We Are All Going to Pension Hell
That is the title of this piece by Megan McCardle. It says, quite simply, that many, many states and municipalities -- far too many -- have promised their employees pensions that they cannot possible raise the funds to pay.
If you define municipal debt simply as what states and localities have borrowed, the total nationwide comes to about $3 trillion. Nevertheless, these governments actually owe more than twice that much, according to estimates from groups like the States Project. The reason for the discrepancy is that states and localities carry another kind of debt -- promises of retirement benefits to public-sector workers -- and they have radically underfunded the systems that must pay for it. As Boston University Law School professor Jack Michael Beermann wrote recently in the Washington and Lee Law Review, the situation is a “double whammy” for future taxpayers, who not only will have to pay for “the consumption of prior generations” but also will receive “reduced government services” as increased spending on retirement debt crowds out other programs.
There is, in the end, a limit to how tightly past taxpayers, or their representatives, can bind the citizens of the future. It is a genuine tragedy that people who worked hard for the city of Detroit for 30 years should lose pension benefits. But that doesn’t mean that the city of Detroit should turn off the streetlights and get rid of schools and ambulance service in order to fund those lost pensions. And it’s hard to argue that the taxpayers of other places are morally obligated to step in.
But how much should cities have to cut, once the tax base is exhausted? Senior centers? Parades? Maintenance at city parks? We’d better start asking those questions, because pretty soon, we’re going to need to answer them.
It was okay to promise these pensions, but to leave them unfunded was totally irresponsible. And now everyone will be fighting to try to get some taxpayers in other jurisdictions to bail them out, either directly or indirectly. It will be a messy and costly round of rent-seeking.
My advice to individuals? Start saving more for your own retirement. Don't count on gubmnt defined-benefit pensions to be there the way people before you have collected from them.
And where possible, hide your assets. We know that savers will likely have some of their assets taken by law/tax/force to support the people who have received these unfunded pension promises. And knowing that, there's little incentive to save for yourself unless you can save in a way that hides the assets from the gubmnt.