Compared with previous decades, the past 20 years have been characterized by remarkable stability in the economy as a whole, a trend some authors have gone so far as to christen “the Great Moderation.” Between 1985 and 2006, real per capita GDP increased nearly 50 percent, while the variability of GDP growth declined precipitously. These signs of macro-level strength and stability, however, have not translated into increased perceptions of economic security.

In fact, in many ways, Americans are more worried about the prospects that the economy presents them with today than they were before the Great Moderation. … Although increased risk is one possible explanation for these poll results, it is also possible that the phenomenon is primarily psychological. … [But] results of our analysis of the association between destabilizing life events and large income drops provide more concrete evidence that real income risk has increased. Like other researchers, we find that the frequency of 50 percent income drops has increased moderately over time. … Insofar as income and the ability to count on future income are important to Americans’ perceptions of their own security, our work suggests that the increasing public concern about risk may well have some basis in reality.

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