May 6, 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 7:54 AM
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