A recent Vanity Fair article, “ California and Bust,” by Michael Lewis attempts to blame the difficult financial status of many states and municipalities on the costs of public pensions. The following passage is either the result of bad editing or ideological bias: “A prison guard who started his career at the age of 45 could retire after five years with a pension that very nearly equaled his former salary.” As a commenter writes in response to this claim, “What formula is Mr. Lewis using to arrive at this statement? The 3% @50 formula is the top formula used in California and if a Guard made 150,000.00 a year as the base salary used in calculating the pension it would work out as: 150,000 x 3% x 5 years = 22,500.00 annual pension. Please. This is far from the "very nearly equaled his former salary".” Of course this correction is buried in the comments section, and will not be seen by anyone who reads the article in print.
While Lewis’ article appears to be a balanced, neutral expose on our fiscal crisis, it spends virtually no time discussing how pensions were devastated by the crash of the stock market in 2008-09 and how states and local governments have been undermined by the loss of tax revenue related to the collapse of the housing bubble and the crash of the markets. Like so many other stories discussing our economic situation, there is no attempt to explain how illegal mortgages coupled with dangerous financial derivatives resulted in the loss of millions of jobs and trillions of dollars of wealth.
Since the President and other leaders have failed to explain to the American people how our economy has been ravaged by financial speculation, people now believe that the cause of our problems are pensions, benefits, public employees, and unions. Moreover, due to the fact that the President did not make the culprits of our financial woes pay for their misdeeds, he helped to fuel the displacement of blame onto victims of the financial collapse.
Like Obama’s decision not to prosecute the perpetrators of our torture regime, the failure to hold big banks and investors responsible results in a lack of “moral hazard,” which means there is no penalty for destructive behavior. With no one else to blame, the Right produced a populist Tea Party that blamed big government instead of too-big-too fail banks.
Since the President knows that he has to raise $1 billion to run for office, and his Republican adversaries face the same issue, no one wants to step on the toes of guilty investors. In a more rational world, we would see arrests and huge fines, and we would also see the move to tax investment profits at the same rate as earned income, Ina rational world, we would also see a financial transaction tax to slow the pace of our global casino. Yet, instead, we get empty rhetoric and talk about deficit reductions and debt limits.
Let’s hope that the Occupy Wall Street actions turn into an effective national movements that tells the right story and provides the right solutions.