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Covering the economics of real lifeASK THIS | March 16, 2005Peter Gosselin, author of a trailblazing Los Angeles Times series on financial insecurity in America, explores new ways reporters and editors can describe the growing risk in people's economic lives. By Peter G. Gosselin Q. What can we learn about how Social Security personal accounts would work from looking at America's two-decade track record with 401(k)s and other individual retirement arrangements? If large numbers have not made anything like what financial experts say was possible, isn’t the same likely with personal accounts? If it is, what will it mean for retirees and for American society more generally? Q. President Bush talks a great deal about account holders being able to earn a better rate of return on their money than with Social Security. Is investment rate of return the proper gauge of what essentially is an insurance policy against destitution in old age? Does the president believe there is something faulty with the notion of insurance? Q. The Bush administration and many state governors are considering changes that would effectively convert Medicaid, the big state/federal health insurance program for the poor, from a traditional fixed-benefit program to a fixed dollar program — a transition similar to the changeover that has taken place from traditional pensions to 401(k)s. Meanwhile, administration officials and some health experts advocate supplanting current employer-based health insurance system with Health Savings Accounts — again, 401(k)-like arrangements in which people would save to cover their own health care costs. Under current arrangements, who bears the risks if a person gets seriously sick? How would that change under these proposals? Q. Economists say that the last two recessions — in the early 1990s and the early 2000s — were unusually mild, with only small declines in the gross domestic product and employment. But in each case, the subsequent revivals (especially of job growth) were very slow in coming. Many economists portray the combination of mild recessions and slowly starting recoveries as an unalloyed good for the economy and society. But what does this new economic pattern look like from the vantage point of a working family? Which poses the greater danger to a family’s economic stability: A short, sharp recession in which many people are laid off, then quickly rehired? Or a shallow one in which fewer people lose their jobs, but many of those who do are out for much, much longer? Q. Increasingly, it looks like the social contract between U.S. employers and employees — the understandings between the two sides about how long jobs last, what kind of pay, training and benefits employees can expect, what kind of loyalty employers can demand, etc. — is being rewritten as the result of a quickly globalizing labor market. Must these new labor-market conditions be accepted as givens, or are there business strategies and government policies that would allow Americans to preserve some elements of the existing social contract? Is there a "race to the bottom" where the cheapest labor globally defines the working conditions for everybody else? Sooner or later, almost every reporter who covers economics faces the same set of confidence-shaking doubts: Do our standard gauges of economic performance — GDP, inflation, unemployment and so forth — really capture what matters most to people, or are they at such a remove from everyday life that their importance is lost? When economists talk — as they so often do — about trends balancing out in the long run, are they sliding right past what readers most want to know? Does the reason I got into this racket — to write about people’s concerns where they live and work — turn out to be a pipedream? Recently, I took a new run at trying to come up with satisfactory answers to these questions. To get some sense of the approach, it is useful to understand something about most of the economic numbers that we use day in and day out, ones such as the unemployment rate. They are, in the jargon of statistics, "cross-sectional." They involve taking a snapshot of a random sample of people at one moment, taking another snapshot at a second moment and comparing the two to come up with a description of what’s occurring "on average." The problem is that people don’t live stop-time snapshot lives; they live continuously. They don’t live average lives; they live their own. To try to find an economic gauge that gets closer to people’s own experiences, the Los Angeles Times, with the help of experts at Johns Hopkins, the University of California, Davis and Yale, began working with a very different kind of database: The Panel Study of Income Dynamics. Instead of being cross-sectional, the PSID is a "longitudinal" or through-time database; it has followed the same nationally representative sample of 5,000 families and their spin-offs for nearly 40 years. The question that the paper asked was: How have working families’ income changed over time? Has it risen in neat, orderly increments from one year to the next? Or has it leapt and plunged? What the paper found was that over the last three decades the size of the income swings families have experienced — the volatility of their income — has grown substantially. In other economic areas, such as the stock market, rising volatility is considered a key signal of rising risk. And this point is applicable broadly. As reporters continue to cover the economy and policy debates such as the one now swirling around Social Security personal accounts, they should ask themselves: How much useful information do the standard statistics and economic averages carry? Which is more important for readers to know: That the unemployment rate is 5.4%? Or that that one in every five people who is laid off is now out for a financially-threatening six months or more? What is more illuminating: That during the last two decades a 401(k) account holder following financial best practices to the letter could have made a bundle? Or that more than one-third of those with do-it-yourself accounts committed so many mistakes they have not made nearly enough to provide for what experts say they will need in old age. If the averages conceal more than they reveal, it’s time to start looking for new numbers.
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