Monday, May 2, 2016

Seeking a Fair Framing of the Pension Crisis

I see a lot of these “a pension is a promise” posts. Some observations and some questions.

The Illinois state government didn’t save sufficient funds to pay these liabilities, so the entity that made the promise can’t pay for it. The money just doesn’t exists. That means that Illinois taxpayers must foot the bill for these liabilities. So far that’s just an observation. I’m not saying they “should” or “shouldn’t”, but let’s frame the discussion in terms of who owes whom in a way that acknowledges the interests of *both parties*. In a conflict of rights, it’s fine to argue that one party’s rights supersede another’s, but it’s rude and dismissive to pretend that one party’s rights don’t even exist. It seems to me that there’s a missing argument here. What needs to be argued for is being implicitly assumed, perhaps so the speaker can rhetorically avoid the uncomfortable confrontation with the counter-party.

My questions:

1)      Do Illinois citizens have a duty/responsibility/obligation to pay for unfunded liabilities created by the state of Illinois?

2)      Does this obligation exist even if the conditions creating the unfunded liabilities were put in place before you were born?

3)      Does the obligation disappear if you move to another state? Or should the obligation follow you to whatever state you move to? Do you have a moral but legally impractical/unenforceable obligation to pay the unfunded liabilities whether you move or not?

4)      When your labor leaders were negotiating these huge pension payouts, didn’t they have an obligation to either 1) increase *current* taxes or 2) increase payroll deductions to fund them?

5)      Doesn’t the failure mentioned in 4) shift *some* of the blame back to the pensioners and their labor leaders?

6)      A presently unfunded liability is, quite predictably, a future catastrophe. If you sign up for that deal, don’t you tacitly agree to assume *some* of the pain from that future catastrophe (given that it *was* predictable in the first place)?

It might make some sense to “spread the pain around” a little. We don’t have to gore just one person’s ox. There is plenty of ox to gore here. It probably makes sense to make Illinois taxpayers bear some of the costs, and make pensioners bear some of the costs in diminished benefits. (The diminishment should be proportional to the distance from retirement for future retirees and proportional to ability to find gainful employment for recent retirees, so that people who are in a better position to bear the cost do so. A retired octogenarian pensioner shouldn't be cut off from their only income source, but a 30-year-old future pensioner should be forced to plan as though the promised pension isn't there, which it isn't.) But please, let’s not anybody say, “Hey, don’t gore my ox *at all*.” If you are hostile to any reframing of this issue that acknowledges the counter-party (whose ox you insist on fully goring), you aren’t thinking clearly.

All I’m seeking in this post is a fair framing of the discussion. I’m not trying to adjudicate who is right, or who should bear what fraction of the burden. So read all of the above with that in mind. But I’d be remiss if I didn’t share my own opinions. I think the parts above stand, regardless of how, in particular, I answer all the questions I raised. That being said, what follows is my short summary of the political economy that led to this crisis. It’s not flattering to labor unions or politicians.

My own view is that past politicians and public sector labor leaders made a very cynical deal. Politicians wanted to buy the votes of public employees by promising higher pay (a pension is merely deferred salary). Illinois taxpayers weren’t willing to absorb a tax increase necessary to pay for this bribe. Politicians, knowing the crisis would come only decades later, promised big pension payouts instead of current salary increases. Public employee unions, recognizing that taxpayers wouldn’t shoulder a big tax increase, accepted the “promised” pensions, assuming that future politicians would increase taxes when the time came. This isn’t to say that all state employees were explicitly thinking in this cold, calculating manner every day, but this sinister deal was always there in the background. Now it’s blowing up. Everyone was behaving cynically. (One could argue even the taxpayers have behaved cynically, insofar as they’ve wanted to kick this can down the road rather than addressing it when the problem became obvious.) I wish the problem had been brought to a head decades ago when it was manageable, rather than today when it’s a full-blown catastrophe. But here we are. 

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