managing risk

In an age of weak family structures and communities–and unstable employment–individuals and nuclear families are on their own; they need to be able to manage risk so that they can bounce back from adversity. To help people to hedge risk is different from guaranteeing their welfare or reducing social inequality. It probably isn’t adequate, but it is important in the current era of high volatility.

What are the big economic risks for Americans, especially for the working class? Being laid off or seeing one’s salary drop dramatically, perhaps because of a reduction in paid hours. Sickness or injury, including injury caused by crime. Divorce and widowhood. Kids who are sick or in trouble. Business failure, including the failure of very small enterprises such as trading pages on e-Bay. Loss of property (such as homes and vehicles) due to robbery, fire, or accidents. Steep declines in the value of one’s home or land, such as we see in Rust Belt cities and the Farm Belt.

There are financial instruments designed for some of these risks–for example, home insurance. But sometimes such instruments are too expensive for people whose property is particularly modest. Other risks do not seem to be covered at all by available insurance (divorce, for instance; or the delinquency of one’s child). The government covers some people’s medical care, but many are not eligible for Medicare or Medicaid and cannot afford private packages. The state is supposed to prevent crime in the first place and can sometimes order restitution. But crime can devastate its victims.

It’s interesting to envision a comprehensive set of mechanisms for managing these risks. Some mechanisms could be provided by the state or state-subsidized. Others might be developed by private organizations.