Bring Back Risk
Our increasing aversion to taking chances creates dangers of its own.
June 24, 2013, was a clear day in the Arizona desert. Nik Wallenda walked carefully along the two-inch-thick high wire, suspended 1,500 feet (the height of the Empire State Building) above Hellhole Bend, a gorge near the Grand Canyon. Wallenda prayed as he slowly traversed the 1,400-foot wire, facing 30-mile-per-hour winds. His pace picked up, and he broke into a brief sprint as he reached the end, smiling widely as he jumped off and kissed the ground.
The year before, Wallenda had walked across Niagara Falls, but the American and Canadian governments and ABC, which filmed the stunt, required him to wear a safety harness. Not this time. There was no harness or net. If Wallenda fell, he was on his own.
Wallenda trains obsessively. He insists that tightrope-walking is mostly a mental activity. Doubting yourself after you take a risk may be the biggest danger of all, rivaled only by the false sense of security that comes from thinking that someone else, or a safety net, will protect you if you screw up.
But being a tightrope walker isn’t what it used to be. Wallenda devotes significant time and energy to getting permits and complying with safety regulations that don’t necessarily make him safer—and may even expose him to danger. He wears a harness only if the government permit or broadcaster demands it. Terry Troffer, his father and chief rigger and safety coordinator, told the Chicago Tribune: “It’s more of a danger to him. If someone is walking with a harness, it’s easy to just say, ‘It’s OK if I fall because I have a harness.’ You are kind of over-relaxed. If you don’t have a harness, you know you’d better not take the slightest misstep.” Wallenda knows that a safety net offers no guarantees. An uncle of his died after falling into one and bouncing off it onto the hard ground.
Americans have become intolerant of many risks that people once dealt with on a daily basis, as the Covid-19 pandemic has shown. Even 20 years ago, retreating to our homes for months on end at the government’s urging for a virus with Covid’s risk profile would have been unthinkable. We’ve often heard during the pandemic that we can return to normal “when it is safe.” Indeed, we hear the word “safe” a lot these days, but it’s often an unrealistic standard that no previous generation expected. Certain Covid restrictions can be justified, but extreme risk-aversion from government bureaucrats has caused more harm than good—for example, shutting down in-person teaching for children, who were at low risk from the virus, or imposing draconian economic lockdowns that caused many businesses needlessly to fail.
There are many reasons for our declining risk tolerance. We were raised and live in a richer society, where we need to take fewer risks. The government plays a growing role in removing risk from our lives, from the financial system to the workplace and beyond. We wind up less used to confronting risk—and less prepared for life’s inevitable shocks.
This threatens not only our resilience but also, over time, our prosperity. Risk is critical for a flourishing society and vibrant economy. Investors and entrepreneurs must take chances to find new innovations. Individuals need to do so as well, in order to achieve their personal and economic potential. If well designed, regulation can help us balance risk and reward sensibly. But our goal as a society seems more and more to be reducing risk at all costs.
Consider the economic effects of contemporary regulators’ reach. A bewildering tangle of federal, state, and local housing, business-licensing, and health-care mandates is making it harder and costlier to move to a new city or to change jobs and rendering entrepreneurship untenable for many Americans. Entrepreneurship and openness to new opportunities once fueled America’s economic dynamism, but now the government is becoming our risk inhibitor, a collective helicopter parent.
Long before Covid-19, risk-taking was increasingly discouraged. Between 1970 and 2019, the page count of the federal code of regulations on business and industry thickened from 54,000 to more than 185,000. State and local regulations can be even more of an economic burden, especially for small businesses. The number of jobs that required a license, for instance, rose from 5 percent in the 1950s to 22 percent today. Small wonder that the rate of new business creation fell 10 percent between the 1980s and 2018. Other factors influence this decline, including an aging population and changing market structures that reward larger firms, but surveys from the National Federation of Independent Business consistently rank regulatory compliance as a top economic concern. An example of the state and local bureaucratic obstacles that someone launching a small business can face: San Franciscan Jason Yu recently spent over $200,000 seeking permits to open an ice cream shop in 2019, before giving up in frustration.
However well intentioned, many risk regulations can impose steep costs. Governments grant tax incentives to employers, for example, to provide health insurance to their workers. Later, the federal Affordable Care Act sought to reduce risks further by mandating that most companies offer such insurance. Such measures, by driving up the price of individual insurance, have made employees less inclined to leave their jobs to start a new business, and thereby lose their health benefits. The economy loses some of its vitality.
The government push to reduce risk can sometimes make us more vulnerable, not less. Misfortune cannot be eliminated, and we can find ourselves less hardy in the face of the bad things that still happen. The Federal Reserve, for example, increasingly aims not just to take the edge off inevitable recessions but also to keep its policies (or even public discussions of them) from sinking the stock market. This distorts the price of risk and our perception of it—and capital then flows to riskier places, leading to new vulnerabilities in the economy. The Community Reinvestment Act of 1977 and subsequent iterations of it sought to boost homeownership by subsidizing mortgages and lowering lending standards, giving Americans a means of building low-risk wealth and security—or so the legislation’s backers argued. But the measure distorted the price of risk in the mortgage market, helped inflate a dangerous housing bubble, and—when that bubble burst in 2007—left many families worse off because their wealth was trapped in an illiquid, over-leveraged, and now-depreciating asset.
Low-income Americans can be hurt the most by excessive risk reduction. Savings programs that target this population often nudge or require them to invest their money in low-risk bonds. This ensures no losses, yes; but it also means that their wealth can’t grow as fast—especially in today’s low- or negative-interest-rate era. Labor-market regulations frequently discourage small-scale entrepreneurship and gig work, which many striving people use to climb the income ladder. Social-welfare programs are often structured so that gains in income result in lost benefits and higher marginal tax rates. If you’re a low-income individual in the American economy, risk-taking is especially expensive when things go wrong, and success is less rewarding when it happens.
The suppression of risk has other adverse economic effects. Using Social Security records of Americans between 1978 and 2013, economists estimate that wages for many Americans aren’t rising as fast as they once did. And researchers also find a notable decline in wage variability—that is, wages have become more predictable. Moving to more productive parts of the country, starting a new business, changing jobs—these kinds of bold actions have driven lots of wage growth and variation in the past. With less of that going on, we get languishing wages and more entrenched inequality. It’s notable that the only Americans whose wages remain variable—growing fast—are the top 5 percent of earners.
It took a pandemic for people to start quitting their jobs again and forming new businesses, but government policy is working against these salutary trends by piling on risk protections. The Biden administration’s Build Back Better plan aims to make gig work harder, heavily favors unionized workers, adds more wage floors, and introduces more constraints on the economy. But such policies will only reinforce the stagnation and inequality that progressives claim to be concerned about.
Risk aversion is holding many Americans back in noneconomic ways, too. Psychologists believe that taking chances and confronting uncertainty are crucial to personal growth and our sense of dignity. Without them, curiosity dims and a work ethic can seem pointless—why leave your parents’ basement? (This is why unconditional cash benefits from the government are a bad idea.) Social psychologists such as Jonathan Haidt have argued that helicopter parenting, which keeps kids from taking risks and handling inevitable setbacks, is one reason that some college students have become more anxious and think that the mere expression of certain ideas can actually harm them.
America was founded in part on the ideal that anyone, including those with modest means, can make their fortune here by seizing opportunities, which often entailed bold actions. Through much of human history, rigid social and economic structures meant that only elites had such opportunities. But America adopted policies that encouraged ambition at all levels of society.
A dramatic example was the 1862 Homestead Act. It granted free land to settlers, conditional on five years of continuous residency and on improving the land by farming or building on it. As with so much else of America’s past these days, historians are taking issue with the Homestead Act for not conforming to current ideals. They fail to appreciate that the act was a progressive policy that created wealth for many people who lacked it, provided that they took up the dangerous work of taming the frontier. Back then, land was the primary form of wealth; the chance to own it was transformative. According to historian Everett Dick, “Just as gaining an education is the surest way to rise in society today, in colonial days the acquisition of property was the key to moving upward from a low to a higher stratum. The property holder could vote and hold office, but the man with no property was practically on the same political level as the indentured servant or slave.” Immigrants, single women, and former slaves could all qualify to homestead.
America became, at least for a few generations, a country made up disproportionately of small farmers in charge of their own destiny. There were downsides to the risk, of course. The life was hard, the land often remote; settlers contended with disease and dangerous wildlife. Some gave up—but many others succeeded. Between 1862 and 1976, when the program ended (except in Alaska, which remained partly unsettled), 1.6 million homesteaders claimed roughly 10 percent of the land area of the United States. Today, between 46 million and 93 million Americans descend from an original homesteader.
A few of the risk-taking originals are still alive. One is Ken Deardorff. He became America’s last frontiersman, when, in 1974, the then-29-year-old Vietnam veteran moved to the Alaskan wilderness to become a homesteader. By Deardorff’s time, homesteading was mostly something that people read about in history books. But he was always different. Born and raised in Southern California, he knew from a young age that he didn’t want the life of comfort and predictability to which most people aspired in the postwar era. He dreamed of a frontier lifestyle, where he could “wake up, raise the window, and shoot something.” Deardorff’s homestead was 80 acres in the most remote part of central Alaska, an area full of wildlife. The closest community, about 40 miles by boat, was Stony River, a mostly native village with only a few dozen residents.
He arrived at his claim in February 1974 with two small planeloads of gear. It was 10 degrees below zero—so cold that his breath froze as he slept in his tent. Each morning, after warming himself by the fire, he’d strap on snowshoes, cut down wild spruce trees, and work on building his 12-foot-square log cabin. Once he moved into the cabin, he says, his quality of life improved significantly because it had a stove to keep him warm. There were no roads, mail service, or barges, so the only way to get supplies would be to take a small boat to the village. He mostly lived off Spam and canned lima beans before developing better hunting and trapping skills.
Deardoff’s wife later joined him, and they had a daughter. They all adapted to the Alaskan wilderness, but their lives were never easy. They would often wake up to find bears surrounding the cabin, though Deardorff says that aggressive moose could pose a bigger threat. The family sometimes had to climb trees, or hide their young daughter in one, to escape wildlife.
Yet, even with the dangerous fauna and harsh conditions, homesteading was not what it used to be. The American economy and society had changed. A bureaucracy had emerged that didn’t reward risk-taking; in fact, it discouraged it. In 1979, Deardorff filed for his homestead patent for the 80 acres, but he met with long delays and mountains of paperwork. He finally got a patent in 1988 for almost 50 acres—two years after the program officially ended in Alaska. That makes him America’s last homesteader.
Deardorff represents the passing of an era. The Homestead Act ended chiefly because there was not much prime land to give away anymore—but its closure also symbolized a historical shift in which the objective of government policy became not risk facilitation but risk reduction, especially for low-income Americans.
Reducing risk is often a worthy policy goal. For most of history, people lived shorter lives and were on the verge of severe poverty and starvation. Nearly half of children died before reaching adulthood.
The industrial era brought two major developments that enabled human beings to reduce the risks to themselves. We invented new technologies, and we got much wealthier. Technology has allowed us to measure risk more accurately and ameliorate it. The modern sewage system eliminated the dangers of cholera and other water-borne illnesses; airbags make us safer while driving. And the revolutions in computing and data improved our ability to predict and protect against all kinds of dangers, from extreme weather to crime.
The wealth that technology helped generate has allowed us to afford more risk reduction, which can be expensive. During the 1918 Spanish flu pandemic, for example, America could neither afford to pay people to work from home nor enable them to do so, as it could during the Covid-19 outbreak. Thanks to wealth and technology, food scarcity is less of an issue, and improved health care has reduced the incidence of early mortality. The wealthier we are, the more we’re able to distribute largesse to those in need. Previously, if people fell on hard times, helping them was more the work of charities, often religious, than the government.
But wealth and technology introduced new risks. People flocked to cities, creating new health hazards involving disease and sanitation. The extension of the market economy subjected everyone to the shock of a recession at the same time. In response to these developments, the state began to take on a greater role in risk reduction—building sewers, imposing food safety regulations, and, eventually, with the New Deal in the U.S. and similar programs in Europe, establishing government pensions and benefits for disability and unemployment. These innovations marked a major shift in our relationship with risk. The federal government was suddenly there to bail you out if things went wrong.
There are, to be sure, advantages and efficiencies in government’s assuming these responsibilities. Government builds infrastructure that we all use. National insurance can be an efficient means of protection, since the government can pool risk across different people and generations. The government plays a valuable role by compelling people to insure against unemployment and diversifying risk across different generations by issuing debt.
However, over the years, this risk-reduction role has expanded to the point of being counterproductive. In some states, to take just two of innumerable examples, you can’t braid hair without hundreds of hours of expensive training; or, if you’re a carmaker, you can’t sell to customers except through a dealer. Somewhere along the way, the government’s focus shifted from managing risk efficiently to eliminating it entirely—and with that change, wage growth and productivity have stagnated. Our welfare state has grown to encompass new programs and regulations with little thought of preserving the motivation to take some chances.
Risk-taking is becoming a luxury of wealthier Americans. The costs and regulations associated with starting a business favor large incumbents or those with lots of capital already at their disposal. Moving to a big city that offers higher pay and better opportunities requires being able to afford high rents right out of college, largely because zoning regulations restrict new housing construction. Encouraged by student-loan subsidies and restrictions on the ability to default on debt (another risk distortion), recent graduates leave college saddled with financial obligations. These programs, which began as a way to make college affordable (partly because it was seen as a low-risk investment), have become a major factor driving up the price of education. Thus, a system that aimed originally to reduce risk for all has instead ossified income inequality and limited our potential.
After a global pandemic, it might seem counterintuitive to say that Americans need more risk. Nevertheless, we’re at a critical moment. The Build Back Better agenda would push the risk-elimination project to a new level, paying out more government benefits to all but the highest earners. Thanks to technological innovation, it’s easier than ever to earn a living doing remote, freelance, and gig work, all of which can make workers more autonomous and entrepreneurial. But the changing structure of our economy threatens to hold people back from exploring these options. We should instead be supporting risk-taking—with a robust safety net, yes, but one that doesn’t diminish the upside of risk.
This is not only important for economic growth. As Americans like Nik Wallenda and Ken Deardorff understood, risk-taking is also about realizing our potential. The alternative to reviving a national culture of risk-taking—recapturing some of the frontier spirit that sent Deardorff to the wilds of Alaska, or Wallenda up on a high wire—is a deliberate choice to stagnate.
Top Photo: Daredevil Nik Wallenda crossing a section of the Grand Canyon (MIKE BLAKE/REUTERS/ALAMY STOCK PHOTO)
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