A Tale of Two... America's
As I reflected this week on all that I have to be thankful for, and there is a lot, it’s clear that the United States (and western countries alike) are facing a Tale of Two Cities type paradox. The haves and the have-nots. If you are in the top 1 to 2 percent of income, your world is good. To put that into perspective, if your household income is over $350,000 you are in the top 2 percent of earners in the United States. In this bracket your stocks are doing great, your healthcare expenses or access to healthcare are not a concern to most of these people, and you likely have access to all kinds of rewards and structures that keep you out of lines and in a position where you don’t worry much about the price of food.
However, if you zoom out and look at the average U.S. household income of $83,000, life looks very different. Housing is nearly unattainable. This was made exponentially more challenging after the quick inflationary surge following Covid, which trapped most people in their homes due to mortgage rates and a housing supply that has largely vanished. And this perspective has been elevated by the recent victory of New York City Mayor-elect Zohran Mamdani and even, to an extent, President Trump. Both ran on affordability. Mamdani in particular ran a disciplined campaign that highlighted how serious this crisis has become in America. These are real struggles caused by real issues in the United States as they relate to affordability. And this crisis is creating disruption throughout the entire system.
When you study the differences between the United States and other countries, I think you’ll find one common thread that is mostly responsible for our success as a country. It’s not because we are smarter. It’s not because we are more talented or enlightened. It comes down to risk taking. This country was built on a simple foundation: hope. Life, liberty and the pursuit of happiness. There is an implied acknowledgement in that right that life is hard but hope perseveres. For 250 years we’ve believed that regardless of your class, your religion, where you are from, or what you look like, you can be successful. In reality it’s not achievable for most people, but the opportunity to try has always been there.
When hope goes away, the platform for our collective success goes away too. And you can see the dam starting to crack because hope is fading fast. Americans are now hoping that by electing non-conventional politicians they can regain some control and reinstall a sense of hope in their lives.
As we zoom out again and look at how this situation is impacting the insurance and legal space, the evidence is everywhere. Social inflation (a terrible term, because it barely describes the crisis), verdict sizes, third party litigation financing, litigation harvesting, nuclear verdicts, rising deductibles, all of it feeding into an affordability crisis. The ironic part is that it’s a self-fulfilling prophecy driven by angry jurors. They are angry, and rightfully so, about the divide between the haves and the have-nots. But their decisions in the jury room are actually accelerating the very thing they are angry about. The derivative effect is insurance that becomes more expensive with larger and increasingly unaffordable deductibles, more restrictive language, and tighter underwriting. Which, coupled with our real estate issues and rate purgatory, makes affording a home impossible.
There are firms taking advantage of this moment by using a system that has been corrupted by anger and turning it into an asset class. They are trading on the emotions of Americans and chipping away at the hope people use to get through daily life.
The American Dream might feel cliché, but I think it remains the foundation for our capital markets, venture capital, private equity, and even our risk transfer and insurance capacity. It is built on trust in the system. And that trust is eroding everywhere, starting with government, then private institutions, and now the dream itself.
I don’t have a perfect solution, other than using Thanksgiving as a launching pad for rebuilding a society that is empathetic, cordial, and committed to the idea that success is not supposed to be classist. And if we want to keep this system in place and avoid a class-level breaking point, then we need to acknowledge our problems and start electing government leaders who represent all of us. Not just the right or the left, not just the rich or the poor, but everyone.