Recently I was thinking about how much stress pensions cause to the social and economic systems in the United States. After looking at this issue for a while I concluded that pensions are a major contributor to social inequality, and they create unreasonable (and maybe unpayable) financial burdens on future generations of employees and citizens. Here’s how:
Promise now, others pay later
When I began talking to people about pensions I learned that they may also be unsustainable: that is, pensions are promised to employees by a generation of company execs and union bosses who aren’t going to be around the day pension payouts start to come due. This is the same sell-the-future-short ruse that politicians employ when they’re able to get public commendation for voting a law into being although they make no provisions to fund the law’s enactment. New Jersey’s Amistad Legislation which became law in 2002 but is still waiting for funding to bring a racially balanced historic perspective to classrooms across the state is a good example of this. The Racism in Higher Education paper sheds some light on this sujbect.
This public manipulation ploy allows for a generation of administrators and politicians to gain the admiration and support of constituents and employees by supporting a benefit they get behind freely (pun intended) – specifically because they never have to think about how they are going to pay for it. They leave this to future counterparts who will get saddled both with the burden of payment and answering to a public indignant for being made to pay for programs they didn’t ask to be created and which aren’t going to be useful to them any time soon.
The inequality
There are people who can expect to live comfortably as pensioneers of major corporations and government job. Other citizens need to hope that their children will be able – and will want to – take care of them better than the government run social services system does (or doesn’t do).
Phil Greenspun shares interesting thoughts on the pension issue
Smart modern companies don’t offer pensions because they’ve have figured out what should have been a simple fact: the only enterprises that should be offering to send people a check every year for the rest of their lives are insurance companies (if they write annuities and end up paying twice as much as planned because of an innovation that extends human life they will save a corresponding amount by not having to pay out life insurance claims) and ones that have a printing press for money (i.e., the federal government).
Cities and states have a tougher time escaping pension commitments and traditional bankruptcy protection may not be available to them. If every household in San Diego owes $6,000 for unfunded pension liabilities, property owners and residents will have to cough it up in the form of higher taxes. If the pension fund does poorly in the stock market, the households will have to pay again.
We the people share a lot of responsibility for bankrupting our own towns and states. We vote for politicians who promise the moon but don’t immediately tax away all of our income and wealth. A politician who promises $2 in benefits and $1 in taxes will win an election over one who promises benefits equal to taxes. The federal government respects voters wishes by running a visible deficit, borrowing or printing money to cover shortfalls. The Federal government can’t truly be bankrupted by its obligations because it can simply print money to pay everyone back.