Tuesday, February 22, 2011

Why do we have public employee pensions, anyhow?

State and local public employees are unique in that they don't pay into Social Security, instead they pay into their state pension plan. The deal is simple: You put in your 30 years, you get to retire with a pension. This has three goals.

  1. First is to reduce employee churn -- employees will stick around for the 30 years to get their pension. Employee churn is expensive, because employees aren't fully fungible -- new employees lack the skills of experienced employees, and it takes a lot of money to hire and train new employees. Furthermore, employee churn leads to revolving-door corruption -- where employees regularly rotate between government service and the industries they regulate, and make government decisions based upon which company will give them the best job upon next job switch.
  2. Another goal, perhaps the most important, is to reduce corruption. There is the revolving door corruption that I mentioned previously, but more importantly, employees won't take bribes or otherwise do corrupt things that might get them fired because if they do, they lose all the taxpayer-funded portion of their pension and get only their contributions back, which typically amount to only 1/3rd of the amount that they'll finally get.
  3. And finally, it's a way to get government employees without having to pay them what they could get in private industry. You don't get pensions in private industry anymore, just the pathetic 401(k) plans that lost 1/3rd of their value over the past five years. Crap, I woulda been better off with my money in a sock under a mattress. But if I knew that I could put in 30 years and retire at 60% of my salary, I'd willingly accept a 25% lower salary to work for government. Indeed, that was one of the few things I regretted about leaving teaching -- that it meant that I'd have to give up on the whole put in 30 years and retire thing. And the figures are in, and show it does work -- state and local employees do accept less money than they could make in private industry in exchange for that promise of a pension after thirty years.(*)
So why are the tighty righties trying so mightily to undermine government pensions? Simple. They look at the Federal experiment with eliminating public pensions, and rub their hands with glee. You wonder why Wall Street banksters can get away with stealing billions today? Simple -- the same people who are supposed to be regulating them, are them, thanks to the revolving door between the banks and the "regulators". A revolving door allowed because Reagan eliminated the Federal pension program in 1984 and put the Federal employees into Social Security instead.

So the end game of attacking local and state pension funds is corruption. The more the grifter class can corrupt state and local governments, the more they can steal from us with scams and frauds that go unpunished. That's why state and local pension plans are square in their headlights right now... it's not about saving money, because eliminating these plans won't save money (because state and local governments will have to pay more for employees then -- just as the Federal government now has to pay more for employees than back in the 1970's, when many Federal workers made so little money that they qualified for food stamps). It's about enabling corruption. It's about allowing the grifters to ply their trade of scamming and defrauding people out of their money without having to worry about being indicted for their crimes.

And the grifter campaign seems to be working -- they've managed to convince large numbers of Americans that state and local pensions are "unsustainable". To quote JzB: WASF.

-- Badtux the Non-grifting Penguin

(*) Right-wing nutjobs are fond of saying that government workers are "overpaid" because the average government worker gets paid more than the average American. But the average government worker is college-educated and has years of experience in his or her job, and studies consistently show that at the state and local level, government workers generally make far less than they could make in private industry. Case in point: If I'd stayed in teaching, I would have 20 years experience now and be making $52,000 on the local teacher payscale. My current salary in private industry is, err, more than twice that. 'Nuff said.


  1. I think it's not so much a matter of the bankmaggots wanting to steal the money from the pensions and Social Security, because (sorry to agree with reich-wingers) that money is not there. (Just the T-bills that guarantee it.) It was spent on current operations since Raygun's time. What they want to do is avoid sacrificing other spending on stuff like the war-industrial complex and payments to bondholders in the future. Because the government would have to spend less on that crap in order to spend money keeping old people alive. War and money for rich people trump keeping poor/old people alive any day.

    Of course, some of the topmaggots will be able to skim a few billion if pensions/S.S. is privatized, so they want it to happen for that reason. But I think the biggest motivation is to shirk paying future obligations, not simple grifting.

  2. Specific to Wisconsin, Menzie Chinn lays it all out in great detail.

    In a follow-up he shows that the WI pension funds are not in trouble either.

    The whole god-damned thing is sham, and unless you watch MSNBC evening shows, you won't get it from any of the MSM.


  3. Bukko -

    The only way the money isn't there is if the T-Bills are worthless. I recommend reading Snarky Penguin to get disabused of that mistaken notion.

    On the other side of the ledger, have a look at what FICA contributes to federal receipts.


  4. Okay, Bukko, here's the deal. The U.S. owes $17T. But of that $17T, only $5T is owed to foreigners. The rest is owed to, err, *us*, and is payable over the next 30 years. The U.S. has a national income of $17T. Over 30 years time, if we paid off the national debt (and there's no real reason to do so, we can roll it over every year pretty much forever) that's less than a 5% GDP tax hike needed to pay it off.

    Now I hear people crying, "bond vigilantes!". But that's just plain nuts. The U.S. possesses a *PRINTING PRESS*. If so-called "bond vigilantes" tried to run up the interest rate on U.S. Treasuries, the Federal Reserve would step in and buy them up with freshly printed money. Now, granted, inflation is a tax of sorts -- a tax on lenders, a subsidy to debtors (who see their debts decrease in real value as the currency inflates). But we can print up to 5% of our GDP per year without a drastic inflation problem. Which is more than we need in order to buy up all Treasuries that come due every year.

    In other words: The notion that the U.S. is "broke" because it is "out of money" is utter nonsense. Where the U.S. *is* broke is that it's running out of things to sell that the rest of the world wants. Right now our biggest export is *dollars* -- the world economy has dollarized due to oil being sold for dollars. Sooner or later the world is going to saturate with dollars, and we will no longer be able to finance our imports by exporting dollars. What, then? I have no idea, but I don't think the American people are gonna like it much...

    -- Badtux the Monetary Penguin

  5. Jazz and Tux: I am aware that the U.S. owns a printing press with which it can create infinite amounts of the world's reserve currency, and the T-bills backing S.S. will be worth something as long as the U.S. dollar is. But the problem with those notions is in Tux's sentence:

    Sooner or later the world is going to saturate with dollars, and we will no longer be able to finance our imports by exporting dollars.

    More and more, thanks to Quantitative Easing and other bailouts, the U.S. dollar is backed by worthless junk like mortgage-backed securities that will never pay off their face value. Bernanke has swapped "real" dollars for stuff that would be worth 5% of face if it was marked to market. Ditto for how the Fed is quietly monetizing the federal budget deficits.

    Ultimately, each "dollar" has to be backed by something real, like an amount of labour, goods or land. if it is to have any value to the world. I see that being eroded. While I'm not big on the idea of "bond vigilantes" (a euphemism for "speculators") taking down the U.S. dollar, the lack of real value behind the current dollar will eventually lead to its rejection. Not in the next two years, but within my lifetime. So I retain my lack of faith in the T-bills that support S.S.


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