Bogeyman Economics: Has Economic Insecurity Been Overstated?

Editor’s Note: This article can be found in full on the National Affairs website. Available for download from this page are the author’s notes on sources and methods.

In this moment of economic challenge, it can be difficult to keep our problems in perspective. The scale of the financial crisis and the subsequent recession, the weakness of the recovery, the persistence of high unemployment, and the possibility of yet another shock — this time originating in Europe — have left Americans feeling deeply insecure about their economic prospects.

Unfortunately, too many politicians, activists, analysts, and journalists (largely, but not exclusively, on the left) seem determined to feed that insecurity in order to advance an economic agenda badly suited to our actual circumstances. They argue not that a financial crisis pulled the rug out from under our enviably comfortable lives, but rather that our lives were not all that comfortable to begin with. A signal feature of our economy in recent decades, they contend, has been pervasive economic risk — a function not of the ups and downs of the business cycle, but of the very structure of our economic system. According to this view, no American is immune to dreadful economic calamities like income loss, chronic joblessness, unaffordable medical bills, inadequate retirement savings, or crippling debt. Most of us — “the 99%,” to borrow the slogan of the Occupy Wall Street protestors — cannot escape the insecurity fomented by an economy geared to the needs of the wealthy few. Misery is not a marginal risk on the horizon: It is an ever-present danger, and was even before the recession.

But compelling though this narrative may be to headline writers, it is fundamentally wrong as a description of America’s economy both before and after the recession. When analyzed correctly, the available data belie the notions that this degree of economic risk pervades American life and that our circumstances today are significantly more precarious than they were in the past. Even as we slog through what are likely to be years of lower-than-normal growth and higher-than-normal unemployment, most Americans will be only marginally worse off than they were in past downturns.

The story of pervasive and overwhelming risk is not just inaccurate, it is dangerous to our actual economic prospects. This systematic exaggeration of our economic insecurity saps the confidence of consumers, businesses, and investors — hindering an already sluggish recovery from the Great Recession. It also leads to misdirected policies that are too zealous and too broad, overextending our political and economic systems. The result is that it has become much more difficult to solve the specific problems that do cry out for resolution, and to help those Americans who really have fallen behind.

Only by moving beyond this misleading exaggeration, carefully reviewing the realities of economic risk in America, and restoring a sense of calm and perspective to our approach to economic policymaking can we find constructive solutions to our real economic problems.