YOU GONNA LET THE FACTS GET IN THE WAY OF A GOOD SELF-RIGHTEOUS HISSY FIT?:

Shifting sands: Income volatility is less of a problem than America's Democrats think (The Economist, Jan 4th 2007)

[“T]he Great Risk Shift”, is becoming something of an intellectual handbook for many on the left. [Jacob] Hacker argues that the defining economic shift of recent times has been the increasing instability facing American families. [...]

But his premises that income volatility is undesirable, that it is excessive and that government (or rather Republican) policies bear much of the blame are, on close inspection, flawed.

For a start, rising instability of incomes is not necessarily a bad thing. A dynamic, mobile society is one in which people's income varies a lot. Milton Friedman pointed out in 1957 that living standards should be affected only by permanent changes in their income. Short-term fluctuations could be smoothed out by borrowing and saving. The fact that household saving rates have plunged in the past three decades does not suggest Americans are terrified by the spectre of more variable incomes. More likely, the increased sophistication of credit markets, particularly the ability to extract equity from housing, has made temporary income instability easier to cope with.

Broader social trends, such as the rise of working women, have also affected the stability of family incomes. [...]

Instead, the evidence is that most people can cope with temporary income volatility. Although few statistics track changes in individuals' consumption over time, a study by Richard Blundell and Ian Preston, of University College London, and Luigi Pistaferri, of Stanford, compared the information from surveys of income with separate statistics on consumption patterns at different income levels. The economists concluded that, just as theory predicts, most people's consumption varies as permanent income changes, but barely responds to temporary shocks. Only poor people, who are less able to borrow, saw their consumption much affected by temporary changes in income.

And that is despite government policy, not because of it. Some programmes, such as unemployment insurance, have grown less effective. But from the Earned Income Tax Credit (a kind of negative income tax) to the expansion of public health-care schemes for children, America's public safety net has, in many ways, strengthened since the 1970s. George Bush's inclusion of a drug benefit in the public health-care system for retirees was one of the biggest such reinforcements. Government spending may not have assuaged the economic risks poor Americans face, but it has not worsened them. The “Great Risk Shift” is a snappy book title, just as promising workers greater “security” is an appealing political slogan. Unfortunately, neither stands up to much scrutiny.