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Blue Model Meltdown
The Grey Lady Wrings Her Hands over Public Pensions
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  • Andrew Allison

    You, and the Grey Lady overlooked one reason for the excessive investment in hedge funds, namely corruption on the part of the managers and trustees. See, e.g. (http://www.sacbee.com/news/politics-government/state-pensions/article9531473.html, http://www.nytimes.com/2015/05/13/business/dealbook/after-pay-to-play-scandals-evaluating-pension-funds-middleman.html, etc.)

  • Kevin

    I notice the NY Times claims the victims are the public sector retirees (who generally seem to be made whole in most of these cases) and not the taxpayers (who get fleeced as politicians raise taxers to cover their previous mistakes).

  • Gary Hemminger

    I see something quite different in the NY Times article. I see them setting the stage for a blame the bankers and Wall Street for all of this mess. Just like the financial meltdown in 2008 was blamed on the banks, not the government forcing banks to lend with too much risk (a la the community reinvestment act). You think the blue model folks are going to blame themselves and the Unions, or scapegoat the bankers and Wall Street? If you believe the former rather than the latter; I have a nice bridge to sell you.

    But the Professor is ultimately correct. Eventually this Ponzi scheme will come out. I will dead by then, so will most of you.

  • Beauceron

    “For the next few decades, cities like Chicago and states like Illinois will be coming, à la Puerto Rico, cap in hand to Washington, asking for national taxpayers to fill the gap that their own bad choices and poor planning created.”
    Honestly professor, have you ever seen– ever– someone on the Left going cap in hand and admitting they made a bad choice or had a poor plan? No.This will be hung around the neck of the right, we just aren’t sure how yet.
    I suppose it will all be blamed on “banksters” or on capitalism in general. It’s easy– plus I assume there will be the usual fun and furious demonstrations.

    • FriendlyGoat

      You’re correct, it will be hung around the neck of the right.

      • Boritz

        Conservatives didn’t decide much about about pensions at GM. That was the UAW that transformed General Motors into a benefits disperser that made cars on the side.

        • FriendlyGoat

          Most of the private sector—–aside from GM—–has been moving away from defined-benefit pensions for 25 years. How come?

          • Dale Fayda

            Increased mobility of the population – one. Multiple career changes in the course of one’s working life – two. Increased global competition – three. Constantly increasing cost of labor in the US – four. Increasing life spans – six. Collapse or off-shoring of unionized industries in the US – steel making, ship building, car making, printing, electronic manufacturing, etc. What has remained or has replaced them has been in right-to-work states (see foreign car makers in the US – all the new ones are in the Red/Purple states: https://en.wikipedia.org/wiki/List_of_automotive_assembly_plants_in_the_United_States).

          • FriendlyGoat

            Repeal the “right-to-work” laws in individual states. There is no reason for them to exist.

          • Dale Fayda

            Why? The right-to-work states are attracting the lion’s share of foreign manufacturing investment and are creating jobs at twice the rate of other states. Where would this economy be over the last 6 – 7 years without the economic engine that is Texas, which had generated more jobs than the rest of the country combined?

            No, FG, I think you’re SOL in that regard. Right-to-work is here and will only gain acceptance, deep Blue
            dinosaurs NY and CA excluded. So much the worse for them – industry will continue to flee. Just ask Elon Musk of Tesla, “Mr. Clean Energy”, who decided to locate his new battery factory not in CA, where Tesla is based, but in “no corporate income tax, GOP governor and state legislature” Nevada.

            Well, maybe Bernie Sanders will take up this cause once he gains the Democrat party nomination. Ha, ha, ha, ha! Sorry, it was too easy, I know…

          • FriendlyGoat

            State “Right-to-work” laws in my view have several shortcomings. First of all, they are basically a partisan punishment of the interests of working people (often Democrats) by the “business-community” interests (Republican) which enact them—–just because they have won the requisite statehouse election and feel like slapping the losers. Secondly, they UN-LEVEL the playing field between states—putting the citizens of RtW states into competition for the benefit of companies INSTEAD OF the competition being correctly encouraged between companies for the benefit of citizens—-basically a bass-ackwards perversion of incentives. Thirdly, the whole RtW movement is just an end run around federal labor laws to weaken the entirety of labor’s position anywhere in the country.

          • Dale Fayda

            Still preaching “Workers of the World – Unite!”, I see. Too late. The corporatist Blue Model is passing from the scene and it ain’t coming back.

            The population is inexorably shifting into Red/Purple right-to-work states, private sector unions (the hired goons of the Left) are as dead as the dodo and no major manufacturer in their right mind wants anything to do with them. There might be exceptions here and there, but the world has turned; people are voting with their feet/moving trucks and their bank accounts.

            I’ve lived in several states and multiple locales within each one, have changed careers more than once and have had more employers than I can remember. I plan to move at least once again and will probably work in different industries before it’s all over. As such, I don’t give a rat’s puckered ass about some lame pension, since I don’t get to retire at 55 years of age like the union parasites and won’t work anywhere long enough to draw one anyway. This is the case for the majority of people my age and younger.

            What I want is job availability, a healthy economic climate, relatively low cost of living and acceptably high pay (cash), the higher, the better, of which I will dispose as I see fit. All of this is to be found in right-to-work states, who don’t look at their tax and business policies as a tool of putative social engineering.

          • FriendlyGoat

            The only reasons you wouldn’t “give a rat’s puckered ass about some lame pension” are, 1) You already have enough money to feel secure in old age, or 2) You are quite certain you will accumulate such amounts before needing them, or 3) You don’t really expect to reach old age, or 4) You have not yet reached the age of serious thinking.

            I don’t know which situation might be yours, but I know that the people willing to kill pensions in politics are mostly being funded by folks from #1 spoofing the people who are denying their personal realities by closing their eyes and just “hoping” about #2 or #3.
            The financial-adviser community knows how big the gaps are for a majority of people and that’s why the articles predicting retirement catastrophe for millions are unending.

          • Dale Fayda

            Spare me your sanctimony. I don’t need your concern for my well-being. Facts are facts – I don’t want to re-write everything all over again. Go back and re-read my comments in this section – hopefully, it will clear some of the cob webs.

          • FriendlyGoat

            I don’t have an excess of concern for the well-being of those who make a comment career of trashing policies for the well-being of tens of millions of people. The people who have negotiated pension benefits for themselves in the past were doing a responsible and mature thing for themselves and their co-workers, That used to be thought of as “conservative” thinking—–planning ahead. Now “conservative” thinking has devolved to a crazy quilt of church people, Southern mentality, disillusioned workers, and Wall Street titans joining together on guns, gays and abortion to deny financial reality for half—–maybe even two-thirds—– of the citizens.

            I already read your comments. They’re not any better than usual.

          • Dale Fayda

            The reality will continue to kick the likes of you in the face over and over. As I never get tired of pointing out (with relish), Social Democracy is in full collapse right before our eyes. Liberalism is imploding, but fools like you pine for the “good old days”, like the sad old people in Russia who every November 7th gather with a smattering of red flags to shamble past their local statue of Lenin.

          • FriendlyGoat

            Dale, I’m not being kicked. Seriously, I’m not.

          • Jim__L

            Planning ahead is different than promising pie in the sky. One is responsible and mature, the other is not.

          • FriendlyGoat

            The people who as workers negotiated their pensions were being responsible and mature except for their tendency to elect conservatives willing to repudiate the other side of the deals.

          • Jim__L

            Most folks my age and younger don’t really believe that we’ll be able to retire. Social Security and Medicare will be broke through mismanagement, pensions will be gone as companies (and jobs) come and go… Pensions make sense under the Old Blue Model. They don’t today.

          • FriendlyGoat

            The more people your age and younger accede to the destruction of pensions, Social Security and Medicare, the more self-fulfilling your prophecy will become about not being able to retire. The problem and the RISK is that retirement is not just a voluntary decision. When people get pushed out by their own physical capabilities or market forces, they are in deep trouble without the safety nets many people are now busy destroying with their right-wing politics. For most occupations, working into the seventies is a far more UNREALISTIC idea than your first sentence implies. You really can’t just act like it will be okay to just keep working. It isn’t.

          • Jim__L

            RtW makes sense because companies can offshore. It’s not nice, but it’s what is.

            The problem won’t be solved until the workers of other countries are unionized. That won’t happen until unionization is in their best interests, which won’t happen until industrialization of the Third World is closer to complete (as industrialization of the Third World has been driven by low-wage offshoring), which may happen within our lifetimes.

            So I’m hopeful for the future. But it won’t save defined-benefit pensions in this generation.

            I still get kind of a kick out of being someone generally conservative who believes in “Common Ownership of the Means of Production Through 401(k)s”, and “Workers of the World, Unionize!” =)

            But then, I’m also a guy who likes LED bulbs as much as he hates compact fluorescents. Idealism needs to be backed up with good implementation, otherwise going with a great implementation that’s less idealistic (capitalism) makes a lot of sense.

          • FriendlyGoat

            Workers in many places of the world absolutely do need collective bargaining. It made capitalism work better in this country and it would do the same in all countries. It is NOT the destruction of capitalism. It is the active participation of all parties, including those who individually simply have no power or bargaining position.

            As for bragging on 401(k) plans being common ownership of the means of production, that’s a stretch since the shareholders via 401(k) are almost always only a minority interest with no control over anything including the market in which they are the “marks”.
            I believe it was Mark Cuban who said (perhaps repeated) that you look around the room to identify who are the “marks” for the scam.
            If you don’t see them, it’s probably you.

            I’m not against 401(k) for its original purpose which was NOT to replace defined-benefit pensions.

          • Jim__L

            That’s an old poker saying, predating Cuban by decades at least — if you can’t tell who’s the sucker at the table, it’s probably you.

            There are problems with defined-benefit pensions, as WRM outlines above. 401(k)s aren’t perfect, but they’re more realistic than defined-benefit, for reasons WRM has outlined before.

          • Andrew Allison

            “Despite the advantages of pensions, private sector employers have been closing and freezing their pensions due to onerous laws and regulations enacted since the 1970s, including the Pension Protection Act of 2006. These rules created complicated funding rules [which don’t apply to public agencies], and increased contribution volatility when employers need steady, easy-to-estimate costs from year to year.”
            (http://www.nirsonline.org/index.php?option=com_content&task=view&id=607&Itemid=49)

          • FriendlyGoat

            It still boils down to whether employers “value” workers personally, whether some paternalism is still a sensible idea (like it was in earlier times), whether workers are smart enough to identify the wind blowing against their long-term interests and whether law permits workers the environment to properly stand up for themselves.

          • Andrew Allison

            Nope.

          • FriendlyGoat

            That’s what politics is about. We are quite familiar with the party of “nope”.

          • Andrew Allison

            You asked a question, it was answered, and you respond with a non sequitur.

          • FriendlyGoat

            You have an odd idea of when a question is being asked.

          • Andrew Allison

            “Most of the private sector—–aside from GM—–has been moving away from defined-benefit pensions for 25 years. How come?” looks like a question to me.

          • FriendlyGoat

            And the answer to that is nope?

            On a better subject, Happy T-Day, Andrew.

          • Andrew Allison

            And to you. The answer to your question is, as I wrote, “Despite the advantages of pensions, private sector employers have been closing and freezing their pensions due to onerous laws and regulations enacted since the 1970s, including the Pension Protection Act of 2006. These rules created complicated funding rules [which don’t apply to public agencies], and increased contribution volatility when employers need steady, easy-to-estimate costs from year to year.”(http://www.nirsonline.org/inde

          • FriendlyGoat

            Yes, those are the stated reasons. The real reasons are that many employers have been allowed by their increasingly=powerless workers to back away from pensions as a norm and increase returns to owners and managers in a lower-tax environment, The regulations requiring employers to actually fund pensions are not the reason we are drifting away from pensions.

          • Andrew Allison

            Believe what you wish. I believe that if public agencies were required to actually fund the pensions they promise they’d be a LOT less generous, and a lot more likely to actually be paid.

          • Suzyqpie

            Because it improves their bottom line. Fairness is not an economic principle.

          • FriendlyGoat

            I have opined before that there is only one economic “law”. That is that people can AND DO raise prices for anything in a shortage (because they can) and reduce prices in a glut (because some of them HAVE to).

            Everything else in economic “law” is whatever people legislate for themselves through their governments, including regulation of all incorporated entities (all business, as a practical matter because everything is now incorporated) and all markets. “Fairness” is part of economic law wherever fair-minded people get together and decide it is. Whole nations. Whole alliances of nations.

      • Dale Fayda

        Yeah, sure… That’s what all the taxpayers of Chicago, who are having their property taxes jacked up into the stratosphere to pay for all the bloated union parasites who have bankrupted that city are asking themselves, right? Or the residents of bankrupt Puerto Rico, the ones that haven’t yet fled to the mainland because of the total collapse of their “Blue Model”- they’re just dying to know why there’re no private sector pensions for them, correct?

        Perhaps the citizens of CA, who are having their taxes raised every single year are pondering that thought as well? Well, my guess is no, they’re not: http://www.latimes.com/business/la-fi-figure-in-calpers-scandal-dies-20150114-story.html

        Social Democracy is collapsing all around you – the stench of decay is wafting off of it like the haze off a highway on a hot day. Liberalism is out of ideas, out of money, out of vitality – it’s a spasmodically twitching snake, dying but still poisonous.

        • FriendlyGoat

          We’ll see.

          • Anthony

            Information to reflect on, an analysis of environment you’re in: talkingpointsmemo.com/features/marchtoinequality/twoparadoxical/political/

          • FriendlyGoat

            I am coming to believe that the problem pretty much boils down to the quality of our pastors. If they are so nutty as to be allied with the wrong forces, then the whole country is permitted to go nutty. Rush Limbaugh and the gang would be toast if people were being properly educated in the churches, but alas, that is increasingly not the case.

          • Anthony

            FG, in this area I defer to you. But, I do remember being told that “all men are equally under Him.”

          • FriendlyGoat

            Would it be fair to suggest that democratic governments representing “we, the people” are not Caesar of the Roman occupation days?

          • Anthony

            Absolutely. Just referencing from historical context intrinsic separation (state/religion) for adherents as basis for consideration.

          • FriendlyGoat

            I think that the old quote about rendering to Caesar what is Caesar’s and to God what is God’s has been a terrific tool for muddying the water throughout history. We all have to ponder about the differences in the goal’s of Caesar’s government and ours and, for that matter, the practical purposes or effects of giving “to God”. Thanks for bringing this up.

          • Anthony

            Well said and you’re welcome.

          • Jim__L

            Caesar is supposed to wield the sword to maintain social order. We could in fact do that with just a Tithe Tax…

          • FriendlyGoat

            Caesar is not supposed to wield the sword at all in the USA. As for the Tithe Tax, Dr. Carson is not going to actually be president. Fuggedaboudit—-as they say.

          • Jim__L

            Another way of bringing in history — the Caesars tended to buy legitimacy for their destruction of the Republic by providing bread and circuses for the masses after the old patrician class collapsed.

          • FriendlyGoat

            Another way of bringing in history—-we don’t have Caesars.

          • Jim__L

            Yet.

      • Dale Fayda

        Here’s some information that may help shed some light on your last question: http://nlpc.org/category/project-name/union-corruption-update.

        This is all recent – if I did a little more digging, I’d probably be able to fill multiple pages with wall-to-wall examples of private sector union corruption. Now, what was it you were saying about “conservatives” and “little people”?

        • Andrew Allison

          Not one of the cases referenced in the link are related to pensions. Not to say that there isn’t corruption in private pensions but, unlike public pensions, they are extensively regulated by ERISA. Specifically, they can’t perform the funding sleight of hand universal in the latter. Making public pensions subject to ERISA would go far to cleaning out the public pension stables.

          • Dale Fayda

            I think you’re missing the overall point of that particular response to FG’s contention that private pensions sector pensions have been eliminated because “conservatives” decided that “little people” didn’t deserve them. In my next comment below, I’ve listed some of the causes of the general decrease in pensions in the general workforce. You also listed some of these causes in your subsequent comment.

            The link referencing entrenched union corruption was to demonstrate how the unions (the storm troops of the Left) are like a snake eating its own tail, bankrupting their own industries or driving them overseas, all the while elbow deep in theft and extortion. Unions, being the largest drivers of pension costs in the US, are run by largely by criminals as criminal organizations, actively robbing their rank and file, yet they continue to bleat about their “defense of the working man”. NONE of this has been or is being perpetrated by or for conservatives.

            That was the crux of my comment. Perhaps I wasn’t as clear as I should have been.

      • Suzyqpie

        Another idea, when the Democrats are at the negotiating table with the public sector unions, no one is representing the taxpayers.

        • FriendlyGoat

          This is a fairly simple matter, actually, You START with police and fire departments. Whatever is considered appropriate for the “macho” folks of “public safety” in benefits is what taxpayers’ negotiators should be using for all other classes of public employees. Whenever they are calls to be frugal or scale back, you apply such pressure to police and fire along with everyone else. That alone would keep negotiations going as they should. It also would keep you from having arrogant middle management in police departments—-the main problem with police departments. You DO NOT treat those guys as “special”.

          • Jim__L

            People who put their lives on the line in public service *are* special. Have you been too long in the Left’s world of microheroes standing up against microaggressions to know what real heroics look like?

          • FriendlyGoat

            I’m not saying you shouldn’t pay them more than some other job classifications in public-sector employment. All of that is relative.

            I’m saying you should not allow them to unionize at all unless other public employees are also allowed to unionize, that you should not necessarily have separate contracts for them and you absolutely should not run separate benefit plans for them. They ARE NOT special. They can have a pay grade commensurate with their responsibilities, training (often high school plus a few months of police academy) plus risk or danger pay. THAT’S ENOUGH.

      • Thom Burnett

        FriendlyGoat, Is it your view that the problem is the lack of adequate pensions for the private sector. You believe that everyone should get pensions similar to the current public pensions?

        • FriendlyGoat

          Yes, to a “reasonable” degree. We can all agree that some of the public pensions have become bloated in size and sometimes bloated with respect to the early points in life when they can be accessed—-after 20 years of service and such.

          But, yes, I think there is little substitute for working people for the idea of at least a “modest” amount of defined-benefit income that cannot be outlived.

          So, in my “ideal”, most private workers should enjoy some small-to-moderate guaranteed monthly income in old age and some of the public-sector amounts should never have gotten as large as some of them have. The solution, to me, is NOT to kill—-as we have in the private sector and are now trying to do in the public sector—-the whole idea.

          Thankfully, Social Security is still there on a proper model (defined benefit for life) unless and until “they” (conservatives) kill it too.

          • Jim__L

            Defined benefit for life just has to track with what life is.

            Raising the retirement age to track with life expectancy is a good idea. Raising it to “never” is probably the alternative.

          • FriendlyGoat

            Actuaries have been using projections of life expectancy since I first became familiar with pensions plans in 1973.

            As for conservative alternatives, junk as always.

      • Jim__L

        No such thing is needed, or no such thing is realistic?

        A company these days really can’t guarantee it’s going to be around in 50 years. Look at the companies tracked by the Dow Jones, we haven’t seen a similar amount of flux since the early 1930’s.

        If you can hang the death of pensions anywhere, hang it on economic volatility, rapid changes in technology and patterns of trade (MFN for China, etc), and rapid advances in life expectancy.

        Pensions just aren’t *real*. Companies go bankrupt — there just isn’t any money to pay the pensions with.

        One interesting idea — the Creative Destruction tax. If your company profits by destroys jobs, you’re on the hook to pay into a pension relief fund. There are certainly drawbacks to this idea (creative destruction would be offshored, probably), but it’s something that links the problem to a possible solution.

        • FriendlyGoat

          The income tax and your idea of a Creative Destruction tax are the same thing. The more deductible wages a profitable company pays, the less income tax it pays and vice versa.

          • Jim__L

            … So the money goes to equity / capital instead of into paychecks? There are drawbacks there, as the returns on capital / returns on labor debate shows.

          • FriendlyGoat

            Yes, there are drawbacks to more and more money going to the mass of capital instead of into paychecks. That’s my point. You are losing your country over this and in Silicon Valley I’d think the effects would be particularly noticeable.

          • Jim__L

            A massive tax hike at the high end would not drive money into lower-level paychecks, it would drive money into capital.

            And yes, in Silicon Valley it is particularly noticeable.

  • Pete

    Public sector unions, by their very existence, are inherently corrupt. The corrupt the political process. The sooner they are outlawed, the better. As for current public sector pension obligations, they’ll have to be cut to match reality. The free ride for government employment is ending.l

  • Anthony

    “If the politicians had to fund pensions at the real level of these promises, they couldn’t make the promises.” Agreed 100%. But, these public pensions WRM include many police and fire (nominally called public safety appropriations) unions and members.The collusive behavior noted by the NY Times (and Via Media in past) does not a color (blue/red) model dictate but a certain human inclination towards the particular interest over the general and the short-term interest over the long-term interest (all subsumed under “my primacy” is more important of all). Models (governing) whether Blue or Red are influenced by interests or factions as Alexander Hamilton warned.

    A related data point and question: key economic evidence implicates policy decisions, so where did the productivity growth go? http://www.epi.org/publication/raising-americas-pay/

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