Taking risks is essential to our lives and fundamental to our sense of autonomy. Risk is how we get anything valuable in life, even if it exposes us to loss. To some extent, we should be free to take whatever risks we choose and bear the consequences, good and bad. When we shift from the private to the public realm, however, these freedoms have upsides and downsides. Some risks could pose harm to others and so should be regulated, and some downside risks are intolerable and inefficient. Food stamps and free school lunches help mitigate circumstances for Americans struggling to pay food costs, and unemployment insurance, along with Medicaid, disability, and welfare payments, helps other Americans afford some basic standard of living, no matter what happens to them. A feature of modern society is that we band together and establish mandatory insurance, financed by taxes, to provide a safety net for income and health care.
Reasonable people will disagree as to whether such insurance is inadequate or too generous, and whether risk regulations are too onerous or too permissive—in part because these restrictions also infringe on our individual freedom to take risks in order to further our lives or fortune. Risk is fundamental to growth, but everyone has a different tolerance for downside risk and a different willingness to pay to reduce it. How we value these trade-offs and impose choices on citizens explains part of the partisan divide that has emerged in America.
The different risk outlook in red and blue states has become more apparent since Covid-19 upended American life. The novel coronavirus exposes this opposition—the rights of the individual to pursue income and live his life freely versus the risk of infecting others or taking up hospital space—more acutely than the risks we normally face. Red states and counties have a history of protecting individual risk-taking over imposing risk reduction. This different risk philosophy can be seen in the Covid response: North Dakota, South Dakota, and Nebraska never closed; Florida and Georgia reopened early, and Alabama and Texas reopened even as infection numbers were rising. On the other side, even after new cases declined to negligible levels, New York and New Jersey remained closed for weeks. California was early to shut down, despite initially low infection rates; when an outbreak did occur, the state was quick to shut down again. Hawaii shut down, despite having few cases, reopened—and then, when it had an outbreak, became one of the few states to give a second shelter-in-place order.
And the language around risk was glaringly different. Republican governors and President Trump pushed reopening and talked more of getting the economy going again. Democratic governors like Andrew Cuomo, Gavin Newsom, and Jay Inslee stressed that reopening risked future outbreaks and that they would tell us when it was safe to resume our lives.
The divide will likely only widen over the next year, as different regions manage life with the virus.
We often think of blue states as being more open and tolerant of individual freedoms; they were the first to allow gay marriage, for example, and are more liberal on transgender issues. But openness to social change is only one aspect of risk. When it comes to other issues, blue states often stress protecting the community over individuals’ right to take risks and bear the consequences. In red states, with laxer gun laws, owning a gun is seen as a way of managing personal risk—gun proponents claim that they need guns to defend themselves. Blue states stress the risk that guns pose to others—the risk, say, that you’ll be shot by someone with mental illness, or have your own gun used against you.
It’s unclear if differences in risk-tolerance profiles are cultural, or if some people are innately more risk-averse. Risk-takers and risk-avoiders exist in all parts of the country, but the culture you grow up in does shape how you deal with risk and what you’re willing to do to reduce it. Some ethnic groups in India, for example, appear more open to risk based on the environment in which they are raised. One study in the U.S. looked at brain activity of a small sample (only 82 people) of Republicans and Democrats and concluded that Republicans are more prone to seek safety and security. Another study argued that conservatives may be less open to change but are more comfortable with economic and financial risk. Data on political donations between 1990 and 2008 suggest that people who work in higher-risk professions tend to lean right. That risk can be financial—for instance, corporate lawyers are more likely to give to Democrats, while finance-industry employees, with more variable incomes, were more likely to lean Republican. Or the risk could be physical—Americans who work in mining, oil and gas, trucking, and construction are more likely to donate to Republicans than are government workers, who overwhelmingly donate to Democrats.
American states’ evolution on risk-taking can be seen in the foundations of welfare benefits. Most government welfare programs demand that citizens pool their risk at the national and state levels through the imposition of effectively mandatory insurance—paying taxes for benefits that they might never need. In America’s early days, communities protected the less fortunate through charities and small-scale social programs like poor farms. Many Americans saw poverty and destitution as moral failings; if people took reckless risks, they had to live with the consequences. This attitude began to change in the nineteenth century, when industrialization altered the nature of risk that people faced and the role of the state in managing it on their behalf.
People began having smaller families, which left them with less insurance if something went wrong. Cities promoted anonymity and weaker community ties. A market-based economy left individuals more exposed to the whims of the global market. These trends increased the perception that a bad outcome was not entirely the fault of the individual, who was thus worthy of the state’s protection. By the end of the nineteenth century, parts of America had gotten much richer, and more money meant more scope to insure and diversify risk.
Economic historian Price Fishback points out that each new crisis in the industrial era increased awareness of new downside risk and ratcheted up the reach and scope of the welfare state. The world was always risky; famines and disease outbreaks regularly killed many people. But market economies offered more wealth and scope to diversify and insure. Differences in wealth, culture, and urbanization meant that the welfare state developed unevenly across America.
The Great Depression was the turning point. During the New Deal, the federal government became heavily involved in providing aid to the poor and the unemployed, and the Social Security Act of 1935 created national old-age pensions and set up federal contributions to state and federal programs for the unemployed, the elderly poor, the blind, and children, but it left full discretion to the states on program benefits. Later came entitlements such as disability insurance (1957) and Medicare and Medicaid (1965). Individual states have always retained discretion on how generous they wished to be, and certain states tend to favor some programs more than others. For programs like unemployment insurance, states initially set benefits at the same level, which, after accounting for costs of living, made southern states more generous. But over time, these states were slower to expand benefits. This social reluctance to insure against the downside risk of employment was more about culture than political party; southern states voted Democrat until the latter half of the twentieth century.
Big economic shocks also tend to initiate new regulatory regimes to attenuate the shock of future crises. The 1930s brought about the creation of modern securities and banking regulations; the 2008 crisis led to the creation of Dodd-Frank, which expanded consumer protections. These are federal laws, but many workplace and banking regulations exist at the state level and, after accounting for the prevalence of dangerous jobs, tend to be more onerous in blue states.
“New York governor Andrew Cuomo sees the recovery as an opportunity for more government intervention.”
Exceptions exist, but generally blue states have higher taxes and more regulations. The Cato Institute’s economic and personal-freedom index ranks coastal states (New Hampshire being a notable exception) as the least free when it comes to regulatory restrictions on work, land use, and health insurance. States in the Midwest and South tend to be the least restrictive. California requires a license for roughly twice as many occupations as Ohio, and its licenses tend to be more expensive and demanding to obtain than those of other states. California is one of the few states that require a license for tree trimming, for example, and Californian trimmers must have four years of experience to operate their businesses.
In many ways, the world is safer than it has ever been. And even the states in America with the least generous welfare programs offer more support than Americans have enjoyed historically. All states fall somewhere on a continuum of balancing individual risk and risk protection; the right place to be on that continuum depends on how far restrictions go and how expensive they are. For now, as the U.S. grapples with a pandemic, regional risk profiles will likely shape how people live with the virus and how they determine their economic future. Differing risk outlooks will influence how quickly citizens become willing to participate in the economy, go back to work, shop, or eat in restaurants.
We might see more risk-sorting in terms of where people live. Red-state universities such as Southern Methodist, Notre Dame, Purdue, and the University of Arizona committed early to reopening this fall. They have taken steps to manage risk, initiating testing programs and altering their calendars, but their presidents have made clear that students and faculty must learn to live with and manage the risks that the virus presents. So far, their efforts have yielded mixed results. Notre Dame had an outbreak and reverted to online learning for two weeks. Many blue-state universities were slower to commit to in-person learning, and despite being in states with low infection rates, many, including all the Ivies and the University of California, will be virtual the entire fall semester and possibly the entire academic year. When it comes to precollege, schools in red states reopened fully, despite high case counts, while many blue-state schools are offering in-person learning only a few days a week.
The role of government in reducing risk becomes more pronounced after a crisis. New York governor Andrew Cuomo envisions the recovery period as an opportunity for more government intervention to manage the economy; the programs he has in mind could endure long after the virus is gone. Red states are depending more on a private-sector recovery. This contrast will deepen the divide in America, though it needn’t do so. Sweden is known for both its comprehensive safety net and its robust private enterprise; during the pandemic, the country took a public-health risk by never locking down its economy. Ideally, U.S. leaders, left and right, would help unite the country and talk about learning to live with uncertainty and fear, while being mindful of how our personal choices can affect others. Instead, they either minimize the risk or make sweeping promises of protection. If America could make these choices less divisive, perhaps it could strike a better balance between risk toleration and risk mitigation.
Photo: Lorenzo Rossi/Alamy Stock Photo