Detroit, small cities in California, maybe soon New York City and the entire state of Illinois. Heck, as outlined in this week’s Wall Street Journal, (“Los Argentina,” August 27, 2014), even the city of Los Angeles can be counted among this rogue’s gallery.
What am I talking about? I speak of a growing cancer in our economic landscape, one caused by greed, self-interest, and a terrible tendency to avoid self-responsibility. Worse, this isn’t a self-inflicted injury, it’s a blood-sucking slurp allowing the public servant class of today to enslave the children of tomorrow.
I’ve just spoken to a number of retirement practitioners across this land, and they’ve cried mentioned the one particular evil plaguing all public pensions. There is absolutely no way you can eliminate it. What is it? It is the structural conflict-of-interest between politicians buying votes with public retirement promises and public employees so willing to sell their electoral soul for an oversized pension. (See, “The Golden Goose Lays an Egg: Fiduciary Issues with Public Pensions,” FiduciaryNews.com, August 27, 2014.)
If these same conflicts-of-interest occurred in the private sector, public advocates and policy-makers would be up in arms against the obvious fiduciary breach. But no! They’re the very ones enmeshed in this web of conflicted interests. They have no problem reaping the benefits in the present while deferring the costs to an unwitting future. A few, however, have stood athwart this selfish wave of self-serving reciprocity, and you can now count me among them.
What started out with the purest of intentions has morphed into a virtual Ponzi Scheme. (Don’t take my word for it, here what others say in “Are Pensions Merely Ponzi Schemes?” FiduciaryNews.com, August 28, 2014.) Truth be told, some states and municipalities have been better fiduciaries regarding the management of their pension plans than others. It only takes one narrow-minded administration, though, to start the ball rolling to ruin.
Once we see the first empty promise of providing benefits today at the hands of tomorrow’s taxpayer, it’s nearly impossible to halt the momentum of political one-upmanship. It’s unrealistic to expect the typical politician to avert their re-election eyes from this budgetary temptation. We must help them help themselves, or they’ll bring us all down in a maelstrom of financial decay.
The New York Times (“New York City Pension System Is Strained by Costs and Politics,” August 3, 2014) recently reported servicing current retirees consumes 11% of New York City’s annual budget. For Los Angeles, according to the Wall Street Journal, this number is 5%. And that’s only current liabilities. The cost of future unfunded liabilities for these two cities alone runs into the tens of billions of dollars. Quite frankly, you don’t have to have read (and understood) Ayn Rand’s Atlas Shrugged to conclude this kind of math is not sustainable.
Today Detroit, tomorrow Los Angeles and New York City, beyond that, who knows? Governments cannot create money out of thin air (although some have suggested inflating the dollar as a cure to reduce the burden of these, and other, debts). No, it would appear, in the stark tradition of typical knee-jerk reactionism we so often find in the political realm, the easiest solution is to matter-of-factly ban all public pensions.
OK, OK. I am a reasonable man. We don’t have to go cold-turkey. We can take a few years with this. We don’t want to harm current public pensioners (although I wouldn’t be against reducing their benefits if they no longer live in the state they earned those benefits in). For those presently in the public pension funnel and within ten years of retirement, their benefits should be frozen and not be distributed until at least age 62 (at a reduced rate), 67 (at a less reduced rate), or 70 (at the normal rate).
For all others, it’s time to join the defined contribution world.
C’mon in, the water’s fine!