Thursday, August 30, 2012

Pension Politics

It looks like the legislature and the governor are close to a deal on pensions. While they have decided to exclude the University of California from the reforms, everyone inside and outside of the UC system should be concerned about the politics behind this move to rein in public pensions. First of all, one of the main motivations to make this deal now is that many Democrats feel that the best way to coax voters to support the governor’s tax initiative is to show citizens that the Dems are serious about controlling future governmental expenditures. Also, many Democrats in the legislature believe that they can win a super-majority in both houses, and so they are going after seats in swing districts.

However, there are several broad issues concerning this pension reform that we should consider. First of all, what does it say about unions and the Democratic party when they lead the way in reducing benefits for future workers. In the proposed new system, many workers will have a hard time waiting until 65-67 to retire, and the change in retirement age will reduce their retirement checks by a large amount (during a time when retiree healthcare costs will continue to increase). While it looks like the Dems are being responsible, who is protecting the most vulnerable workers? Another major problem is that the deal undermines collective bargaining and the ability of workers to trade wage increases for retirement security.

What the current discussion of pension reform fails to mention is that the major cause for the underfunding of pension plans is investment losses, and this reform puts all of the blame on the cost of benefits. What we need is real Wall Street reform, which would protect pension funds against huge losses. It also does not help that the Fed is keeping interest rates so low that pension funds have to move almost all of their money from bonds to stocks and other higher risk asset classes. Moreover, the recent Libor scandal shows that pension funds have lost significant value because banks have manipulated interest rates.

History may remember this period as a time when all of the major liberal institutions—unions, the Democratic party, and public employees—accomplished the goals of the conservative revolution. While it may seem that we are only trying to show the public that we are fair and rational, we are actually feeding the Romney-Ryan rhetoric that the only solutions to our problems is to cut the benefits of the next generation.

14 comments:

  1. It's rather hilarious to hear the university elite talk about the most vulnerable workers-- the people who don't have one of these guaranteed government pensions. The taxpayers will be broken just so the government workers can keep their fancy pensions and the university pensions are the fanciest of them all.

    And it's hilarious to watch you try to blame wall street for manipulating the interest rates. The Fed has been the one buying up the bonds and they're doing it to try to help the people in trouble on their mortgages. They're also trying to create some jobs for the folks who aren't lucky enough to have some of these government guaranteed jobs for life.

    Unfortunately you're going to need to choose between your pension and your dreamy belief in equality because very, very few private sector people get the fancy, well-padded futures that you folks get. And the ones that do are going to find themselves taxed to death just to fund the pensions.

    If you really care about equality, you'll support cutting government salaries and pensions until they're equal to the average worker. Until then, you'll just be a bunch of 1%ers looking for any rhetoric to justify your privilege.

    ReplyDelete
  2. The previous commenter may think it's "hilarious" that "government workers [think they] can keep their fancy pensions," but what s/he doesn't get is that public sector workers (teachers from K->college, police, firefighters, aircraft controllers, park rangers, and yes bureaucrats of all stripes from the city to the federal level) dedicate their lives to the reproduction of society, adding what makes life worth living, and also pay taxes.
    If everyone just went out to maximize money-making it would lead to a minimization of services. Pensions are one way to incentivize people who are so inclined to go into less remunerative public service instead of devoting their talents to maximizing their own personal income. (And if this commenter thinks teachers, even "university elites" make a lot of money, think again--your average insurance agent salesperson easily doubles a good academic salary.)
    It makes sense to me that people with this inclination would be more susceptible to an incentive of such delayed gratification as a pension than someone out to make a buck for themselves asap, without a thought to the social consequences, like those Wall St. 1%ers.

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