A Tale of Pensions
Ted Nesi has allowed far-left radical Tom Sgouros guest-posting privileges to his blog, which the latter used to offer an excellent example of his typical rhetorical style. Sgouros likes to explain complicated issues as if he’s writing for children, so as (it appears) to leave the adult reader with a “well, gee” feeling and to breeze by the relevant points and objections.
First, a view from a high level: The essay is 1,055 words, and Sgouros spends the first 296 (28%) tallying an “unfunded liability” for education and roads. The next 125 words (12%) explain why he thinks the perspective that he’s just described, and funding such expenses with investment income, would be “stupid.”
With the next 125 words, Sgouros introduces his actual topic, pensions, and the principle that he’s attempting to inject into thinking on the topic: “the goal is not full funding of the system; our goal should be simply making sure the checks don’t bounce, at the lowest cost to the taxpayers, employees, students in the schools and drivers on our streets.” He rephrases the question for another 138 words, and now two-thirds of the way into his essay, begins to let the reader in on what he’s suggesting:
The people who say we can’t re-amortize our pension obligations because it would make it more expensive would have you believe that we are going to pay off the liability by 2029, as called for under the current schedule. In truth, it’s an absurd argument because neither option is going to happen. The cost of paying off the unfunded liability is what’s breaking our backs, not the cost of servicing current obligations. Both options involve making escalating annual payments that are not within the bounds of either fiscal or political reality.
Translation: Treating current pension obligations as debt is completely unworkable. In fact, he goes on to compare the above choice to his own choice between two private jets that he couldn’t afford to charter, anyway. Let’s fund our pensions, he states, “at the lowest cost possible and not fret that because we can’t afford the expensive way to do it, we can’t do it at all.”
Just in case the reader is wondering whether we can afford to pay retirements directly from current revenue, Sgouros preemptively offers the number of the upcoming year’s pension expenses: $800 million. That’s fully 10.4% of the total budget that Governor Chafee has proposed, but Sgouros has a ready explanation for its being so large. Governor Carcieri. Through “abrupt” changes to employee benefits, Sgouros argues, the state pushed a bunch of state workers into retirement. He doesn’t bother to mention that we’d still be paying them as employees if they hadn’t retired. He also doesn’t elaborate that these folks would have retired in the relatively near future, anyway, and therefore merely joined the expense pool a little earlier, but that’s not important, to him.
What is important is that he exit his argument rapidly, at this point, without offering a clear statement of his proposal and its costs. What’s important, to Sgouros, is that we stop all this crazy talk about adjusting benefits to make the obligation more reasonable and just pay the obligation, year to year, without assessing just what it is our elected officials have promised. If we look at it as a debt that elected officials have incurred while failing to fund it year after year, we might begin to wonder why our children should be saddled with political hand-outs from old politicians. If we come up with a big scary total of what we owe in pensions, the public might demand that the benefits be reduced, but if we take it in annual billion-dollar bites, maybe apathy can continue to win out.
Sgouros closes as follows:
In other words, shortsighted and hasty changes enacted by people who did not really understand the situation have made the system’s problems much worse. Do we really want to do that again?
See, they didn’t understand the problem. Not like Sgouros does. Can’t you tell by the way he just explained it all in terms comprehensible to a twelve-year-old? Come now. It’s nap time. Put your lunch money in the bag.
Look. I don’t know the unabridged history of pensions in Western civilization, but it seems to me that we fund them the way we do so that the employing organization doesn’t have every employee on its books for the rest of his or her life. The employer and employee put aside money as part of the employment arrangement while it is active so that the obligation (or liability) is covered by the time he or she departs the company.
The problems are, one, that a system that guesses what the investments will be able to fund and promises benefits at that level makes it too easy to offer big promises, and two, that a society with a shrinking population and whose progressive changes to the civic order are destroying those qualities that enabled its dynamism will just not create the investment returns that such a system requires. That’s why defined benefit programs are almost unheard of, these days, except among government workers who can work to elect their bosses, who then make unworkable promises and force taxpayers to come up with a method of funding them at some point in the future.
We fund schools directly because students are a continuous stream. We fund roads directly (well, pretend that we do) because they are an annual expense. We fund pensions through savings and investments because they are an expense that begins when the employment relationship ends. Sgouros wants us to think as pensioners as wards of the state for the rest of their life.
Of course, anybody familiar with his work is apt to conclude that he’d be just as happy to make everybody a ward of the state. After all, then he and his really, really smart buddies — who really understand the problems that we face — can adjust the system so that it works right. And isn’t that what we really all want? To put aside the disagreement and allow the smart folks to do what we all know, deep down, needs to be done?
That approach is working out so well with President Obama, isn’t it?