Investors are familiar with the concept of risk-adjusted return. A fund which takes large risks to obtain higher returns might be judged inferior to another fund with lower risk and return. We should apply the same kind of thinking to the economic status of families in the US. While incomes have risen in recent decades, so has volatility in income. Families earn more
on average than in the past, but also suffer larger swings in income (most likely due to layoffs and unemployement).
The personal risk-adjusted performance of our economy is not nearly as impressive as the simple GDP numbers. The 3-part LA Times series covering this is available
here (their internal name for it is appropriately "new deal over").
I discussed this issue previously
here.
"When we compare U.S. economic performance with other countries, we might want to adjust our per capita income growth for the additional volatility that the average American now endures. Many would rather make less money if they can enjoy more security."
ReplyDeleteI am not sure most in the US (unlike most in W Europe) share that view (less money but more security). In the US, we seem to prefer the volatility, thinking we will be able to "beat the market" (or there is a sucker born every minute, and it is never oneself). Thus, a fundamental distrust of public solutions, like single-payer health care, for instance. A friend of mine remarked that the US is a 'manic depressive' society: people oscillate between being very happy and being very gloomy more easily that elsewhere.
I remember a recent poll which found that something like 20% of Americans believed they were in the top 1%.
Unsurprisingly, the thinking of the current administration has a lot of resonance.
MFA
PS: For all the talk about money and other more profitable careers outside, you are ultimately a very modestly materialistic guy ;)
Important post and interesting comment.
ReplyDeleteAnne