As a supporter of genuine capitalism, which means the right of contract and the absence of coercion, I don’t think there should be any policies that help or hinder unions.
The government should simply be a neutral referee that enforces contracts and upholds the rule of law.
Similarly, I also don’t have any philosophical objection to employers and employees agreeing to “defined benefit” pension plans, which basically promise workers a pre-determined amount of money after they retire based on factors such as average pay and years in the workforce.
After all, my money and property aren’t involved, so it’s not my business.
That being said, these so-called “DB plans” have a bad habit of going bankrupt. And that means the rest of us may get stuck with the bill if there’s a taxpayer bailout.
I discuss these issues in an interview with Fox Business News.
My main point is that there’s a deep hole in many of these plans, so someone is going to feel some pain.
I don’t want taxpayers to be hit, and I also don’t think well-managed pensions should be gouged with ever-rising premiums simply because other plans are faltering.
But I bet both will suffer, as will workers and retirees in the under-funded plans.
As part of the interview, I also warned that other “DB plans” are ticking time bombs. More specifically, most pensions for state and local bureaucrats involve (overly generous) pre-determined commitments and very rarely have governments set aside the amount of money needed to fund those promises.
And the biggest DB time bomb is Social Security, which has an unfunded cash-flow liability of more than $30 trillion. That’s a lot of money even by Washington standards.
But I closed with a bit of good news.
As workers and employers have learned that DB plans tend to be unstable and unsustainable, there has been a marked shift toward “defined contribution” plans such as IRAs and 401(k)s.
These plans are the private property of workers, so there’s no risk that the money will be stolen or squandered.
But even this good news comes with a caveat. We closed the interview by fretting about the possibility that governments will steal (or at least over-tax) these private pension assets at some point in the future.
That’s already happened in Argentina and Poland, so I’m not just being a paranoid libertarian.
[…] are a fiscal black hole because they are “defined benefits” (DB plans), which means annual payments to retirees are driven by formulas. And those formulas often include clauses that create precisely the perverse incentives exploited […]
Ned,
I can’t agree with your exceptions. This is an issue solely between the employee and the employer. Government can intervene in individual cases if a specific employer is perpetrating fraud on its employees, but there is no other reason for government to put itself in the middle of this contractual arrangement. Bailouts are simply a politician’s fly-paper for voters. There should be no expectation from anyone for a bailout.
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An easier way to judge all of this is to just substitute the words “the rest of us through the use of force” in place of the word “government”.
What I predict we will be seeing soon – if we aren’t already – is the picture of the private sector retiree making $40k per year from Social Security and drawing down his modest 401K – paying half of it in taxes to fund the three figure pension of the retired government bureaucrat.
Reblogged this on François Pelletier and commented:
Est-ce que les contribuables devront rembourser les déficits actuariels des fonds de pension ?
Q: Will Taxpayers Be Forced to Bail Out Union Pensions?
A: Bet your a$$ they will.
Just tell them no.
As you point out, private contractual arrangements should normally be out of the purview of law makers. However, this is a special case for 3 reasons:
1. If government is expected to bailout failed plans, government should have some say about how such plans are conducted.
2. If history shows that workers are often mislead by their employers under such plans, government has an obligation to encourage alternatives.
3. If such plans trap workers, there is an economic benefit to alternative plans that will support a more dynamic workforce.
Reblogged this on Gds44's Blog.