Risky, Risky

Mads Kvalsvik, who I take to be Scandinavian, had a nice post expanding on my little risk note from earlier that makes me want to say more on the subject. In general, it's an excellent thing when people take risks. As Mads writes, the really valuable thing about becoming fairly well-off in America is less that it lets you buy a bunch of stuff than that it cushions you against risks. This lets you take risks, and with risks there tend to come rewards. This is true in a variety of areas from investing (where stocks give you higher payouts in the long run than alternatives, provided you can withstand the short-term turbulence), to career choices, and much, much more. This is something that, I think, the right broadly construed usually does a good job of understanding. One of the main sources of American dynamism is the willingness of people to shoulder risk.

Something that the right doesn't understand well at all is the difference people designing policy that let people take more risks and policies that simply make life riskier. To take a good example, one leading cause of America's relatively entrepreneurial business environment is that we have bankruptcy laws that are relatively un-punitive compared to what you have in many other countries. This empowers people to take risks by making it less risky to start a new business by taking out a loan. One of the things Social Security does is by guaranteeing everyone a viable, yet modest, retirement income is to allow people to make relatively risky choices with their personal savings, secure in the knowledge that if the worst happens Social Security will be there to tide them over. What's needed are plans that spread this risk-taking capacity further down the income chain, not plans that simply force people into risky situations.

Health care is probably the leading area where liberal policy ideas could help on the risk front. In a normal country with universal insurance, leaving your job and spending a bit of time looking for a new one or working as a self-employed person would be no big deal. In the United States, it exposes you to a massive risk of a catastrophic medical mishap, and if you already have health problems could make it essentially impossible for you to ever acquire insurance again. In this way, America's failure to collective health risks makes each individual more risk-averse than we would be under a different system, bringing with it attendant limits on our flexibility and economic dynamism. In Europe, the potentially risk-enabling impact of universal health care tends to be canceled out (and more) with a variety of labor market regulations that I wouldn't want to see us emulate. In that sense, talking about whole "social models" can be somewhat misleading, since every country has a bunch of different policies that tend to push and pull in conflicting directions. Relatively few Americans would like to see this country be more "like Europe" in a holistic sense, but I think the mildly social democratic policy agenda that US liberals like can be credibly portrayed as a good way to more fully realize America's self-conception.