May 30, 2012
"How big and ugly is the lie?"
...That is for a seven percent return; some pension funds are still assuming eight percent, a figure which Bloomberg calls “absolutely hysterical” and “laughable.”
We’ve been warning readers for some time at Via Meadia that the politicians and union leaders in this country have been engaged in a systemic lie of epic proportions. How big and ugly is the lie?
Very. Private pension funds assume a standard of 4.8 percent return on their pension funds. As the Times notes, governments also use various tricky accounting loopholes not available to private companies to hide their liabilities. As far as we can make out at Via Meadia, if you tried to run a private pension fund the way unions and government-appointed trustees run public ones, you could go to jail for fraud.
But while lies can win elections, they can’t pay bills, and as the unsustainable commitments to municipal and state pensions come due, services will be cuts, taxes raised and benefits to retirees will be slashed as reality sets in.
Already New York City pays more than $7 billion (and more than a tenth of its total budget) towards pensions to retired workers; cutting the assumed return from the absolutely hysterical current level of eight percent to the laughable level of 7 would add almost $2 billion more to the annual bill. To make a sensible and conservative long term assumption like the one used by most private companies would cost about $4 billion more. (Walsh and Hakim identify another $2 billion plus in liabilities due to rising life expectancies and growing disability claims among public sector workers and retirees.)
This means that fully funding its pension obligations in a responsible way would mean cuts of $6 billion per year from schools, firefighting and police on top of the $7 billion they already get. Note to retirees: that isn’t going to happen. Voters won’t stand for it — and they shouldn’t. It’s not fair and it’s not sustainable, and it’s not right.
Today we are seeing what happens when Big Lies come unglued: all over Europe people who believed those sweet delicious stories politicians told them about their pensions and their futures are waking up to one horrible shock after another. Somehow we’ve come to the point in this country also where it’s considered “liberal” and “progressive” to lie like rats to the voters and to government workers about how solid their futures are.
Listen up, blues. The mother of all wedge issues is knocking on your door: when the pension crunch comes, who will you throw to the wolves: the retirees, the unions and the producers of government services — or the schoolchildren, the poor and the consumers of government services?...
"Who will you throw to the wolves?" Probably the children, since these are "liberals."
If I were running the circus, I'd verify my gut suspicion that this crazy cancerous government growth started roughly around 1980. I think that, for thousands of governmental units, the line on the charts of increasing wealth and population ran at roughly the same angle as increasing government spending and size... until about 1980. Then the lines diverged, with government growing at a steeper angle. Now we come to the crunch.
And then, if I were in charge, I'd pare it all back. Back to whatever it would have been if those lines had continued to run together. And I'd ruthlessly favor the young over the old. they are the future.
San Francisco is so blankety blank broke. It's heartbreaking. A few years ago our pension fund was claiming about 1billion of unfunded pension liability, assuming 7% growth. The Adachi Commission made an assumption of 6% growth, and said the unfunded liability was really 6 billion! I was appalled. But it's got to be tons worse than that. Nobody is earning 6% now. And pensions are only part of the problem; the are huge health-care liabilities. There's no possible way to avoid a catastrophic crash.
But the really interesting question is, for me, is that this has been developing for decades! And this is a city inhabited overwhelmingly by liberal Democrats. Which is to say, the people who favor government. There is no effective Republican Party, no evil Republicans oppressing the poor. So it's their baby. Their playground. And they have sat there and watched a governmental slow-motion train wreck...... and done nothing.
What does this mean?
Posted by John Weidner at May 30, 2012 9:33 PM