Reviewed by Martha M. Hamilton
The recent economic downturn, with the collapse of the housing bubble and the tightening of credit, has revealed a world of financial risk that had been there all along, unnoticed by most of us. Two new books examine other financial perils and inequities that put us further at risk.
You might not expect a book on economic policy to be a page-turner, but Peter Gosselin's High Wire is just that. Gosselin, a national economics reporter for the Los Angeles Times, has written a systematic investigation of the many ways financial risk has been transferred from employers, the federal government and insurance companies to individuals and families. Gosselin shows, in frightening detail, how our lives as Americans have become riskier over the last few decades. Instead of believing that we are mutually responsible for each other, we now rely on markets that have repeatedly demonstrated that they are distorted by greed, corruption and irrationality.
Gosselin makes his case using statistics and stories of real people, such as Debra Potter. Potter was a stay-at-home mother until the late 1980s, when she became an insurance agent to supplement the modest income of her husband, a Presbyterian pastor. In 2001, she earned more than $250,000. But by the end of May 2002, she had become so disabled by symptoms of what was later diagnosed as multiple sclerosis that she had to give up her job. Her insurer, whose policies she had previously sold, tried to reclassify her disability to reduce her benefits substantially.
Despite continued appeals, the insurance company stood by its decision, and Potter's condition worsened. As a result, the Potters spent almost all of their savings on Debra's treatment and living expenses and were forced to pull their son out of college. In August 2003, her diagnosis was definitive, and Social Security began disability payments. Nearly two years after the definite diagnosis, Potter's insurer finally began paying benefits. A check for the benefits previously denied arrived three years later, but the damage was done.
Gosselin marshals evidence that Potter's case was more than an unfortunate or isolated mistake, explaining how insurance companies routinely reduced payments of claims. In cases involving employer-provided insurance, the courts have let them off the hook by interpreting the Employee Retirement Income Security Act (ERISA), which covers employee benefits, in a way that favors the insurance companies.
The book also shows that the consequences of losing a job have become greater in the last 25 years. Unemployment benefits now replace less of many workers' income, and the loss of a job often starts a spiral in which subsequent jobs pay less and are less secure. On average, he says, the percentage wage drop for college graduates who lost jobs in the early 2000s was four times as great as it was in the 1990s. And that was before our current economic troubles. Gosselin concedes that unemployment has been low in the last few years compared to what it was in the mid-'70s and mid-'80s. But since many families now depend on two wage-earners, the risks of a family facing a substantial loss in income have risen. "As with so much else about the present economy," Gosselin writes, "the dangers are like rifle shots," hitting fewer targets but doing more lasting damage.
Gosselin goes on to explain how companies have transferred costs and risks to employees by dropping traditional pension plans and shifting health insurance costs. This is all part of a change, he shows, from an economy in which employers felt some obligation to workers even in tough times. Remember when a layoff was temporary, not a euphemism for firing?
There is so much more: how credit card debt has supplanted federal benefits, how a college education is more likely to guarantee huge debt than a good job, how your home is very likely badly underinsured. It adds up to an unsettling picture.
Barbara Ehrenreich's This Land Is Their Land looks at some of the same issues as Gosselin's book, but hers is more commentary than reporting, bringing together blog entries and essays, many of them previously published. The author of the bestselling Nickel and Dimed, Ehrenreich takes on well-worn targets, including greedy executives, oil companies and Wal-Mart, and she offers more indignation than insight. For example, she rants about pharmaceutical companies hiring college cheerleaders as sales reps, but her outrage seems focused on the idea of cheerleaders taking such positions, not on the possibility that these sales reps are promoting unneeded remedies. Corporations want employees to be perky and enthusiastic, she laments. "Maybe the cheerleaders should take over the entire corporation," she concludes. "CEOs, for example, define much of their work as 'motivational,' which suggests it could be done just as well, if not better, by a peppy airhead in a microskirt."
But some of her essays make good points, such as one about the ways the poor are forced to pay higher costs. For instance, she notes, citing a 2006 Brookings Institution study, car buyers who earn less than $30,000 a year pay 2 percentage points more for a car loan than do more affluent buyers.
She occasionally can also be funny: I laughed at her description of children, when she compares medical spending on them vs. pets: "True, they are not the ideal companions for the busy young professional," Ehrenreich writes. "It can take two to three years to housebreak them, their standards of personal hygiene are lamentably low, at least compared with cats, and large numbers of them cannot learn to 'sit' without the aid of Ritalin." As a whole, though, her book is like thin, reheated broth with just a morsel or two in it.
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