Why are so many Americans mired in debt, going bankrupt, and worried about the economy? To many observers, the answer is simple: middle-class families have embarked on a reckless spending spree, confident that they will be bailed out by the government when the day of reckoning arrives.

Warren and Tyagi throw cold water onthis condescending chorus. As they convincingly demonstrate,middle-class complaints have a solid basis: even as women’scontributions to family income have risen, the basics of middle-classlife have become much more expensive. Others have noted thatwomen’s entrance into the work force was necessary for midle-classfamilies to advance in the 1980s and 1990s. But Warren and Tyagi takethis observation a giant leap further. Families haven’t advanced.They have been running to stay still.

Warren and Tyagi haveset a high hurdle for the “over-consumption” argument, and forthis they deserve great credit. Yet because they focus so heavily onthe consumption side of the picture, Warren and Tyagi say less aboutwhat is arguably the core economic experience of today’s workingfamilies: increased insecurity.

One reason for this oversight,ironically, is that Warren and Tyagi appear to buy into the centraltenet of the over-consumption school—namely, its view ofmiddle-class spending as consumption, a simple cash outflow thatstraitjackets family finances. “Today,” they write, “the basicexpenses consume 75 percent of the family’s combined income. Theirnut—the amount that they must pay in good times and in bad—isfixed at 75 percent of their income.”

Yet many of the big-ticketitems that Warren and Tyagi discuss—housing, education, even childcare—are best thought of not merely as consumption but also asinvestments. And because they are partly investments, they canscarcely be viewed as money down the drain. To the contrary, familiesmake such investments in hopes of big payoffs. The rub is that theup-front costs are certain, and the future payoffs are not. Today’sfamily budget is not just inflexible, in other words; it is alsorisky.

Consider housing: Warren and Tyagi argue that the high costof housing reflects not the burgeoning of huge, amenity-chockedhomes, but the bidding war in which families engage in order to livein good neighborhoods with strong schools. This explanation ispersuasive, but it leaves a logical hole. Purchasing a high-pricehome does indeed constrain a family’s budget. But presumably thatfamily will benefit if the bidding war continues (and that isignoring the educational benefits). They can sell their house formore than they paid for it, or they can confidently take advantage ofthe growing variety of financial vehicles that allow homeowners totap into home equity.

Yet, as economists have warned, there is noguarantee that the housing market will remain hot. And if the airdoes leak out of the housing bubble, many families will be in seriousfinancial trouble. What is at issue, in short, is not just the sizeof the monthly mortgage check; it is the increased economic risk thatfamilies assume as their investment in housing grows.

Asimilar story can be told about education. As Warren and Tyagi pointout, education is considerably more costly than it used to be. But itis also more important. The value of what economists call the“return to skills” has risen dramatically in the last generation,creating a huge earnings gap between those with and without a collegedegree. But education is not only an investment in future earnings;it also is a surprisingly risky investment. True, the return toskills has gone up. But so too, economic research indicates, has thevariability of those returns. Moreover, job losses are now hittingthe well-educated harder than they used to: in the most recenteconomic downturn, the best-educated workers actually experienced theworst effects of job loss.

The message is clear: familiesare increasingly insecure. Yet to see this even more clearly, we needto look at the other side of the spending equation: family incomes.For the past several years I have been examining income trends usingthe Panel Study of Income Dynamics, which has followed arepresentative sample of families from year to year since the late1960s. The advantage of looking at income trends is that they cantell us exactly how families fare economically over the course oftheir lives. Other statistics—for example, the number of Americanswithout health coverage, or the bankruptcy filings that Warren has soskillfully dissected—are revealing. But they are still a stepremoved from actual income dynamics.

And what this direct evidencereveals is telling. The volatility of family incomes—how muchfamily finances, adjusted for inflation, and society-wide incomegains fluctuate from year to year—is up sharply. Indeed, the risein volatility has outpaced the much-discussed increase in incomeinequality. Although this volatility could reflect increased economicmobility, other studies show that long-term economic mobility has notincreased. In fact, it may now be lower in the United States than inthe traditionally class-bound nations of Europe. Not surprisingly,therefore, the probability that American families will experiencea large drop in their income has grown dramatically. And thisincrease in economic instability has occurred despite the dramaticmovement of women into the work force—which is usually treatedby economists as a form of private risk-sharing that allowsfamilies to better weather economic shocks.

These findingssuggest that the rise in economic insecurity is a crucial challenge.My own research leads me to believe that the rise reflects a muchlarger trend, which I call the “Great Risk Shift.” In the pastgeneration, in a wide range of areas—from health care andretirement planning to the job market and the balancing of work andfamily—the responsibility for economic risk has shifted from thegovernment and corporations to workers and their families.

Some ofthis shift has been deliberate. Witness the steady cutbacks inworkplace health insurance, and corporations’ movements away fromoffering traditional guaranteed pensions in favor of offering“defined-contribution plans” that place the investment risk onworkers. Yet a good deal of the Great Risk Shift results not fromaction, but from inaction—from the failure of the government andthe corporate sector to accommodate new social and economicrealities, leaving families to bear the resulting risks on theirown.

This inaction, grounded in part in the misconceptionsthat Warren and Tyagi so effectively dispel, must end. At the veryleast, we should look with considerable skepticism at PresidentBush’s proposals for an “ownership society,” in whichcooperative protections like Social Security are replaced withgovernment-subsidized accounts that families are supposed to use tomanage key risks on their own. All of us, after all, are living in anincreasingly uncertain world of work and family, and in thisuncertain world, all of us need a solid foundation of basic riskprotection in order to pursue the American dream.

Warrenand Tyagi have issued a clarion call: The middle class needs help. And they have shown that an agenda to help the middle class can befirmly grounded in what Alexis de Tocqueville once called“self-interest rightly understood”—in our common interest in astrong economy that serves ordinary Americans, rather than in thereluctant obligations of the advantaged toward those who have less.In my view, guaranteeing broad social insurance for Americans whowork hard and do right by their families is the place to begin. Butwherever we begin, we must begin now.