But are those people worse off than Detroit Three retirees? Their 401(k)s may rise in the years ahead. The Detroit Three pensions are at risk of being permanently slashed.
My own sense is that ordinary Americans are more resilient than some theorists think. They form and act upon what Milton Friedman called the permanent-income theory and Franco Modigliani called the life-cycle theory -- that is, they develop a pretty good idea of their long-term earning capacity and their ability to accumulate wealth, and spend accordingly.
They may shift these expectations in a crunch, and may be doing so now, as purportedly risk-free financial products and corporate pensions are revealed as hugely risky. But through thick and thin they're constantly calibrating and recalibrating the amount of risk they should take. And while some people make bad decisions, all those decisions put together seem to have proved less risky than Fannie Mae's securitized mortgages or the UAW's retiree health care benefits.
There are good arguments for safety net programs like Social Security, which eliminate severe downside risk -- or at least eliminate it if Social Security has a sound long-range financing scheme, which it may not. Curiously, most current policymakers seem more concerned about the risks of climate change, about which there is much uncertainty, than the risks of Social Security collapse, about which the numbers seem much more certain.
My larger point is that eliminating risk entirely is an impossibility, and mitigating risk intelligently means not only maintaining sensible safety nets but, more importantly, stoking the engines of economic growth.
Happily, President-elect Obama's top economic appointees seem to have a similar understanding. A capitalist economic system, which enables risk-taking through intelligently structured and regulated financial markets, has been proven by history to be, as Winston Churchill might have put it, the most risky system except for all those other economic systems ever devised.
Let's try it again, this time keeping a gimlet eye on those who tell us they have schemes that can eliminate risk altogether.
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