The Great Recession of 2007–9 called attention to the problem of risk. One trigger of the crisis was risky behavior on the part of financial institutions and, as the crisis spiraled into a major economic downturn, individual workers and families were freshly exposed to some of life's major risks—the loss of work, the disintegration of wealth and retirement savings, the loss of one's home. Yet well before the Great Recession, scholars in different academic fields had been studying economic and social risk and thinking about government policy as a means of shaping, distributing, and cushioning it. This edited volume presents some of the fruits of this line of inquiry, now given renewed urgency because of the economic crisis. With 13 substantive chapters and a conclusion, it aims not only to describe and characterize trends in economic insecurity and risk, but also to offer a menu of concrete policy remedies.
A central theme of the book is the decreasing effectiveness of government policy with regard to the many risks that households face. Part of the problem stems from shifts concerning who bears the risk, from government and firms to individuals and families. This is especially evident in pensions because, as Alicia Munnell describes, the erosion of Social Security replacement rates has been accompanied by a shift in the private pension system from defined benefit to defined contribution plans. With a beneficiary's pension income made contingent on market returns, one's standard of living is yoked to the ups and downs of the stock market—a point driven home by the loss of $2 trillion of wealth in individual retirement and 401(k) plans between October 2007 and March 2009. The decline of employer-sponsored health insurance has also shifted the risk of ill health onto households that are uninsured or underinsured, as Jacob Hacker details in a chapter on health-care reform. Among the consequences are rising numbers of medical bankruptcies and delayed medical care, with potentially serious consequences for health and well-being.
In other instances, the roots of the problem lie more in government inaction in the face of economic and social changes. As several chapters describe, the federal government does little to support families struggling to balance work and family and/or care for sick or aging family members. The demand for such assistance has only grown, with the aging of the population and the greater prevalence of working mothers and single parents. Yet the private sector has not adequately filled the gap either, as evidenced by the failed long-term-care insurance market or the high cost of private child care. Public policy has not adequately dealt with some of the most significant changes in the American economy either, according to several contributing authors, including stagnant earnings for moderate and low-income workers, rising inequality, and income shocks ranging from job loss to the collapse in housing prices.
What distinguishes this volume from others that have highlighted similar trends and policy shortcomings is the unifying focus on risk and how policy choices, or inaction, shape its distribution. This is an important move from both an intellectual and a policy standpoint. Intellectually, it is essential to view the U.S. system of social and economic policy as one that has always relied heavily upon the private sector, as Hacker discusses in the introductory chapter. In lieu of large federal bureaucracies and collective solutions, policymakers have long used an array of policy tools to underpin markets and help individuals to help themselves.
The common thread running through many of these interventions, as the historical overview by David A. Moss shows, has been government action to shape the allocation of risk, including nineteenth-century banking and bankruptcy laws that facilitated a functioning market economy; risk pooling in both public social insurance and private employer benefit schemes during much of the twentieth century; and burgeoning health, environmental, and consumer safety regulations since the 1960s. In these and other areas, public intervention has not led to large bureaucracies or, outside of programs such as Social Security, direct provision of benefits, but government action has nonetheless been essential. By focusing on government as a “risk manager,” this vein of scholarship helps unmask the role of the state in sustaining a system of private initiative, combating what Martha Minow describes as the tendency to treat “private markets as natural, financial risks as inevitable, and enactment of government policies as counterproductive” (p. 256).
This intellectual focus also has implications for the types of policy responses best suited to the American context. The authors in this volume generally steer away from the conventional divide between market-based and publicly provided solutions, seeking instead a middle ground that builds on and improves the existing system of risk management, often through mandates, regulation, and tax subsidies. A good example is the chapter by Stephen Sugarman on how to improve income security for individuals needing time off from work for a variety of reasons. One remedy could be a mandated system for employees to save up paid days off that can be used for sick leave or vacation time, or converted to cash and deposited in savings accounts. Christian Weller and Amy Helburn tackle the problem of inadequate savings by lower- and middle-income households with proposals to streamline incentives to save, expand automatic enrollment requirements for retirement and savings plans, and create refundable tax credits for saving. And to strengthen income security in retirement, Munnell proposes a third tier of individual savings accounts that would be provided by private financial-services firms yet subsidized (through the tax code, for instance) and regulated by the federal government.
In these and other proposals, the authors implicitly recognize that political realities in the United States would likely impair direct state provision of social benefits and services or more assertive forms of redistribution. In fact, one limitation of the volume is that, outside of the short, concluding chapters by Minow and the editors, it does not more explicitly address the politics of risk management. Particularly given the long history of the federal government as risk manager, as highlighted by Moss, and its sometimes vigorous response to economic risks, as detailed by Mariano-Florentino Cuéllar and Connnor Raso, one can wonder why this propensity for risk management has declined.
One cause seems to be the rise of market ideologies predicated on unrealistic notions of how well individuals can navigate social welfare markets, decipher complex financial products, and save for future risks. It may also be that political polarization and institutional paralysis have blocked responses to the erosion of household security. A third possibility is that a system based on public–private arrangements requires greater awareness by policymakers of the ways in which the inherent dynamism of markets can unsettle existing risk-managing strategies. The chapters provide examples of such developments, including how the imposition of greater requirements for employer-sponsored pensions—in tandem with economic challenges facing large firms—contributed to the shift from defined benefit to defined contribution plans, or how efforts to expand access to mortgages in the early 1980s fueled the growth of mortgage products that put more risk onto borrowers.
A key message of Shared Responsibility, Shared Risk is thus the need for policymakers to better understand their role as risk managers in a complex and shifting market environment. This volume offers many of the tools that could help them do so. It would also be an excellent addition to many undergraduate and graduate-level courses on U.S. social policy.
