UC Press Blog

The 2024 presidential election ushered in an extreme shift in political winds to an unanticipated degree. In the White House, the President issued a barrage of executive orders to dismantle economic regulation. His adviser, Elon Musk, unnerved workers by slamming Social Security as a Ponzi scheme. Meanwhile, the Republican majority in Congress pushed for deep cuts to social safety nets to pay for tax cuts for high earners. 

This all unfolded against the backdrop of one highly inconvenient political fact, which is that at least half of American households today do not have enough money to live on. And this does not count small luxuries like streaming, high-speed internet, or eating out. On the contrary, these tens of millions of families cannot even pay for bare necessities, like food, housing, clothing, transportation, childcare, healthcare, and taxes. They live in constant financial worry and want. 

In my book, Sharing Risk: The Path to Economic Well-Being for All, I argue that this problem has grown worse as the financial risks on families have mounted over time. In the past fifty years, governments and businesses have increasingly shed financial risks and shifted them onto individual households. The federal minimum wage stagnated, secure jobs dwindled, unemployment insurance covered fewer and fewer workers, states phased out subsidized college tuition, and employers swapped valuable pension benefits for 401(k) plans (or no retirement benefits at all).

As a result, the financial risks borne by ordinary families have ballooned to unmanageable proportions. Too often, however, policymakers tell these households to “just save more.” Officials exhort people to build emergency savings, salt away money for college, save for a down payment, and sock away a million dollars (or more) for retirement. These savings demands are daunting for most families, but they are positively absurd for the bottom half of households, who cannot even pay for basics. 

What will it take to put families in the bottom half on secure financial footing? In Sharing Risk, I argue that the answer is to expand our use of risk-sharing arrangements. Private insurance is the most familiar form of risk sharing and other examples abound. Risk sharing takes a risk that someone would otherwise absorb alone and spreads the cost of that risk across a bigger pool of people. If the worst happens and the risk materializes, the injured person will no longer bear the loss alone. Instead, the pool will defray the loss. In the process, risk sharing improves social welfare by protecting everyone in the pool from financial losses and affording them peace of mind. It is usually more efficient, moreover, to pool financial risks than to drop those risks on individuals’ shoulders. Sharing risk is a win-win proposition because it protects more people from risks at reduced total cost.

There is nothing revolutionary about this approach. The nation has used risk sharing for years to shield households from specific financial hazards. Social Security, unemployment insurance, and health insurance are all examples of this. 

At the same time, the nation’s current risk-sharing programs are showing their age. Given the heavy financial burdens on many Americans, we need new forms of risk sharing that are suited to today’s conditions. In the book, I describe better risk-sharing arrangements and how they would help families achieve five key milestones of economic stability. These milestones enable families to flourish by making ends meet, owning a home, affording health care, paying for college, and enjoying a secure retirement. 

At this point, one might ask, is it even realistic to call for expanded risk sharing in the current political environment? Doubts on that score are understandable, particularly for programs in danger of rollback. Yet some progress is possible even today. 

The most prominent example is the expansion of the Child Tax Credit, which a bipartisan majority of Congress supports. Meanwhile, a vocal number of congressional Republicans in red states support the extension of Medicaid expansion because it is in strong popular demand by their constituents. This suggests that members of Congress who ignore the widespread financial distress among voters put their seats at risk. Now that the majority of families lack the income to even make it through the month, the country has reached a political tipping point. Now more than ever, if politicians want to be re-elected, they need to take the financial precarity of families seriously and enact more risk sharing, not less.