “migrate Medicare” rather than destroy it by creating choices that baby boomers will take advantage of.

“Creating choices” is an interestingly ambiguous term. As discussed in Jacob Hacker’s book, people who have signed up to Health Savings Accounts (which were around before the Medicare legislation) seem to be much less happy than those who have traditional coverage; they presumably wouldn’t ‘choose’ them if there were better options on the table. Nonetheless, the number of Health Savings Accounts is growing. Over a quarter of large employers said that they would offer them in 2006, and larger employers such as Walmart are increasingly trying to move away from traditional plans to HSAs, which discourage workers with health problems from staying with the firm, and hence save them money. The choice offered here is to accept a worse deal from your employer, or quit and hope that you’ll somehow find something better somewhere else. Not much of a choice. Yet nonetheless, when the mantra of ‘choice’ is invoked by the right, it often refers exactly to choices of this kind. There’s something weird going on.

Jacob Hacker wants to unravel this weirdness. He’s a political scientist – his major empirical contribution in the last few years has been to describe the mechanisms (PDF) through which Gingrich and others have deliberately sought to undermine welfare state institutions, inch by inch. In writing about this, Hacker has enlarged our understanding of how institutional change takes place. But this book isn’t an exercise in descriptive social science. It does help explain how the right’s renewed emphasis on ‘personal responsibility’ is less an exercise in increasing choice, and more a means of transferring risk away from large collective actors (such as governments or firms) to individuals, who typically have far fewer resources to deal with disaster when it happens. But Hacker is trying to change the political debate, to push back against current ways of framing these issues, and in so doing, to redefine the intellectual terrain. This is why the book was attacked so vigorously (and incoherently) before it was published, by people like Brink Lindsay and Glenn Reynolds . If Hacker’s framing of politics succeeds in taking hold, it will make it much more difficult to chisel away the foundations of the American welfare state than it has been in the past, and correspondingly make it easier to expand welfare state principles to new areas.

Hacker’s account is twofold. First, he looks at the various ways in which risk has increased over the last few decades. Jobs: Hacker discusses how expectations of stable employment have nearly disappeared, how part time and temporary work have increased, and so on. He argues, as others have argued, that ‘flexible’ jobs don’t necessarily increase choice for employees, because these work arrangements are typically set up “for the convenience of employers, not workers.” Part time work may in principle be a boon for mothers with young children – but not when the firm changes your schedule according to its week-to-week needs, and fires you if you can’t make it in. Families: having a family increases your risk of going bankrupt, and involves massive, and increasingly risky investments in housing and education. Old age: as defined benefit pension plans become vanishingly rare, individuals take on more and more risk through defined contribution plans, which will do well if the stock market does well, and do badly if it doesn’t. Health: health care has become ever more expensive, posing greater risk both to the uninsured and the insured (and people move back and forth between these groups far more often than most people realize).

At least some of this increase in risk is secular – it’s hard to trace it back to specific decisions made by particular people or groups. But what isn’t hard to trace back are the decisions made by policy makers to exacerbate these risks by aiding and abetting the transfer of risks to individuals rather than countering it. This is the second prong of Hacker’s argument. We know that policy makers could have done differently – they have done differently in other countries. But in the US, thanks to Gingrich and others like him, government has sought to increase individuals’ exposure to risk rather than to decrease it, typically under the mantra of increasing ‘choice’ or ‘freedom.’ Thus, for example, the abovementioned individual Health Savings Accounts. Thus too, the effort to tear down Social Security, and replace it with a system of ‘private’ or ‘personalized’ (depending on which buzzword works better with focus groups) accounts, regardless of the enormous switchover costs. Instead of trying to mitigate risk, government under conservatives has sought to pile ever more risk on individuals, even if the fiscal consequences are horrendous.

Hacker argues that not only are these policies ideologically loaded – they transfer risk from corporations to the middle and working classes – but they don’t make any sense in their own terms. High degrees of personal risk are a hindrance rather than a spur to beneficial economic activity. If people perceive that their jobs are risky, they’re likely to underinvest in specialized training (here, there is a well established literature in political economy which suggests that an extensive welfare state goes hand-in-hand with the development of specialized skills). Personal investments in education are less attractive if the rewards from education are highly uncertain. In the book’s conclusion, Hacker briefly describes a variety of policies that might help mitigate personal risks, including his own proposal for Medicare Plus.

Despite this short discussion of policy options, The Great Risk Shift isn’t really a book that is aimed at the professionals who write about health care, pensions etc, or at scholars, although it relies extensively on findings by both policy wonks and academics. It isn’t intended to contribute to specific policy debates, but to transform very broad public arguments. To my eyes at least, it seems very clearly intended to claw back territory from what Hacker describes as the Personal Responsibility Crusade by making policy makers deal with the problems of risk, and by making ordinary people realize that the economic risks that they face haven’t descended from the skies. In large part, those risks are the result of conscious, deliberate choices made by conservative policy makers (and sometimes by centrist Democrats) both indirectly to help pave the way for the transfer of risk to individuals, and not to intervene when government could play an important role in mitigating risk.

Which is all to say that this book is going to succeed or fail to the extent that it changes wider public debates. As an unreconstructed social democrat, I wholeheartedly hope that it succeeds; while there are bits of Hacker’s argument (such as his explicit discounting of the issue of economic inequality) that I disagree with, on the whole, I think that this is a highly valuable, and indeed potentially explosive book. This said, there are some issues that I’d like to see Hacker deal with more explicitly. Some of these concerns are with nuances – I can understand why they didn’t make it into a book that’s trying to reach a wider audience. But I would like to see him address them (perhaps if he is intending to write follow up pieces for a more academic or technical-policy oriented audience). In no particular order:

(1) Tyler Cowen’s critique. Cowen provides a much more serious libertarian response to Hacker’s arguments than does Brink Lindsay, agreeing thoroughly with Hacker’s arguments on pensions, but disagreeing to a greater or lesser extent on his other claims. Cowen points to theoretical linkages that need to be drawn out, and to conflicts over empirical data. As stated above, I can see why much of this nuance didn’t make it into the book (although some at least of the issues are addressed in Hacker’s other work) – but I would like to see more on this.

(2) Risk and economics. Hacker points to the role that economists’ arguments about moral hazard etc have played into the politics of risk transfer. In my view, he is correct both on the political importance of these arguments, and on the degree to which some policy makers and economists have overstated their applicability. Nonetheless, there is something there – moral hazard isn’t an empty concept, and people do respond (albeit not as predictably as most economists would claim) to incentives. If we agree with Hacker’s core claim about the need to transfer risk from individuals to the collective level, are there ways to do this that at least mitigate problems of moral hazard?

(3) Risk and conservatism. Hacker’s arguments suggest that the language of personal responsibility had its beginnings in economic thinking about insurance (see esp. pp. 47-53). I think that this is only partly true. There’s a second, quite independent line of thinking about personal responsibility that doesn’t have much at all to do with incentive problems, and a lot to do with ideas about individual character. Take, as a paradigmatic example, David Frum’s arguments in Dead Right. Frum is dismissive about arguments from economic incentives, claiming that they offer too much succour to those who would increase government spending. Instead, he focuses on the purportedly negative impact of the welfare state on personal character.

If the old American culture and the old American character were rational responses to the riskiness of life, you cannot alleviate that riskiness and expect the old character and the old character to persist. The children of a self-made man are different from their father: more optimistic, often more generous, more sensitive, and more tolerant, but less careful, less hard-working, less self-controlled. In the same way, the citizens of a socially-insured America will act and think differently from the citizens of self-reliant America. If you prefer the old character, it is wishful thinking to duck out of the struggle to return to the older way of life that brought that character into being.

Now, when stated as baldly as that, this is a remarkably unattractive and not especially coherent philosophy. We need more risk, and lots of it to build character! But something like this claim drives a lot of conservative writing about the evils of the welfare state – not that it offers the wrong incentives, but that it deforms personal character. While this may not be an especially persuasive argument to non-conservatives, I’d have liked to have seen Hacker’s book address it. It’s an important strain of current arguments against the welfare state. It’s also a big, fat target.

Enough already. This is a good, smart, polemical book. It deserves a wide readership, so that next time a Newtoid starts talking about this or that appalling piece of legislation ‘increasing choice’ or ‘personal responsibility,’ he or she will be called on it. Even if George Lakoff and others’ arguments about political framing are rather reductive, political debate is shaped profoundly by the language that it is conducted in and the concepts that it invokes. This is a fiercely and tightly argued effort to change those concepts. I hope it succeeds.

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1

Anderson 10.16.06 at 11:16 am

I have never quite understood how penalizing people in their 60s for having made bad choices, can be said to “build character.”

Bit late for that, eh?

Or is the point to build the characters of the young through putting the suffering of the old on display? Not what’s normally thought of as building character, but it does make sense of many otherwise incomprehensible Republican policies. (Cf. Tertullian on hell, as quoted in Nietzsche, Genealogy part 2.)

2

John Emerson 10.16.06 at 11:17 am

I think that one common trait of all conservatives is a strong Durkheimian belief that deviants must visibly and frequently punished in order for society to survive. The Social Darwinists are far different than the Christians, and the semi-criminal grafters and scam artists are far different than the free marketers, and the bloodthirsty militarists are on a page of their own, but taking satisfaction in the others sufferings, and jumping to the conclusion that suffering is deserved, defines conservativism. The politics of schadenfreude.

This probably as deep ev-psych links in what Gintis and others call “strong reciprocity” — reciprocity plus punishment of defectors. And excessively benign forms of liberalism or socialism offend strong-reciprocators at a visceral level.

3

Brandon Berg 10.16.06 at 12:03 pm

Here, there is a well established literature in political economy which suggests that an extensive welfare state goes hand-in-hand with the development of specialized skills.

But is the causal relationship which you’re implying here one which can validy be drawn from the literature? Obviously both an extensive welfare state and a high degree of specialization of labor are products of the prosperity that makes them possible, so it’s not surprising that they’re correlated.

But it’s not obvious that the welfare state contributes to the development of specialized skills (unless we’re specifically talking about subsidized training), and I can see some arguments for how it could deter such development (e.g., without liberal welfare or unemployment benefits, people have a strong incentive to develop specialized skills in order to make themselves indispensable).

4

Brandon Berg 10.16.06 at 12:08 pm

John:
I can’t speak for others, but I’m not particularly interested in seeing people suffer for their mistakes. It’s just that I’m even less interested in seeing those mistakes subsidized at the expense of those who made better choices.

5

John Emerson 10.16.06 at 12:24 pm

Brandon, a strict application of your principle amounts to the same thing, whether or not you actually have a little frisson of delight when the punishment takes place. You effectively do want mistakes to be punished.

However, I was speaking of the whole range of conservatives — for example, the ones who would be angry if Bush stopped the torture in Guantanamo. Not merely the sophisticated ones.

Note that the fact that many at Guantanamo are probably innocent does not reduce the satisfaction that entry-level conservatives receive from their punishment.

Welfare liberalism often does protect people from the consequences of their mistakes to some degree, and not everyone agrees that this is always a bad thing.

6

Henry 10.16.06 at 12:30 pm

Brandon – the major research on this has been done comparing advanced industrial economies, all of which are pretty prosperous. For major findings showing this relationship, see “Iversen and Soskice”:http://www.people.fas.harvard.edu/~iversen/PDFfiles/SocialPreferences.pdf. The argument is that people with specialized skills want a welfare state in order to lower the risks of investing in these skills, and the statistics seem to bear this out. “Cusack, Iversen and Rehm”:http://www.people.fas.harvard.edu/~iversen/PDFfiles/CusackIversenRehm2006.pdf have some initial findings that build in institutions, showing how different national institutions (in particular, the extent to which the interests of poor and middle class voters are represented) tend to be associated with different responses to exogenous economic shocks. While your intuitions certainly aren’t _ex ante_ ridiculous, they are clearly contradicted by the empirical evidence, which shows a strong relationship between individuals’ skill profiles and preferences over the welfare state.

7

Cryptic Ned 10.16.06 at 12:57 pm

I can’t speak for others, but I’m not particularly interested in seeing people suffer for their mistakes. It’s just that I’m even less interested in seeing those mistakes subsidized at the expense of those who made better choices.

So, you do not want people who made the wrong decisions to be worse off than people who made the right decisions. However, you do want people who made the right decisions to be better off than people who made the wrong decisions.

8

Bruce Baugh 10.16.06 at 1:07 pm

Cryptic Ned: There’s middle ground, of course. I am interested in seeing people who made good choices enjoy some advantage for having done so. But i wish limits on the suffering of those who chose badly, and I wish very much to make sure that they have enough safety that one failure of judgment or information won’t lead to ever-escalating misery and enough access to the resources necessary to learn how to do better in the future. I suspect that many of us favoring a strong safety net feel similarly – we want there to be incentive to do well and incentive not to do poorly or wickedly, but not unbounded punishment and woe for the latter.

9

Michael Sullivan 10.16.06 at 2:39 pm

I think that you’re a bit glib in your dismissal of the the welfare state/”character” point. It’s clearly a problematic justification for action for a variety of reasons (it’s nearly impossible to quantify the value of “character,” the incentivizing links are tangled and difficult to predict, it’s low-hanging fruit for people who want to justify their personal pet programs with an ever-receding target), but that doesn’t mean that it should be ignored, or that there aren’t real and serious effects of government policy on the psyche of the people.

I don’t have an answer for to what extent such issues ought to be taken into account when trying to create public policy, but I’m pretty clear that they shouldn’t be entirely ignored.

10

Barry 10.16.06 at 2:45 pm

“…(e.g., without liberal welfare or unemployment benefits, people have a strong incentive to develop specialized skills in order to make themselves indispensable).”

Posted by Brandon Berg

Actually, I’d bet on the opposite – specialized skills are *precisely* what we’ve seen made far more risky in the past few decades. Even those working the more elite jobs, with larger employers, have found that those employers are more willing to permanently lay them off, rather than retain and retrain.

11

Slocum 10.16.06 at 3:46 pm

“…(e.g., without liberal welfare or unemployment benefits, people have a strong incentive to develop specialized skills in order to make themselves indispensable).”

But people don’t develop specialized skills in order to make themselves indispensable to a single employer, but rather to make themselves marketable, should they need to (or decide to) look for a different job. It does not strike me that Americans are less likely to engage in training and education later in life now as compared to a generation or two ago — quite the opposite.

Yes, the old 40-years-and-a-gold-watch form of employment has mostly vanished (except for government work), but that change seems to have resulted in more lifelong learning, not less.

12

Martin James 10.16.06 at 6:12 pm

One would expect to see that the decline of employer and governmental risk pooling would increase the demand for private insurance arrangements.

For example, the declining availability of defined benefit pension plans would increase the purchase of fixed payment annuities.

Well, the market keep waiting for the demand.

Rather, the demand for risk transfer at the consumer level is down across a lot of financial products. Consumers are more willing to take investment risk in financial products.

Also, contrary to the popular wisdom, the amount paid out-of-pocket for health care in the USA has been dropping over time. In 1970 the percetnage paid out of pocket was 39.6%, 1980 27.2%, 2000 16.9% and 2004 15.1%.

The drop was made up by an increase in both private and governmental insurance. Private went from 28.4% in 1980 to 36.1% in 2004. Government went from 40.0% in 1980 to 44.4% in 2004.

The “traditional plans” aren’t so traditional. The $250 deductible of the 1970′s didn’t go up with inflation. If it had we’d bascially all have HSA’s. It was the HMO copay design that improved benefits in exchange for more HMO control of network and medically necessary services. When that control was reduced, more cost sharing became fashionable again.

Here are the details.
http://www.cms.hhs.gov/NationalHealthExpendData/downloads/tables.pdf

13

Nicholas Weininger 10.16.06 at 8:22 pm

henry,

On the skill-training issue I would go further than Brandon and say: so maybe the empirical data do show that a larger welfare state gives you more specialized skill training; who cares? It doesn’t follow that this is a Good Thing overall. Specialized skill training is good ceteris paribus, sure, but if people are less-incentivized to do it they’ll spend their time and resources doing other things instead. It is not at all clear that, at the margin, those other things are less beneficial than the training.

14

Sebastian Holsclaw 10.17.06 at 2:40 am

“If people perceive that their jobs are risky, they’re likely to underinvest in specialized training (here, there is a well established literature in political economy which suggests that an extensive welfare state goes hand-in-hand with the development of specialized skills). Personal investments in education are less attractive if the rewards from education are highly uncertain.”

Having read the Iversen and Soskice paper you cite, I’m unimpressed. First the income variable is much more dispositive than the “specialized skills” variable (income 11-51%, skills 26-38%). Second the definition of “specialized skills” is such that it isn’t at all obvious we ought to encourage them over general skills.

The problem with training in “specialized skills” as defined by Iversen and Soskice is that if the market no longer needs them “horse buggy craftsman or people replaced by more efficient technology–telephone operators perhaps) it is not in the society’s best interest to incentivize their acquisition. And unless one would propose a “Ministry Cataloging Which Skills Are Currently Useful”, the way you measure that is by the availability and renumeration available within a particular job.

The incentive and moral hazard problems are very difficult as well. If English majors regularly got first-post-college-job salaries at similar rates to doctors fewer people would bother going through all that training. If you invest years learning an unuseful “specialized skill” and the government insures that you do nearly as well as the person who invested years learning a useful skill, you won’t have as many people learning the useful skill–especially if the unuseful skill doesn’t take as much work. (And yes, I was an English major).

15

abb1 10.17.06 at 2:43 am

#3: without liberal welfare or unemployment benefits, people have a strong incentive to develop specialized skills in order to make themselves indispensable

The way I see it, there are two kinds of incentives: greed and fear. Gingrich&Co seem to feel that greed is good enough incentive for their ilk, but not for the ordinary people – these need to be whipped into line. Well, fuck Gingrich and fuck Norquist. And fuck you too.

16

John Emerson 10.17.06 at 8:17 am

“If English majors regularly got first-post-college-job salaries at similar rates to doctors fewer people would bother going through all that training.”

Doctors are starting to grumble now, so I think that MBA managed-care execs should be your comparison.

17

Henry 10.17.06 at 9:04 am

If you invest years learning an unuseful “specialized skill” and the government insures that you do nearly as well as the person who invested years learning a useful skill, you won’t have as many people learning the useful skill—especially if the unuseful skill doesn’t take as much work. (And yes, I was an English major).

But Sebastian, you then went on to law school, not so? And would you have spent whatever large amount of money I imagine you spent on your legal education if you didn’t think that there was a strong prospect of good financial returns at the end of it, that would allow you to pay off any loans and have a decent standard of life? Nor does Hacker, or anyone else, propose the incentivization of useless skills. Instead, they suggest that people are less likely to invest large amounts of money and time in acquiring skills when they think that it’s a risky bet. A decent welfare state helps give them a cushion, which allows them to take riskier decisions without flushing their futures down the toilet. Now obviously, people will sometimes make bad decisions, and train in skills that don’t have much demand on the market. But I don’t think that anyone is going to be going into horse buggy manufacture. If Hacker is correct that the transfer of risk to individuals means that they have more reason to be risk averse today than ten or twenty years ago, then there is a pretty good case for collective cushioning mechanisms. Similar arguments have been made about the relationship between globalization and the welfare state – the more exposed an economy is to global forces, the more likely it is to have a strong welfare state as a cushion. See Geoffrey Garrett’s articles (in Comparative Political Studies and IO I think; I’m not in my office) for stats on this.

18

Bruce Baugh 10.17.06 at 11:16 am

I’m with Abb1 on this: fuck fear. That’s the key. I don’t want to live in a society where fear is such a powerful motive. And I have history on my side – people consumed by fear do stupid things, and give their allegiance to evil leaders. People who feel fear about their own well-being and prospects are much more likely to also feel that their well-being can only come at another’s expense.

The wealthy take it for granted that they can both plan for a life and deal with contigencies if and when they come along. The poor deserve that same security it comes to the basics of shelter, health, education, and so on. And if they are denied these things too long, the history of the last century and a half or so suggests that they will end up giving their allegiance to someone who promises these things and ends up only making it worse.

19

Sebastian Holsclaw 10.17.06 at 11:17 am

“But Sebastian, you then went on to law school, not so? And would you have spent whatever large amount of money I imagine you spent on your legal education if you didn’t think that there was a strong prospect of good financial returns at the end of it, that would allow you to pay off any loans and have a decent standard of life?”

Correct, but I’m not sure what you think follows from that–especially since it seems to suggest that lawyering is useful. ;)

The good financial return isn’t guaranteed by the government (except perhaps in the sense that the government passes byzantine regulation schemes that require specialists to navigate). Furthermore the skill isn’t so much knowing exactly what to do at any given moment (highly specialized skill under the Iversen and Soskice model) but a much more generalizable skill of where to look for the answers and what to with them when you find them. (I normally say that law is really just advanced Cut-N-Paste, the only trick is knowing where to find material to cut and where to paste it.)

The reason I’m (theoretically) willing to invest in education is indeed that there is a strong probability of the market repaying my education investment when I go to work. But that strong prospect doesn’t come because the government has mitigated my risk. It came about because there really are strong prospects for employment. There may be some level of legal-field renumeration where the prospect of government health, welfare and retirement insurance would tip me into going to law school, but we aren’t at such a place now–or if we are it doesn’t need further encouragement since there are plenty of lawyers.

Now an interesting area would be to investigate what happens when you get an education and then find that you don’t like most of the field. It took me years to find a place where I could both use my education and not feel like the attorney-client relationship was causing huge ethical problems between doing right and protecting the client’s interests. (It may surprise you but I have a very strong sense of justice that I didn’t like feeling I was working against).

But the feeling of being trapped because of a mistake in education path is mostly an illusion–you can get other jobs, you just have to be creative.

People respond to negative incentives and they respond to positive incentives. But if my college psychology class was right, they really respond best to mixed portions of both.

I think much of the “character” objection (Frum) is that the nanny-state tries to cripple positive incentives (by strongly redistributive policies) and almost completely stop negative incentives (by making a safety net so strong that you can leave the work market without much risk). That–like the trust-fund baby analogy–isn’t likely to lead to growth in the long run because you have reduced the incentive to work. And it may very well be self-destructive, because many functions of the nanny state absolutely require high levels of long term growth to be sustainable in the face of aging populations.

20

Kent 10.17.06 at 12:47 pm

Sebastian, looks like you still haven’t read Dean Baker’s book (“The Conservative Nanny State,” available free online; google it) on how the government really does pretty much guarantee a good financial return on an investment in law school / medical school / etc. — by sharply limiting the competition for lawyers and doctors (etc) and thereby driving up the price they can charge on the open market.

Of course, I’m a real estate appraiser and my job is also well protected by a myrid of regulations that keep almost everybody out of my field….

21

Crystal 10.17.06 at 1:23 pm

Bruce: I suspect that many of us favoring a strong safety net feel similarly – we want there to be incentive to do well and incentive not to do poorly or wickedly, but not unbounded punishment and woe for the latter.

I agree. On the one hand, people shouldn’t be free to, say, abuse their kids over and over again without some kind of consequence. On the other – ordinary mistake-making people deserve second chances. People grow up and wise up. Redemption is a concept that seems to have been forgotten in our society.

Henry: they suggest that people are less likely to invest large amounts of money and time in acquiring skills when they think that it’s a risky bet. A decent welfare state helps give them a cushion, which allows them to take riskier decisions without flushing their futures down the toilet. Now obviously, people will sometimes make bad decisions, and train in skills that don’t have much demand on the market.

Exactly. Especially when one considers that what makes a “marketable skill” can vary in the space of five years. Remember the dot-com boom when computer science was an oh-so-marketable skill? Now thanks to the dot-com bust and offshoring, it’s almost at the buggy-whip level. And on the other hand, I’ve known people who majored in “worthless” subjects like English, or anthropology, or what have you who have managed to parlay those majors into six-figure jobs, thanks to smarts, charm, and luck. So you never know.

There really is no safe and sure thing anymore. Back in the recession of the early 90′s, I knew a couple of lawyers who were working as legal secretaries because they just could not find work. Was their expensive legal training a mistake, then? Or did they just have a run of bad luck? I assume the latter. Bad luck happens to good people and they shouldn’t be punished for it. Nor should people be punished for training in a subject they later found they couldn’t stand or had no aptitude for.

22

Lewis Carroll 10.17.06 at 3:26 pm

Re: risk-taking in education and career choice, you all may be interested in some of the ideas Robert Shiller suggested in THE NEW FINANCIAL ORDER: RISK IN THE 21ST CENTURY. I thought he came up with some really interesting ideas like insurance against failure in specialized fields and future income-linked loans to finance education in fields where there is a high risk of a future substandard income.

23

Sebastian holsclaw 10.17.06 at 3:33 pm

“There really is no safe and sure thing anymore.”

This strikes me as a rose-colored glasses look at the past. There rarely ever was a time with the safe and sure thing. What time are you looking back to? The 1920s? The Great Depression? World War II? It seems to me that this golden age of full pensions and lifetime jobs as some sort of expectation lasted maybe 10 or 15 years starting in 1955. The modern mobile economy was in full swing by the late 1970s and certainly by the early 1980s. And even in the 1950s the full pension, lifetime jobs were clustered around a very narrow portion of the auto industry.

24

Bruce Baugh 10.17.06 at 4:05 pm

Sebastian, I think a lot of people saw the successes of the ’40s and ’50s and ’60s when it came to security and opportunity as a platform on which to build, learning lessons, keeping the good parts and improving the bad ones, to extend to the rest of American society. You know, a demonstration that it was possible to do better than the ’20s or Depression or wartime. The fact that some people with the whip hand set in do undo that promise as soon as they could doesn’t mean any of the rest of us are obliged to accept it as inevitable or desirable.

25

Henry 10.17.06 at 6:52 pm

Furthermore the skill isn’t so much knowing exactly what to do at any given moment (highly specialized skill under the Iversen and Soskice model) but a much more generalizable skill of where to look for the answers and what to with them when you find them. (I normally say that law is really just advanced Cut-N-Paste, the only trick is knowing where to find material to cut and where to paste it.)

I’m not sure that there’s a difference here – knowing where to look for the answers is a highly specialized skill (otherwise lawyers wouldn’t earn their substantial salaries). Nor does law seem to me to be all cut and paste – but then I’m married to a litigator, whose job is to come up with creative arguments melding together precedents etc etc.

The reason that I brought up your law training was more straightforward though – just to say that you probably wouldn’t have invested in those skills if you hadn’t been reasonably certain of decent returns from them. And this point applies in spades to a variety of forms of specialized, and increasingly non-specialized training – if the rewards for doing _x_ are increasingly uncertain in the modern economy, you’re less likely to do _x_. Furthermore, you’re not likely to be economically rational about this – the evidence from behavioural economics is that people are far more risk averse than they should be. Creating a safety net allows them to venture out onto the tightrope with a bit more optimism than otherwise. Nowm as you say, at the extreme an overly extensive safety net can discourage you from wanting to take risks in the first place – but to put it mildly, I don’t think that is a clear and present danger, given where the US welfare state is now, and where even the most wild eyed of reformers would like to take it.

And I do hope you were joking when you said that I’d be surprised that you have a strong sense of justice – I’ve surely given you plenty of grief when I thought that you were being overly lawyerly in comments threads – but I’d be rather surprised if you didn’t have a pretty clear sense of right and wrong. Now I’d obviously prefer it if that sense conformed better to my own, but I imagine that you’re quite happy with it the way it is.

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Martin James 10.17.06 at 7:07 pm

Henry,

Is the anecdotal evidence that Europeans are more risk adverse in starting business ventures empirically incorrect or are there other reasons that they are more risk averse other than safety net issues?

Also, some people may be too risk averse but given the size of the gaming industry clearly some are not risk averse enough.

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