Monday, July 22, 2013

Pensions Again: For My Friends Who Think
That I'm Not as Smart as Paul Krugman

I've been getting some backscatter from my homies for remarks yesterday upon public pensions--specifically from those who say I'm not as smart as Paul Krugman, be still my soul.

Well, I'm impenitent.  I concede that part of the uproar is the forces of evil trying to demoralize us and sap our will (or demonize us which is pretty close to the same).  But the public pension problem is real.   More, there re a number of differences between the public issue and other matters with which it may be confused.  So let's review the bidding, taking note of a few points, every one of which is actually well known by anybody who has read this far.

One: forget the nay-sayers Social Security is actually in pretty good shape, and will remain so for a while.  Public pensions are a lurid actuarial nightmare.  Corollary, social security has actually been pretty well managed. State and local pensions have too often fallen into the hands of incompetents, mediocrities and outright crooks.  Honorable exceptions including my buds in public pension management.

Two: the real problem with Social Security is that the noise machine has succeeded in muddling it up with health care, and health care is a problem.  Health care is also, be it said, a problem that cannot be solved by tinkering with the public system alone, but it is a problem.

Three, Social Security does have problems, but they are not related to fund management.  The biggest is the absurdly regressive mode of fund-raising.  It's an outrage but an outrage that nobody is pressing to solve just now.

Four, the root problem with Social Security is that it is part just savings and in part, wealth transfer (side note--oddly enough, it seems to be impossible to pin down  just exactly how much is which: I've tried).  Anyway--I know I've said this before--this leaves supporters in a strategic trap.  If they argue that it is only a savings program, they are met with the rejoinder, "Then why not let it it go private?  Let people manage their own money blah blah." If they admit that it is wealth transfer then they re toast because the voters aren't going to support it as wealth transfer.

Five, re state and local--well, I guess you could say they are wealth transfer insofar as they are transfer from taxpayers to public employees.  But in that sense, every employer payroll is wealth transfer.  And rich-to-poor (on the order of Social Security) has never (so far as I know) been part of any state and local pension scheme.

Six: I admit I don't know everything about every public employee pension fund, but anyone I've ever seen, there's a direct line between contributions and the employee's right to draw: your pension is part of your compensation package.  Of course we pretend (or used to) that your Social Security account is "your money."  But of course, it has really never been that.  The problem with state and local is that there really is "a fund," and more often than not it has been recklessly, or inattentively, or criminally, mismanaged.

Seven: on that last point, while state and local pensions are unlike Social Security, they are very much like private pension plans where, for a generation, employers have been breaking promises or ignoring them with impunity (often enough, with the help of corrupt union brass).  Here again I can endorse Mathbabe:
  “[B]ankruptcy” in the realm of airlines has come to mean “a short period wherein we toss our promises to retired workers and then come back to life as a company.”, 
 Which brings me to

Eight (and last): I suspect a good part of the hostility to public employee pensions just now comes from people who have been screwed out of their private pensions and can't see why the teachers and social workers should not suffer as well.  Sad to say, I find it hard to quarrel with this.


Anonymous said...

As to point 8, what about public employees who aren't covered by SS, and who can't contribute to it?

I have enough quarters from my childhood and very early adulthood to qualify, but the OAP that generates will be largely offset by my pension.

"Double-dipping" is more like "*1.33 dipping"....

Anonymous said...

These are interesting points, but they describe - largely anecdotally, I'm afraid - structural problems with protecting long-term assets in funds generally, not the overall health of those funds as a benefit.

Krugman, in contrast, is making a risk coverage argument, essentially saying that, based on total share of GDP the overall liabilities of pensions remains low relative to other problems. You do not address that argument. Do you have quantifiable points to make about the overall level of risk involved in unfunded liabilities for pensions in this country at this this time?

Would love to see, again, some specific evidence of "union bosses" being implicit in raiding pension funds. Come on.

Point (8) could also be reframed as the relentless efforts to demonize unions by the right over the last thirty years, most of which are the beneficiaries of pensions.

marcel said...

Typo in 8: see why the teachers and social workers should NOTsuffer as well.

Buce said...

Indeed. Thanks, Marcel. Corrected.

Larry, The Barefoot Bum said...

I hope you're not referring to me in the first paragraph; neither of us are, of course, as smart as Krugman, but so what?

I just wanted to make the point that Krugman is not saying there's no problem; he's saying only that, unlike some hysterics, the sky is not actually falling. And he's right. Yes, pensions are being intentionally mismanaged, often by the very people who believe that poor people, or even people who aren't filthy rich, shouldn't have pensions.

As to this post: asset must be directly and continuously managed, accounted for, audited, and scrutinized by people who have both a direct interest in the asset and the legal authority to coerce proper behavior. Any asset not so managed will be stolen. Pensions are not so managed, hence they have been looted. Surprise surprise. That's capitalism for ya.

I suspect a good part of the hostility to public employee pensions just now comes from people who have been screwed out of their private pensions and can't see why the teachers and social workers should not suffer as well. Sad to say, I find it hard to quarrel with this.

You are better than this, Buce. I have been beaten and robbed: I don't see why other people shouldn't be beaten and robbed as well.

Larry, The Barefoot Bum said...

Sorry, s/b Yes, pensions are being intentionally mismanaged . . . but the mismanagement is small potatoes relative to the whole economy.

We should certainly fix the problem, but it's not an excuse to fire up the Soylent Green factories.

Buce said...

"I hope you're not referring to me..."

Nah, I got other friends.

"You are better than this, Buce."

Oh, indeed I am. I didn't say they were right. Just that they were hard to quarrel with.