HomeArticlesEconomicsRethinking Government Pensions


Rethinking Government Pensions — 5 Comments

  1. ” … states are facing bankruptcy if they do not make dramatic changes to entitlement programs. A shift in philosophy of government is required. We need a paradigm shift that places responsibility back into the hands of citizens, without the laissez-faire attitude that allows citizens to behave irresponsibly ” G.A.

    As it seems two categories of change are being called for, a shift in philosophy of government to avoid insolvency and a paradigm shift in the attitude of citizens who behave irresponsibly. Clearly, elected representatives in government have acted irresponsibly by enacting legislation that promises to be all things to all people. More often than not, that is how politicians gain the majority of popular votes by making irresponsible promises. Who is to blame for the failed and crumbling state of affairs, a majority electorate that is ill informed and unskilled in public management, or the elected representatives who by objective standards are well educated and highly qualified, nevertheless follow the whims of the masses ? An unskilled and uneducated electorate acts out of ignorance. However, the elected officials who know better act against and contrary to better judgment and sound principle. In this light, representative democracy is unsustainable as a form of modern governance when sound judgment and natural principle are ignored by the weight of popular demand. It is a recipe for self defeat and disaster. As a nation, it must cast off its illusions and rediscover the laws of interdependent reciprocal norms set by public principles. The principle of subsidiarity or, “the greatest responsibility to the lowest possible level ” is the institution of the extended family as the building block of a just society. A ideal philosophy of governance ought to evolve from the the paradigm of the family that is led by its wisest members. In time retirement planning will return to the foundation of interdependent families and their shared resources. Public policy should move in this direction to have families care for themselves and reduce the burden on government entitlements. ” Incidentally, following this principle leads to greater happiness. People are happier when they live their own lives rather than accepting some institutional master’s plan for their life. ” This fundamental change will take years to enact through a deliberate effort and leadership. Leadership that must come the people who have sound judgment and adherence to principle that can stand up to the whims of irresponsible selfish interests. Inevitably, an urgent confrontation will have to take place between the defenders of a failing status quo and a new paradigm of absolute reciprocal norms of behavior of a just society.

  2. As always, Gordon’s scholarship is excellent. Unlike my blog, which is meant to provoke, to stimulate and to entertain, as well as to educate in a quick, “cute” and relatively superficial way, Gordon is much more serious. I commend him for that.

    There is no question that public pension funds make unwarranted assumptions. For example, California’s PERS – the $200 billion state retirement system to which I belong – assumes that it will average 7.5% per year return on its investments. That’s wrong.

    However, I don’t see how privatization is such a panacea. Being subject to the vagaries of the stock market could be a killer to millions of retirees. Americans have lost a huge part of their retirement investments (TSA’s, IRA’s, etc.) since the Dow Jones went down from 14,000 to 7,000 (to go back up to 11,500 at the present time).

    As to Social Security and Medicare, these are totally salvageable: (1) you continue to gradually raise the age at which people start qualifying for benefits. Since life expectancy has increased, it is logical that fully paid retirement should also be moved up. (2) you increase contributions (3) you decrease benefits.

    All three of these steps also apply to State pensions. The question is not whether or not we should have public pension systems, but how generous these should be. Obviously we can’t sustain current levels. But this doesn’t mean that public pension and medical insurance systems which have vastly improved the life of the elderly and the retired for nearly a century in the entire Western World should be scrapped. Privatization would signify a return to the dark “Dickensian” conditions of the past.

  3. Tom must have missed what I wrote:

    “However, we cannot leave private individuals on unsound financial plans proposed in the Bush era and criticized by Democrats as ‘putting your retirement in the stock market.'”

    I think the “private retirement = stock market” mantra is so ingrained that people can’t get beyond it.

    I tried to be clear, that what I recommend is not subject to the vagaries of the stock market. INSURANCE, which I recommend, is like banking and actuarially sound, based on premiums like banking is based on interest. There is no speculation in it. There is actually much more speculation in our government plans than in insurance, because Social Security is neither held to as high accounting standards, nor is it as efficient as a competitive market, suffering from greater abuse, and mismanagement as a political football.

    The ironic thing is that many governments are apparently investing pension funds in risky stock markets. Tom wrote “the $200 billion state retirement system to which I belong – assumes that it will average 7.5% per year return on its investments.” This is why I agree with Tom that putting retirement in the stock market is bad, and another good reason to get them out of the hands of government. You never know what the next bureaucrat will decide to do with your money. Governments simply aren’t regulated the way the insurance industry is.

    Although the government plans are less risky than the stock market. Look how people like Ben Bernanke and others who understand our financial system plan for their personal retirement–they buy annuities.

  4. Gordon; you know that none of these problems have answers as long as we keep borrowing funny money from the FED to fund them. We can fu nd most anything as long as we creat what we spend instead of borrowing it.

    We cannot borrow our way to prosperity,–only to bondage. Key words we have forgotten–Leige, Human Resource, colateral. All these are tided to Usery.
    Usery never was prosperity.

  5. Charles, by making everyone’s plan a private annuity, each person’s pension would be based on his own contribution. The idea that my pension be paid for by my children is irresponsible. The fact that my pension be paid for by 8 people is exploitation and a form of imposed slavery. It goes against the moral law. There are only two ways such an immoral system can work. (1) It depends on an exponentially increasing population that the land cannot sustain, or (2) it requires some form of ponzi scheme like the fed printing more money, which is what the Russians tried. Neither solution is long-term sustainable. The first solution, implemented under Roosevelt, worked for a couple of generations when we had families of six children and large immigration. Then we began the second approach which guarantees economic collapse, as happened in Russia in 1991, when the Ruble that was about $4.80, declined to about 450 rubles per dollar. Pensioners still got their pension, it’s just that a month’s pension wouldn’t buy a loaf of bread. That is where our current system is headed unless we reform it.

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