The Age of Insecurity Is Here

Jacob Hacker has his team at the Rockefeller Center have created a new measure of wealth and poverty called the Economic Security Index, which is the share of Americans who saw their household income drop by more than a quarter or more from one year to the next, because of job losses or medical expenses.

The data for all Americans appears in the graph to the right. ESI trended up between 1985 and 2007 and Hacker calculates that it exploded in the current recession.

You can play around with the ESI feature to see how financial loss affected different ages, ethnic groups, family structures, and so forth. Hacker says his formula does not count as insecure people with great financial wealth, because these people can spend down their savings as income drops. It's best then to consider ESI a measurement of insecurity rather than wealth lost, since heavily invested rich families obviously lose quite a bit of money in downturns.

Hacker's goal is to turn ESI into something like the unemployment rate and poverty rate: a common and accepted thermometer for the economy's health. For example, here's a comparison of ESI, poverty rates, and the unemployment rate:

If nothing else, the indicator should shine a harsh light on the runaway cost of medical expenses for middle-income families. It's been well-documented that medical inflation eats away at salaries -- since employers have to divert more compensation into premiums --  but ESI looks at the problem from another angle: how out-of-pocket expenses gnaw at the money that goes into our wallets.

This article available online at:

http://www.theatlantic.com/business/archive/2010/07/the-age-of-insecurity-is-here/60307/