The Problem of Risk
[Blogger's Note: I was a finance student in my undergraduate career and learned my trade as the credit crisis was heating up. Some of these ideas were born in that educational environment.]
America has a problem with risk.
The determined, hardheaded, individualistic souls that carved America out with covered wagons or traversed it with inherently risky railroad lines have been replaced with those who have been raised on entitlement packages, corporate safety and government concern for your wellbeing.
You see, as an American, you expect that a good corporate job will mean health insurance, retirement funding, all the happy benefits combined with a decent salary. That’s how you retire in America – you don’t take personal responsibility for your own funding, you let someone else do it. Even if you take the initiative and put some money away into a personal retirement account, you expect your broker to take care of it for you. Or (worst yet), your retirement is based on the stock market always going up. We are so terrified of taking on the risk of ensuring our own future that we pass it off to someone else and blame them if it isn’t done right.
The entitlement system is threaded the same way. Our system is based on the idea that your health needs should all be fulfilled by Medicare and that your basic eating/housing needs should all be fulfilled by Social Security. What responsibility do you have for your own retirement? You can just wait to retire and start collecting checks.
The government’s current actions are along the same vein, but we’re now moving down the age ladder such that all Americans have similar security. Your health care will be taken care of by the government. Your jobs will be taken care of by the government. Your entire life will be subsidized by government debt, and then you can do as you please.
It’s not a bad system, really. The Europeans are doing it marginally well (with the exception of Greece and Spain, perhaps). There may come a time when the piper has to be paid, but there’s not a concern about the entitlement system like there is over here. And why is this? Could it be that the system is aligned with what the people expect?
Risk allows the individual to achieve phenomenal returns. Those who stuck it out with Google from the beginning are living in paradise. Yet risk also exposes the individual to phenomenal failures. How many people accepted the volatile risk of the technology boom and lost their shirts because of it in 2000? And why do we at all think that government could be structured any differently?
A European/entitlement-based government caps the personal returns of its people in exchange for a higher degree of security. In America, however, we demand the personal returns and the government bailout if we fail. We’re all conducting ourselves like we have golden parachutes. We’re taking out credit cards by just signing the paperwork and then complaining that the banks are exploiting us when they do everything they could under the contract. Or eating way more than we should every day (I’m not even going to say fast food. I can get two pounds of food for lunch at Whole Foods and that will make me just as fat as the Big Mac combo) and expecting the doctor to bail us out with stomach stapling or liposuction. We want government healthcare for the middle class with no additional taxes for the middle class.
Our problem is with risk. Risk implies responsibility. In addition, it also implies that some actions will occur that are out of our control. There is, unfortunately, no escaping it fully – we can only manage it. It is time we stopped lying to ourselves about that fact. Risk can be a boon to our success as individuals and as a country, but only if we embrace the fact that it’s there. Otherwise, we are leaving ourselves exposed to downsides that we are not willing to see.
