Wednesday, March 19, 2008

Economic security in the 21st century

The sub-prime loan disaster and the requisite blame that gets tossed around brings to the foreground complex poverty problems. A lot of poor people bought houses thanks to loans that they couldn't afford in the long run. Some were certainly "tricked" into loans with sneakily high interest rates, but bottom line, people were buying houses when they shouldn't have.

Home ownership has long been part of the "American dream" and for good reason, it provides a degree of security not equaled by a rental. Individuals, especially families, were much less mobile in the 20th century, and the promise of a pension from the local industrial giant and a home in your name seemed to guarantee your well-being.

The job market, however, has changed from safe and stagnant to volatile, but more lucrative. Old industry opportunities disappear in Detroit, reappear in Birmingham, while some old jobs disappear altogether from the US and are replaced by new jobs.

Home ownership is thereby linked to employer-based health care, unions, protectionism, etc. 20th century means of providing security that are now no longer efficient in a time when mobility and flexibility are prized like never before.

The challenge is to provide security to the masses while not destroying the economic framework that provides the prosperity the masses are trying to secure. Portable, market-friendly security should be the end game -- whether it's wage insurance, portable health insurance/401Ks, etc.

As Karl Smith explained his interest in wage insurance:

In part my reasons are political economy. I am looking for a mechanism that will prompt all Americans to buy into to globalization and technological change. I understand that globalization per se is overly blamed for job losses but I think that's the term the populace uses for "things beyond our control."

I want to assuage their fears and let them know that the things beyond their control are evolving in a way that on average will benefit them more than it will hurt them.

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