Reports of the public pension crisis are greatly exaggerated. A little digging and you discover that while there are some states and cities that truly do face a pension crisis, for the most part it is simply not that big of a deal. Even those states which do face a problem with their under-funded pensions do so because of several factors:
- Revenue is down thanks to this recession we’re in;
- the anti-tax crusaders have made it very difficult to raise revenue for all sorts of things including – but certainly not limited to – pension funds;
- mismanagement of pension funds by fund managers, some of whom were outright duped by Wall St. investors, some of whom might have been doing the duping themselves.
The last reason is that some of these pensions really are too good to be true, but this is comparatively rare. In these cases, reform is certainly called for. Yet the anti-public-sector narrative always runs with this reason alone, using anecdotal evidence of worst-case scenarios to prove a much larger, and very misleading point. This is because they want to fan the flames of the ‘new’ class war between the public and private sectors, pitting the middle class against itself. This ‘pension crisis’ narrative was one that I bought for a while myself, much to my chagrin. It’s the old “government is out of money” fallacy used to cut off funding to any number of vital services, from education to healthcare to pensions. Interestingly enough, those pushing this fallacy never want to consider actually raising revenue to tackle the ‘out of money’ problem. Only cuts will do.
We are led to believe that public sector wages should be brought in line with those in private sector (regardless of the skewed numbers used to come up with the difference in the first place), rather than demand that the corporate class boost private sector wages instead. No, we must drag everyone down rather than lift anyone but those at the very top up.
As Paul Krugman points out, this is nonsense. Public employee retirement funds comprise only 6% of state spending across the board.
Robert Reich notes, public servants are convenient scapegoats, and the pension crisis is little more than a ruse:
And most of that $19,000 isn’t even on taxpayers’ shoulders. While they’re working, most public employees contribute a portion of their salaries into their pension plans. Taxpayers are directly responsible for only about 14 percent of public retirement benefits. Remember also that many public workers aren’t covered by Social Security, so the government isn’t contributing 6.25 of their pay into the Social Security fund as private employers would.
You should read the whole thing; Reich shoots neat little holes through each of the anti-public-sector myths being propagated these days.
Now we have a choice.
We can close the pension gap by fully funding pensions and by reforming the system where it is out of whack, like in certain municipalities like Bell, CA where city managers duped their citizens and effectively stole millions of dollars in taxpayer money. But these instances are the exception to the rule. Or we can radically upend the system itself, break up the public sector unions and see what happens. A 401k system has its own serious risks.
And while some tax dollars might be saved by busting up public sector unions, I think the middle class as a whole will suffer for it. Even less pressure will be placed on employers to provide their employees with decent wages and benefits. Ironically, this may lead to even more of a push for intervention at the federal level.
In other words, conservatives should be careful what they wish for when they go after the public sector. Unintended consequences seem very likely.
