May 06, 2005
fewer workers supporting same number of pensioners...
From the NYT:
Many investors knew it was coming, but they did not expect that two of the nation's biggest issuers of bonds would be reduced to junk status so soon.
As a result, Standard & Poor's announcement at midday yesterday that it was cutting its credit ratings for both General Motors and the Ford Motor Company set off a selling spree in the corporate bond market....
Hmmm. How about a little thought experiment. Why are GM and Ford in trouble? Because of the overwhelming burden of promised benefits, pensions and healthcare, made to retirees.
Suppose, instead of promising things, they had put part of each employee's paycheck into something like, oh, a 401-K? (401-K's didn't exist when GM's and Ford's pension plans were started, so let's give this a different name. Er, maybe "private accounts?") If they had done that, they wouldn't be broke right now!
They'd still have problems, but much smaller ones, and they would have flexibility. If the company shrank, it wouldn't be in the position of having it's liabilities grow in proportion to its size (fewer workers supporting same number of pensioners).
You can see where I'm headed. Social Security is the same sort of mess. (And tens-of-thousands of other schemes around the globe.)
You don't need abstruse theories to explain why I like President Bush. I've got a long list of reasons, and being the first president to dare to tackle the SS debacle is high among them...
Posted by John Weidner at May 6, 2005 07:54 AM | TrackBackWhen was the last time you bought a GM or Ford? When was the last time you wanted to. No one buys a GM or Ford if they have another choice. This is the root of those company’s problems...
Posted by: Andrew Cory at May 6, 2005 09:32 AMOf course. But they have very little maneuvering room in which to change now. And of course one of the most important changes in a capitalist system is "creative destruction." Poor companies die or shrink, making room for new ones to grow.
But if Ford dies the workers lose their pensions. (Or, more likely, via that wretched and underfunded pension insurance plan the burden will be shifted onto the taxpayers. You and me.)
Posted by: John Weidner at May 8, 2005 08:12 PM
