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Economy 4.0

New year, more economic security?

David Brancaccio Jan 3, 2012

Kai Ryssdal: At this point in the year — that is, right at the very start — maybe what you’re hoping to hear from us is some optimism about the economic road ahead. There are some promising signs, don’t get me wrong. But three-plus years of being stuck in a rut gives us this: A study that figured out how many of us will fall off a financial cliff in the year ahead.

Marketplace’s David Brancaccio is here with this bracing bit of reality. Hey David, happy new year.

David Brancaccio: Happy new year to you.

Ryssdal: I fear, though, Mr. Brancaccio, that you will start the new year off with bad news for me.

Brancaccio: I know, look what I picked here. No one wants to think about the chances of hitting the skids financially, but maybe, what — forewarned is forearmed? I want to look at what’s called the Economic Security Index: How many of us will see a major economic loss in 2012. If you look at the statistics, more than 20 percent is the answer. The trend is if, what, five of you are in a carpool listening right now, one of you will see a huge drop in income at a time when you don’t have the cash or savings to deal with that.

Ryssdal: But for that guy who’s the unfortunate soul sitting in the back in the middle seat there in that carpool, what does that mean?

Brancaccio: Well, this is how they figured it out — what it means is what are the chances your income is going to fall 25 percent or more this year? This is also when you factor in out-of-pocket medical expenses. They found that many of the people who went off this kind of financial cliff were unable to meet at least one basic need, like maybe the rent or you can’t even go to the doctor if you need it. Now, obviously this affects poor people, but the researchers note the dangers also lurk for households with incomes between $60,000 and $100,000 a year.

Ryssdal: But isn’t this, David, the way — maybe not the business cycle — but the economic cycle works? I mean, you’re up and you’re down.

Brancaccio: Exactly. So the researchers looked at this, they factored in the ebbs and flows of the economy, but economic security over the last quarter-century keeps trending the wrong way. In fact, here’s the guy behind this index — Yale University political scientist Jacob Hacker:

Jacob Hacker: Just getting the economy moving again isn’t going to restore economic security as we once understood it, because this is a long-term decline and it’s rooted not just in the instability of employment, but also in the weakening financial safety nets of Americans and the runaway nature of American health care costs.

Ryssdal: And yet though, David, if you look at a lot of the polling that’s out there, people still think the United States as the land of opportunity.

Brancaccio: Exactly. We’re advertised as the land of opportunity. But I’ve got bad news for you there too, my friend.

Ryssdal: Of course you do.

Brancaccio: Yeah, the Pew Research Center’s got a whole program on what they call Economic Mobility in America — what are the chances that, for instance, our kids will do better than us. Pew’s latest research shows that when it comes to mobility, we’re doing worse than any country they looked at: Canada, France, Italy. But here’s the thing: How well your kids do in the U.S. is closely connected to how much education — wait for it — the parents got. Not necessarily how much the kids are getting. So we’re locked into some sort of education and income levels of our backgrounds.

Ryssdal: So for my kids, it’s already too late right? I should have gotten that Ph.D or something, and everybody else should have kept going to college and all that stuff?

Brancaccio: Yeah, you and me both. Don’t tell this to anyone waiting for their college acceptance letters in the next coming weeks, right? But there’s an interesting exception: The very little ones. In an effort to find something positive to bring to the table here, I have three words: early childhood education.

I spoke with Nancy Newman, she runs a preschool for children from homeless families in Baltimore.

Nancy Newman: Everybody needs that foundation because it’s a foundation for life. That’s where you learn language skills, social skills — two fundamental things you learn in preschool that carry through for the rest of your life.

Preschool — one of the very few ways up the economic ladder in the Pew study I talked about. Research found that a couple more years preschool translates into a couple percentage points in income later in life.

Ryssdal: Assuming, of course, there are the jobs to be had. David Brancaccio, our Economy 4.0 correspondent. David, thank you.

Brancaccio: You bet.

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