Tag Archives: Pension

Commentary

What can we learn from Europe about big government?

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From Ace of Spades. (H/T ECM)

Excerpt:

We see our future playing out in England and France right now. Only our upheavals are going to be much larger and more violent than theirs. Our population is larger, more diverse, and more polarized; our politics more fraught; our debts and obligations massively larger. Our passions are harder to rouse, but once aflame, take a long time to burn out.

As in France, we have let an enormous segment of our population — perhaps as much as half — fall into a state where they depend on government largesse for a substantial part of their income. This is not money they earned themselves, not wages or savings, but rather money squeezed from the more productive half of the country. Half of our citizens pay no income taxes at all. An increasing number will draw public-sector pensions, Social Security, and medical insurance (Medicare/Medicaid) in amounts that far exceed what they contributed to those plans. Half of the US population, in short, lives not by the fruits of their own toil but by the (coerced) charity of others, as filtered and distilled through the hand of the government. This can not — it can not, by the laws of economics and simple physics — continue. The mathematics of the problem trump even philosophical issues of fairness, of governance, of ethics or law. The mathematics simply will not allow it.

Consider the French. They are rioting over a proposal to raise the national age of retirement from 60 to 62. Germany’s is 65 (going to 67) — how happy will German workers be to subsidize the early retirements of their French neighbors? The French labor unions are on a rampage, denouncing the move as a violation of a “promise” the country made to the workers. (If this reminds you of California, New Jersey, New York, and Michigan — well, the situations are closely analogous.) The word “promise” is illuminating: people have stopped thinking of social welfare as a “benefit” or a “perquisite”, and have begun instead to think of it as a “right” or a “promise”. A legally-binding promise which cannot be broken, though the heavens fall. Well, the heavens are falling, and the sovereigns will discover a universal truth: a government “promise” is not a suicide pact. Reality will assert itself, one way or another.

Governments the world over are discovering that the river of money is not endless. That seemingly-inexhaustable mountain of wealth has been turned into an ocean of debt that will take decades to pay off. The spendthrift habits of the Western nations will put burdens on our children, and other generations not yet born, that should outrage us as a people. We are investing in the old rather than the young, and are punishing risk-taking and entrepreneurship rather than rewarding it. Our tax regimes seem to be deliberately crafted to kill innovation and long-term thinking. (What does “legacy” mean if the wealth I have accumulated in my life cannot be passed on to my children or heirs, but is instead eaten by the all-consuming government?) Young people — young families — are the foundation upon which Western Civilization is built. Neglect them, overburden them, cheat them, and you are committing societal suicide.

This is what the House Republicans have to stop Obama from doing. This is what is at stake.

News

In France, unionized thugs riot against maturity and responsibility

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Here’s a story about the public sector union riots in France from Bloomberg News. (H/T Mary)

Excerpt:

French refineries remained shut, trains were on half service, schools closed and gas stations ran dry as unions held their fourth strike in two months against President Nicolas Sarkozy’s plan to raise the retirement age.

Sarkozy has refused to retreat from a proposal to increase the retirement age for a full pension to 67 from 65. His plan would bring France closer to Germany and the U.S., which are moving toward setting 67 as the full-retirement age, according to the Organization for Economic Cooperation and Development.

The French Senate is set to vote on the pension measure this week, giving final parliamentary approval to a plan to eliminate the retirement-system deficit by 2018.

“This reform had been postponed for too long and the deadline couldn’t be push further anymore,” Sarkozy said at a press conference in Deauville, France. “I hope that everyone stays calm so that things don’t go beyond certain limits. We cannot live without gasoline. I will see to it with the security forces that public order is guaranteed.”

Some protests turned violent, with youths today fighting police in the Paris suburb of Nanterre. In Lyon, some demonstrators broke shop windows and pillaged stores, L’Express magazine said on its website. Television reports showed snaking lines of drivers waiting to fill up on gas as about a quarter of the country’s 12,000 service stations carried signs saying they’d run out of fuel.

Government ministers said France has enough fuel to last several weeks and that they’ll continue to use police to break up barricades at oil depots.

[…]France’s 12 refineries have been on strike for a week, and no crude is arriving at the ports of Marseille, Le Havre and Nantes.

[…]Exxon Mobil Corp. declared “force majeure,” in France, saying it will be unable to meet some of its oil supply obligations and that it has begun shutting down its Gravenchon refinery, the larger of its two oil-processors in the country.

“A complete shutdown of the refinery is now under way,” Catherine Brun, an Exxon spokeswoman in Paris, said by phone today. “We cannot deliver products out of tanks.”

Total SA, the country’s biggest oil company, said a quarter of the 4,000 service stations it operates in France face shortages of one or more fuel products because of the strike.

[…]In France, the average retiree gets a net 65 percent of his average qualifying wage in government pension payouts, compared with 61.5 percent in Germany, 47 percent in the U.S. and 44 percent in Britain, according to the OECD.

I’m not sure why, but the word “extortion” pops into my mind. Or maybe I was thinking of “arrested development”. What is it called when grown men and women refuse to grow up and take responsibility for their own lives and insist on receiving entitlements provided by their harder-working neighbors?

Could a public sector union pension crisis happen here in the USA? Well, consider this article from The Economist, a radically-left-wing pro-Obama magazine. (H/T ECM)

Excerpt:

CHUCK REED is the Democratic mayor of San Jose, California. You might expect him to be an ally of public-sector workers, a powerful lobby in the Golden State. But last month, at a hearing on pension reform held by the Little Hoover Commission, which monitors the state’s government, Mr Reed lamented his crippling public-pensions bill. “City payments for retirement benefits have tripled over the last ten years even though our workforce has declined dramatically, and we have billions of dollars in unfunded liabilities that the taxpayers must pay,” he said.

Mr Reed estimated that the average cost to his city of employing a police officer or firefighter was $180,000 a year. Not only can such workers retire at 50, but some enjoy annual pension payments greater than their salaries. They are also entitled to cost-of-living increases of 3% a year, health and dental insurance for life and lump-sum payments for unused sick leave that could reach hundreds of thousands of dollars.

Plenty of similar bills are looming in America’s public sector: in municipalities, in the federal government, and especially at state level. Defined-benefit pensions, which link retirement income to salary, are expensive promises to keep. The private sector has been switching to defined-contribution plans, in which employees bear the investment risk. But the public sector has barely begun to adjust, and has built up a huge liability to its staff. Worse, it has not funded the promises properly.

Joshua Rauh, of the Kellogg School of Management at Northwestern University, and Robert Novy-Marx, of the University of Rochester, estimate that the states’ pension shortfall may be as much as $3.4 trillion and that municipalities have a hole of $574 billion. Mr Rauh calculates that seven states will have exhausted their pension assets by 2020—even if they make a return of 8%, a common assumption that looks wildly optimistic. Half will run out of money by 2027. If pension promises are to be kept, this will place immense strain on taxes. Several have promised annual payments that will absorb more than 30% of their tax revenues after their pension funds are exhausted (see chart 1).

Now the problem is making headlines, especially in California, where taxpayer groups have been highlighting the generous pensions of some former employees. More than 9,000 beneficiaries of CalPERS, the largest state retirement plan, receive more than $100,000 a year.

The stage is set for conflict between public-sector workers and taxpayers. Because almost all states are required to balance their budgets, any extra pension contributions they make to mend a deficit will come at the expense of other citizens. Utah has calculated it will have to commit 10% of its general fund for 25 years to pay for the effects of the 2008 stockmarket crash. But attempts to reduce the cost of pensions are being challenged in court and will be opposed by trade unions, which still have plenty of members in the public sector.

It’s not good for people to go through life becoming more and more accustomed to bailouts and redistributed wealth from their neighbors. Everyone should have to earn their own money and provide for themselves during their own retirement years. It’s not good to be dependent on other people – it’s better to make your own way in the world, and to share with others who have less than you do.

News

U.S. cities face half a trillion dollars in public pension deficits

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Story from CNBC. (H/T ECM)

Excerpt:

Big US cities could be squeezed by unfunded public pensions as they and counties face a $574 billion funding gap, a study to be released on Tuesday shows.

The gap at the municipal level would be in addition to $3,000 billion in unfunded liabilities already estimated for state-run pensions, according to research from the Kellogg School of Management at Northwestern University and the University of Rochester.

“What is yet to be seen is how this burden will be distributed between state and local governments and whether the federal government will be called upon for bail-outs,” said Joshua Rauh of the Kellogg School.

The financial demands of unfunded pension promises come as state and local governments grapple with years of falling tax revenue related to the recession.

The combination has raised concern that defaults, which are historically rare in the $2,800 billion municipal bond market where local governments obtain money, could now rise.

“The bondholders would be competing with the pension beneficiaries for scarce government resources,” Mr Rauh said.

Current pension assets for plans sponsored by Philadelphia can only pay for promised benefits through 2015, while Boston and Chicago would deplete their existing funds by 2019.

Cincinnati, Jacksonville, Florida and St Paul have current pension assets that can only pay for promised benefits through 2020.

Local governments use unique accounting methods that many, such as Mr Rauh, believe understate obligations. Based on his estimates, which use US Treasuries as the benchmark, each household already owes an average of $14,165 to current and former municipal public employees in the 50 cities and counties studied.

“Philadelphia has the most immediate cause for concern, as the city can pay existing promises with existing assets only through 2015,” Mr Rauh said, assuming an 8 percent annualized return, the most common benchmark for municipal plans.

In New York City, San Francisco and Boston the total is more than $30,000 a household and, in Chicago, it tops $40,000.

Taxpayers in these areas risk not only local tax increases and service cuts to pay for benefits, but potentially some of the bill for the $3,000 billion unfunded obligations at the state level, the researchers say.

Notice how all the worst offenders are Democrat strongholds. They don’t know how to manage their finances!