Monday, August 18, 2008

High Wire

High Wire: The Precarious Financial Lives of American Families, by Peter Gosselin, (New York: Basic Books, 2008) 330 pages, $26.95.

High Wire opens with an exceptionally long introduction, 34 pages actually. In it Gosselin establishes the premise of the book: America has growing economic risk and personal insecurity to go with its economic growth. He quotes from the Mayflower Compact of 1620, which was an agreement to “combine ourselves together into a civil body politic … as shall be thought most meet and convenient for the general good of the colony, unto which we promise all due submission and obedience.”

The quaint words of the Mayflower Compact become the book’s leitmotif because Gosselin believes too many American’s in the private sector, government and elected office have abandoned their responsibilities to the health and welfare of the larger society.

Following the introduction, ten chapters and a conclusion define and describe a selection of the new risks. The narrative uses individual interviews and case studies as examples of the growing threats to personal finance. The chapters have no apparent order and can be read as individual journalistic essays.

Topics feature private sector issues that have slowly evolved through changes in practices and attitudes, especially the attitude that Americans should fend for themselves. As Gosselin notes, changes tend to take place without notice or public debate. Instead changes come as a surprise to people who think they have something - career, pension, insurance – when they do not.

For example, the chapter titled Benefits is a journalistic examination of a federal law: the Employee Retirement Income Security Act, a.k.a. ERISA. ERISA became law in 1974 to protect participants in employee benefit plans and assure benefits. Case examples describe the changing attitudes of private sector insurers who have successfully denied disability insurance claims and health insurance benefits and the court rulings that have allowed these practices and effectively changed the law.

Two more chapters cover private insurance. Material from interviews and case studies explains the new methods and practices insurers are using to limit coverage and shift losses and risks to individuals. A chapter titled Housing is about the new limits on home owners insurance.

The chapter titled Health is about private health insurance. Insurance is supposed to pool the random risks of many to reduce personal risk. Trouble is people who lose their jobs apply for health insurance in mid life, or later, when they are more likely to get sick, or be sick with pre-existing conditions like diabetes and heart disease. As Gosselin explains, the circumstance of private insurance gives the companies every incentive to insure the young and healthy, and lower their risk of big payouts by avoiding the others.

The need to avoid “adverse selection” of sick clients makes the companies continuously suspicious their applicants withhold medical information, but those who are sick will be without health care if they report the truth. In America’s system of private health insurance millions are left out, or priced out, and others find themselves without coverage when companies challenge their honesty and deny coverage, a practice called rescission.

Gosselin does an admirable job documenting the practices and shortcomings of private health insurance and the need for a national risk pool. The problems outlined here make the case for public health insurance.

A retirement chapter describes the shift away from defined benefits to defined contribution plans and 401(k) plans. It features interviews with economists and others in finance careers that have done a poor job managing their own retirement assets. In an economy with layoffs and falling wages, it is tempting for people to rob their pension plans to get through tough periods regardless of their time, energy or experience managing assets.

The chapters on employee benefits, insurance and retirement accounts have self help and buyer beware information that makes them useful as part of personal finance. Other chapters on jobs and education have less self help information, but interviews illustrate a variety of risks of layoffs, displacement and unemployment for people from a variety of educational backgrounds and managerial, skilled and unskilled occupations.

A chapter titled New Orleans describes the aftermath from hurricane Katrina. Since the Bush administration has abandoned New Orleans, the discussion here quite plausibly suggests the Bush Administration regards the call for relief as a perfect laboratory for its free market devotions. The market is supposed to take care of everything, but residents need jobs, electricity, water, sewers, schools, trash pick up, grocery stores and shopping. They cannot return until service is restored, but the city and business continuing waiting for residents to return before restoring service. With no buyers and no sellers, markets fail.

Chapter three has a title, Numbers. Numbers? It intends to use data to show the fluctuations in income and the growing insecurity we all feel. It is confusing and zigzags among charts and terms, but it is not necessary as supporting information to the other chapters.

The book keeps its focus with chapters that emphasize the cause and effects of growing economic insecurity. The interviews and case studies are essential to the arguments, but there are many people with names popping up in multiple places so that readers may want to make note of names and pages to keep track of everybody.

Public policy gets only incidental mention, but at the end Gosselin writes, “…the time is coming when unquestioning reliance on markets alone will give ground to a new politics of shared responsibility.” He makes a few specific recommendations, but just suggesting a “politics of shared responsibility” is more significant than it may sound. Remember the policy of free enterprise is doing nothing, and there are many who continue to say doing nothing is better no matter what the results.

The book takes an amiable tone and Gosselin shows patience with the many people he interviewed: a motley crew who sometimes added to their troubles doing foolish things. He does not write in the strident tones of a crusader, but in the conclusion he returns to the Mayflower Compact. From that we have to suppose he is sick of, and disgusted with, people who “ignore the general good.” After reading his book, you are likely to agree.

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