Book High Wire

The “Body Politic”

The Pilgrims who settled New England in 1620 understood that if they wanted to survive, they would need to cooperate with each other. In their Mayflower Compact, they agreed to “combine [themselves] together into a civil body politic.” Thus, Americans have a long tradition of collaborating, pulling together and caring for each other. Cooperation helped create the nation. Although U.S. society has produced some extremely wealthy individuals, philosophically it has emphasized opportunity and prosperity for all.

“Americans, from the working poor to the reasonably rich, are in danger of taking steep financial falls from which they have a terrible time recovering.”

Unfortunately, this philosophy has changed in the past few decades. Now, Americans emphasize individual achievement. Families are suffering because the “ownership society” has undone traditional social safety nets. Workers are less secure in their jobs, their incomes, their homes, their health and their families. Only a few exceptional individuals get to enjoy the benefits of U.S. power and wealth; most people in the U.S. lead difficult economic lives that are incompatible with the traditional meaning of being an American.

Changing Benefits

In the late 1960s, during economic boom times, large, wealthy corporations promised their workers pensions and health care. However, when a few corporations failed and thousands of workers lost their pensions, Congress passed the Employee Retirement Income Security Act (ERISA) of 1974. The act created the Pension Benefit Guaranty Corporation (PBGC) to prevent companies from cheating their workers out of their pensions.

“Instead of joining together to solve problems that affect the whole society, the heralds of the new approach say more responsibility should be placed on individuals and families alone.”

ERISA had unintended consequences. Congress meant the law to be a rarely invoked protection against catastrophe, but it set out a clearly defined process that corporations could use to jettison costly pension obligations onto the government. Today, defined contribution or 401(k) programs cover most workers. However, many people have lost large portions of their personal retirement savings because of corporate failures, and executives’ negligence and outright malfeasance.

“Essentially, no New Economy firms offer pensions.”

Many companies’ executives are using their influence to limit their obligations to workers and to cut off health care to the seriously ill. Unfortunately, people in crisis are in no position to challenge big corporations. According to an old saying, you can judge the quality of a society by the way it cares for its weakest members. Putting the elderly and the ill at risk should shame everyone.

Slow Income Growth

From the 1970s through the 1990s, the wealth of American families grew; however, in the 2000s, growth slowed. Fewer families had rising incomes and more experienced losses. In 1972, American families had “maximum annual income swings” of 20%; by 2004, the maximum swing had increased to nearly 35%. For the working poor, the maximum annual income swing of 30% in 1972 rose to 50% by 2004. In contrast, the incomes of middle-class and affluent people swung around 18% in 1972, and the swing remained below 30% in 2004. In poor families, an unexpected job loss, a health emergency, a natural disaster, a divorce or the death of a spouse can lead to a crisis.

Changing Jobs

The American Dream used to include the idea that you would spend your entire career at one firm and receive a generous pension after a lifetime of labor. However, in recent decades, companies have both sprung up and disappeared through sales, mergers or failures. Entire industries have come and gone. Many economists see this fluidity as a positive development. Innovative technologies, more capital and new jobs create efficiency and wealth. Yet, these kinds of changes disrupt working people’s lives. When they take jobs that end after a few years, they lose income and health care. They face relocating and retraining. The impact of these transition periods becomes even more serious as workers age. Meanwhile, powerful executives receive lavish severance packages.

“Unjobs”

A significant portion of the U.S. labor force functions in a shadow economy, working in “unjobs” – short-term assignments of a few days or weeks. Often, workers take on several of these assignments simultaneously. Modern technology and communications enable them to work remotely for companies located anywhere in the world. Unjob workers are a buffer for businesses, which can hire freelancers as needed, without providing benefits.

“Americans now operate in a harsher environment where the margin for economic error is narrower and chances of steep financial falls are greater.”

Some unjob workers find their quasi-self-employment lucrative, and they have formed networks to follow leads and foster employment among their members. They choose this kind of work because they value independence and a flexible lifestyle. However, others find themselves struggling in unjobs after losing secure full-time jobs. Unjob workers often have no health insurance, and their unstable lives can add stress to their family relationships.

Being Poor

Being poor is awful, as anyone who has experienced it can tell you. Poverty becomes a self-perpetuating cycle that traps those who try to escape its grasp. The federal and state governments have cut back on New Deal and Great Society safety nets for a variety of economic and social reasons. Although these programs never completely alleviated the turbulence of living in poverty, the changes have made the lives of poor people even more difficult.

“In the absence of government assistance, the burden of navigating from job to job, from unemployment to employment, from unjob back to regular work falls largely on individuals.”

After World War II, U.S. industrial might provided employment that enabled many to escape subsistence farming. However, as manufacturing industries collapsed or moved overseas, unskilled jobs disappeared, leaving behind urban poverty that was even more difficult to eradicate than the agrarian poverty it replaced.

“The gap between the wages of high school dropouts and graduates and college graduates is undeniably large and still growing.”

Even people who never considered themselves at risk of becoming homeless are finding their lives turned upside down by the collapse of the housing market. They quickly deplete their savings and retirement accounts in just a few months of unemployment. For some, the path from the middle-class dream to the poverty nightmare is surprisingly short.

Housing and Insurance

Home ownership is part of the American Dream. The New Deal and the GI Bill made it a reality for millions. Over the past several decades, though, Americans have built larger homes, located them in environmentally fragile areas and financed them in nontraditional ways. Many enjoyed a rise in personal wealth – at least on paper – as home values doubled and tripled. The wealth represented by a home is more than the equity and the mortgage; it’s also psychological. Most Americans spend a lot of effort and money furnishing and maintaining their homes. Unfortunately, the illusion of permanently increasing values led many to extract their equity to pay for lifestyle enhancements. These lines of credit have placed homes at risk.

“Even if the Democrats were to win the White House and strengthen their majorities in Congress, they are unlikely to have the power to push through drastic change.”

Homeowners are also learning from harsh experience that their insurance policies cover less than they thought. Insurers may cancel their policies if they make even small claims. Rather than spreading the risk of loss over many policy holders, insurers are collecting the premiums while pushing more risk and cost onto individual homeowners. Using high-tech methods, they can look up their customers’ credit scores and calculate potential losses. Instead of using their technical wizardry to help homeowners and warn them when disasters are coming, they take profits and, when they experience losses, contest claims in court.

Higher Education

Although homes are many families’ most valuable asset, their largest financial projects are usually paying off their own college loans and saving for their children’s educations. But college tuition has been rising faster than inflation for decades. In response, the government and banks have made more student loans available. This has just increased the demand for slots at colleges, and tuitions have risen in response. Because schools have so many qualified applicants, admission to the most prestigious institutions has become a matter of luck. International students who bring cash along with their qualifications take many slots. Parents whose taxes subsidize state universities may find that these institutions are closed to their children.

“In California...insurers have had the right to promise financial protection against a medical crisis but then take the protection away if a policy holder’s claims grow too large.”

Even those who earn four-year college degrees enter a market glutted with applicants, as many people with years of experience have lost jobs in declining industries. College graduates without specialized abilities end up taking jobs in service industries unrelated to their degrees, at wages that make starting families, let alone repaying their student loans, difficult.

Health Costs

Tens of millions of Americans lack health insurance. Millions more have inadequate coverage. In families with two incomes, one spouse’s job usually provides the family with health insurance. If that spouse becomes ill, the job can vanish, along with his or her employer-paid health insurance. Without that income and coverage, many families cannot pay the high cost of continuing medical care, yet are not poor enough to qualify for Medicaid. Many employers provide insurance only for their employees and require steep copayments for spouses and dependent children. In some states, health insurers have lobbied successfully to terminate the coverage of employees whose illnesses cost the insurers too much. The U.S. health care system has broken down for those who develop expensive, lengthy illnesses or for those without insurance.

Who Can Retire?

During the period when the U.S. had large industries and unions that won pensions for its workers, many people were able to retire. Social Security and Medicare guaranteed all an old age free of penury and anxiety about health care. However, the dream of having a few work-free golden years is slipping away. Few private companies now offer pensions, and defined contribution plans no longer provide financial security. Even the government has trimmed or eliminated its employees’ pensions as it has privatized their jobs.

“The Bring Back New Orleans Commission ran into a racial buzz saw...by suggesting that low-lying – and largely black – areas of the city might have to be abandoned.”

Most people get the majority of their money from their jobs. They do not have the resources or the financial acumen to invest wisely. Job flexibility and privatized retirement place great burdens on individuals and their families.

Rebuilding New Orleans

The failure to rebuild New Orleans after Hurricane Katrina destroyed the city’s infrastructure provides a case study of how the U.S.’s social compact has deteriorated. Previously, Americans saw natural disasters as the responsibility of all society. The Chicago fire of 1871 and the San Francisco earthquake of 1906 called forth national responses, which led to remarkably fast recoveries for both cities. New Orleans, though, continues to suffer. Although rebuilding has taken place in some areas, others, such as the impoverished Ninth Ward, still lie in ruins. New Orleans received billions of dollars in public money, but a lot of the aid went to private contractors who never accomplished their assignments. The free market and individual effort have proved inadequate for rebuilding the city.

Renewing the Mayflower Compact

Working families have borne the brunt of economic downturns in the U.S. Their incomes have been increasingly volatile and they have suffered from gaps in health care. Those in the upper echelon of society should not be the only ones who receive protection.

“Restoring the sense of mutual obligation embodied in the Mayflower Compact nearly 400 years ago is likely to be the defining challenge of our time.”

Working class households fall into two categories. The first includes those who are scraping by with two incomes, sparse health benefits and a shot at saving a few dollars for retirement. The other group contains families with one earner who may be lucky enough to have a full-time job, but who often has to juggle two part-time jobs to care for children. These families have no health insurance or other benefits. How can U.S. society justify leaving its most vulnerable people facing life-ending risks if they get sick or fired? The early European settlers envisioned a compact that would lift society as a whole, rather than leaving each person to struggle in a Hobbesian nightmare where life is nasty, brutish and short.