If Public Employees Are Smart, They’ll Turn Against Pensions, Too

"More money for us! Yay!"Credit: michaelrighi / Foter / CC BY-SAOver at Salon, David Sirota complains about the left vs. right mentality when analyzing Detroit’s failure. Actually, he’s really complaining about the right blaming employee pensions while ignoring the city’s significant levels of crony capitalism. Even though Detroit has been ruled by the left since forever, this is somehow the right’s fault:

Recall this is in the heart of a region whose governments infamously spent $55 million of taxpayer money in 1975 (or a whopping $180 million in inflation-adjusted dollars) on one professional football stadium, then spent another $300 million on yet another football stadium, then sold off the original stadium for just $583,000. Or, just note that Detroit is the largest city in a state that, according to the New York Times, spends more per capita on corporate subsidies — $672 or $6.6 billion a year — than most other states.

By focusing the blame for Detroit’s bankruptcy solely on workers’ pensions, rather than having a more comprehensive discussion that includes both pension benefits and corporate giveaways, the right can engineer the political environment for the truly immoral reality mentioned at the beginning of this article — the one highlighted this week by the Associated Press story headlined “Arena Likely Still On Track, Business As Usual For Sports Teams Despite Bankruptcy Filing.” Yes, that’s correct: at the same time government officials are talking about slashing the meager $19,000-a-year pensions of workers who don’t get Social Security, those officials are promising that they will still go forward with a plan to spend a whopping $283 million of taxpayer money on a new stadium for the Red Wings.

Reason’s Shikha Dalmia wrote extensively about Detroit’s crony capitalism so I won’t belabor the point that Sirota is fundamentally correct, though he’s obviously flogging his own narrative and actually buying into the right vs. left argument even as he complains about it.

Crony capitalism is a bipartisan flaw, particularly on the municipal level, where politics is not about parties so much as personal influence and “bringing home the bacon.” Even on the national level, the left under the Obama Administration is no stranger to tax breaks and incentives that favor certain industries.

That cities dominated by labor unions and leftist politicians for decades still manage to blow hundreds of millions of tax dollars and ruin pension funds (and here I’m pretending that this is all happening without the tacit approval of powerful unions who get short-term benefits from these projects in the form of labor agreements — their own version of "bringing home the bacon") should be a serious object lesson to progressives about the dangers of big government. If Detroit is not immune to this alleged right-wing tactic of raiding pension funds and blowing tax dollars on corporate subsidies, then who is? Who are those “right people” on the progressive side who are immune to such corruption? Where are they? Where have they been while all this was going on?

Sirota dismisses 401k-style programs for government employees as “Wall Street boondoggles,” which is pretty dumb (where does he think pension fund investments go?), but right now if I were an adult just getting into government work, I would be begging for such a program. At least I’d actually be able to know what I’m getting when retirement comes around. I may ultimately be drawing less per year from my 401k fund than a current Detroit government employee, but as they’re discovering, that amount exists mainly on paper. Mine will be real.

Over at Bloomberg, Eileen Norcoss and Roman Hargrave make some additional arguments about how the government is the biggest threat to the pension system.

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  • Almanian!||

    "If public employees are smart..."

    I see Reason's now into fantasy...

  • Eduard van Haalen||

    "If Public Employees Are Smart"

    If pigs had wings...

  • Almanian!||

    If I had a hammer...

  • WTF||

    Every problem would be a nail?

  • Almanian!||

    Man, mellow out! I'd hammer out the love between my brothers and my sisters....WAIT A MINUTE, THAT'S GODDAMNED INCEST!

    Fucking hippies.

    If I had a DRONE...

  • Loki||

    Your co-worker's sister is a whore.

  • C. Anacreon||

    kateson08, why aren't you talking to the leaders of Detroit? Sounds like you've got the solution to the bankruptcy. Although "just working for a few hours a month" is likely a lot more than most Detroit public employees actually do tangible work, so maybe not......

  • plusafdotcom||

  • Sherry324||

    my neighbor's aunt makes $73/hr on the computer. She has been without a job for ten months but last month her paycheck was $18821 just working on the computer for a few hours. Read more on this site... WWW.CNN13.COM

  • Almanian!||

    So your neighbor's aunt is living "Breaking Bad" Anon Bot? She rules!

  • plusafdotcom||

  • Almanian!||

    PS "...the government is the biggest threat to the pension system everything.

  • John||

    Yes. It doesn't do any good to have a gold plated pension if your employer will go bankrupt before you collect it. And I think current employees probably realize this. The retirees in contrast have every interest in getting theirs. WTF do they care what happens after they are dead?

  • Gozer the Gozerian||

    I read the title and laughed, because of this. However, I see it less as a generational issue and more as a prisoner's dilemma.

  • Invisible Finger||

    I'm calling it PENSIONER'S DILEMMA

  • Gozer the Gozerian||

    +3 / free

  • Almanian!||

    Man - remember when the Wings were winning Stanley Cups? Good times...

  • Fluffy||

    The arena construction is also a union giveaway.

    Who gets paid for building the arena?

    And I guarantee you a prevailing wage law is helping set the arena's price tag.

  • John||

    With the construction of the hockey arena, Detroit will have a complete set of state of the art professional sports facilities. Ford Field and Comerica Park are as good any facilities in the NFL or MLB. Those sorts of civic projects really bring in the prosperity don't they?

  • Almanian!||

    You're right about the Copa and Ford Field - REALLY nice.

    And let's use Obama logic - Detroit would be even WORSE if those arenas hadn't been built. Stimulus, John - it works whereever it's implemented.

  • robc||

    The new arena in Louisville was part of the 40 year "revitalize downtown" series of plans that have mostly failed.

    And I wouldnt call it a right-wing plan either.

  • C. Anacreon||

    All "revitalize downtown" plans everywhere are crony capitalism between leftists and developers. They never work, but the developers get quite wealthy, and the politicians can show they are doing something and even get to cut some ribbons.

  • Red Rocks Rockin||

    All "revitalize downtown" plans everywhere are crony capitalism between leftists and developers. They never work, but the developers get quite wealthy, and the politicians can show they are doing something and even get to cut some ribbons.

    It really all depends on where you're at. Denver, for instance, has been quite successful in revitalizing it's downtown from the oil crash of the 80s, by recognizing that if you get enough wealthy single whites to settle in the district (via the loft boom of the last 25 years or so) and/or come out on the weekends to spend their money (using Coors Field and the 16th Street Mall as economic anchors), you can reverse a lot of economic deterioration in the downtown area.

    Of course, Denver and Detroit are quite different from an economic perspective, but if Pittsburgh could remake itself, there's really no logical reason Detroit couldn't have done the same thing. Detroit's governance was just corrupt and dysfunctional beyond comparison.

  • anon||

    If Public Employees Are Smart...

    Come on; if they were smart, they wouldn't be public employees.

  • John||

    Because no private sector employees ever allowed their union to bankrupt their employer.

  • anon||

    Hey, I didn't say that.

    I don't see many private corporations that are 16 trillion in debt not counting unfunded liabilities though.

  • John||

    Government motors and more than a few financial institutions in 2008. Lots of private sector entities do incredibly stupid shit. People generally are stupid and the world advances in spite of them.

  • robc||

    The fact that companies can be stupid is why, from the employee side, I would prefer a 401k plan over a pension plan.

    Having my retirement depend on the ability of the executives to not screw things up? Yeah, thats a brilliant plan.

  • anon||

    I'm just saying private corporations are far more likely to actually budget their shit than the Government. In general, smarter people run corporations than the assholes we have running our government.

  • Almanian!||

    The key, of course, is that MOST businesses are destroyed if they make bad decisions. The market - it's a merciless mistress.

    Unless you're a favored bidness who gets STIMULABAILOUTINVESTMENT from Uncle Sugar. Then your bad decisions just keep on going, and going, and going...

    Governments get to keep on going till the next coup, war, plague...

  • AlexInCT||

    "Unless you're a favored bidness who gets STIMULABAILOUTINVESTMENT from Uncle Sugar. Then your bad decisions just keep on going, and going, and going..."

    Even when it stops going you as the connected boss gets to walk of with tons of cash while the tax payers and your stupid employees foot the bill. Just remember to keep making big donations to the campaing of those democrats however.

  • John Thacker||

    I don't see many private corporations that are 16 trillion in debt not counting unfunded liabilities though.

    That's because they go bankrupt and are liquidated. And then employees get pennies on the dollar from the PGBC (as they have to, because otherwise there's really horrible incentives.)

    People running companies aren't inherently less stupid than people running government. The market just punishes the stupid ones.

  • VG Zaytsev||

    Come on; if they were smart, they wouldn't be public employees.

    Yeah the guys getting paid above market rates + gold plated health insurance + gold plated pensions for pretending to work are real dummies.

  • AlexInCT||

    You have a point that the dummies are the people paying the taxes so the demcorats can negotiate these golden plans with their union buddies, but then again, when you contantly are outnumbered by the people that think this sort of shit is just great your options are minimal. of course, I can point you to Detroit, where most of those able to do something did it, and now the place is imploding.

  • UnCivilServant||

    Let me see if I follow this line of argument.

    The problem with pensions is that people have been allowed to steal from and/or underfund the fund despite their obligations to the contrary. Therefore, pensions are bad.

    Financially, it's cheaper to run a properly financed pension fund than a lot of individual 401(k)s. The question that should be asked is how one goes about preventing the theft of funds. The 'failure' of every pension fund, public and private can be traced to this same root cause, politicians or managers who look upon the fund balances with avarice and deliberately ignore the fact that those funds are already encumbered for future payments. Well, almost, CALPERS went on a social crusade that didn't help either.

    Right now, my pittance is fully funded because we've managed to keep the legislature from getting their mitts on the monies in the pension fund. The money I put into the pension fund grows better than the money I put in my other funds (I put away about 8% of my paycheck before it ever gets to my bank account). The main issue is who is comptroller. The only time I voted on the Libertarian party line was for comptroller because they have better fiscal policy and seemed more likely to perform their fudiciary duty (unless they're on the party line in name only).

    Trying to distill a complex fiscal calculus about what method is "better" to a black and white answer is misguided at best and mendacious at worst.

  • robc||

    Financially, it's cheaper to run a properly financed pension fund than a lot of individual 401(k)s.

    This might be true, on average, but the risk level is much higher with a pension fund.

    Its probably worth a bit extra to avoid the risk of having it blow up on you. The advantage of 401ks is that its defined contribution, so the employer has no risk.

  • robc||

    And the employee risk is shifted. Market risk instead of company failure risk.

    Probably lower risk with 401k for the employee too.

  • ||

    Right to above two comments.

    With the 401(k) the employee is taking on the risk of the market - they could lose money in the stock market. But they are getting rid of the risk that the employer will raid the pension fund or go bankrupt. The government makes the laws so it's much easier for governments to raid the pension funds than for private entities, but even the private entities can't keep their mitts off of it when times get tough.
    The problem is that there's a psychological and political calculation that the employees make. They end up agreeing to gamble with their own pension fund because they don't want to endure the job cuts in the short run. That's as much true in the public sector as in the private sector. You're still more focused on the short term, you just have a more round-about method of spending your savings.

    The problem isn't that one investment is more is less risky really - they're both risky. The problem is that it's so much easier (politically, legally) for a government/corporation to raid a pension fund than it is for an individual to get money out of a 401(k) before retirement.

  • ||

    have been allowed to steal from

    Is there any real evidence of this? Anywhere? AFAIK, underfunding is the only issue.

  • Night Elf Mohawk||

    Depends on how you define "steal." If you have unrealistic projected returns which in turn means you need to send less money to the pensions which leaves that money to spend elsewhere, it's a lot like stealing the money before it gets into the pension fund. If returns fail to meet realistic goals, that's not much like stealing. It's sort of like the difference between being wrong and lying.

  • ||

    I would think that "stealing" is a direct extraction of funds while "underfunding" is a failure to have balances meet promises (whether by lack of funding or unrealistic/unmet returns).

    Gross underfunding is really the issue. And it will always be an issue when funding is political.

  • VG Zaytsev||

    Underfunding is always the problem, whether for public sector or private pensions because it's easy to make a promise that someone else will 'have to' fulfill.

    The proper term for this sort of thing is fraud.

  • ||

    "Borrowing" might be a more accurate description. The municipal government invests the pension fund in municipal bonds.

  • Brett L||

    Defrauding probably fits the facts better. As I've demonstrated before, the state of FL has one of the most conservatively managed pension funds in the US. Were over 100% funded before the downturn, 80% funded at the worst. Steadily rising towards 90% now. This is the BEST case scenario. The average wage was low, you have to work 20 years to get 80% of your best 5, FL has one of the fewest number of state workers per capita in the nation, etc. And, BTW, the FRS has suggested moving to 403(b) (defined contribution retirements) and the legislature incentivized this by (1)defaulting to the 403(b) rather than pension if you don't send in your retirement election sheet and (2)making employees contribute 3% of their pre-tax earnings if they are in the pension retirement, 403(b) employees contributing $0 to get a similar employer matched contribution. Because the FRS knows they can't afford to subsidize another generation of state employees retiring in their late 40s and early 50s at 80% of their best 5 years.

  • ||

    I may ultimately be drawing less per year from my 401k fund than a current Detroit government employee, but as they’re discovering, that amount exists mainly on paper. Mine will be real.

    I wouldn't bet the farm on that, given our current fiscal disaster. The tax man will go where the money is.

  • All-Seeing Monocle||

    I was about to make exactly this comment. They might be "slightly more real" but Leviathan still has plenty of other tentacles.

  • wareagle||

    Salon has talking points and rigid ideology to follow, Scott. Neither has room for either common sense or critical thinking. It is all Team, all the time, no matter the evidence.

  • Marc F Cheney||

    where does he think pension fund investments go

    Well, they go into an account guarded by a fiduciary*. While in the account, they grow at 8%/year, like clockwork. It's not that mysterious.

    * This is something like a gryphon.

  • Raston Bot||

    My favorite is when a city appoints a board to suggest pension reforms and the board is majority civil servants plus a couple of the mayor's progtard neighbors. Now those reforms are hilarious:

    -maintain defined benefit even for new hires
    -increase health premium subsidy
    -start the final report to the city council by declaring there's nothing to see here and our city won't ever face the same problems faced by numerous cities across the country

  • ||

    Defined benefit pensions are a mistake for both public and private employees. It's far too easy to raid the pension fund and this is often even encouraged by the employees when the company hits the skids - borrow from the pension fund to keep the company going, so we won't lose our jobs. Then 5 years later you have no job AND no pension. We've seen this happen over and over in the private sector and now it's happening in the public sector too.

    When you get a pension as a benefit what you are getting is a promise of future compensation, a promise which can be broken. A 401(k) by contrast is an asset that you personally own.

    People bring up Enron, but that was only the money invested in Enron company stock that got frozen. Just don't invest your 401(k) funds in company stock. Invest it in a mutual fund run by Morgan Stanley or whoever, which most companies offer. If the company goes bankrupt the money in the mutual fund is still yours, you just roll it over into your next job.

  • ||

    "It's far too easy to raid the pension fund"

    Is that really true for public pension funds? Are there real examples of that?

  • ||

    Are you serious? They've been raiding the Social Security fund for decades.
    When the government invests pension fund money in government bonds, it is essentially borrowing money from the fund. Detroit invests public pension funds in municipal bonds. Detroit declares bankruptcy. Pension fund is out of luck.

    And then on top of that sort of thing, there's just flat out underfunding. Cases where they essentially havn't put any money into the fund for 20 years. Not even buying municipal bonds, just not allocating any money to it.

  • ||

    Yes I'm serious. They never raided SS. They simply never actually saved it. That's different. That's underfunding.

    A true raid is when saved assets are withdrawn.

  • ||

    We're quibbling over terminology.

    Suppose the pension fund is originally invested in a mutual fund managed by Morgan Stanley. Then they shift it into municipal bonds. Does it really make a difference whether they invested it in munis right away or later?

  • ||

    If it's municipal bonds issued by the municipal entity that is responsible for the pension fund, then yes, that's a raid.

    But I'm still asking...who exactly did that? The Feds technically didn't, because they never saved in the first place. They just setup the lock box fraud. But did states ever bond against their pension funds?

    I'm not claiming it hasn't happened...I've just never seen that story before.

  • SugarFree||

    There is a certain elegance to using the idea that SS funds have been stolen to expose the lie that they were ever being saved in the first place.

  • ||

    Google/Bing "states raiding pension funds" or similar.

  • ||

    Well yes, I guess I could edumacate myself that way.

  • ||

    http://www.nytimes.com/2012/02.....first.html

    They're borrowing from the fund to pay the fund. I.e. replace existing funds with bonds, use the money to make this year's constributions.

  • Adam330||

    Here's an example from NY state. They borrowed money from the pension fund to make their payments to the pension fund:
    http://www.nytimes.com/2010/06......html?_r=0

  • Adam330||

    Sure they've raided SS. All payroll taxes go into the SS trust fund. But every year the Government "borrows" the money from the trust fund using special treasury bonds to pay the other bills. SS isn't technically a pension fund ala CALPERS of course.

  • GILMORE||

    See = Spain

    They are 'borrowing' from their social security funds to payout worker pension obligations. Madoff only had it so good.

  • Fist of Etiquette||

    The Pens won it in the following year's rematch. But the Red Wings are winners (relatively speaking). Why punish the only thing in Detroit that's a winner?

  • GILMORE||

    Sirota dismisses 401k-style programs for government employees as “Wall Street boondoggles,” which is pretty dumb (where does he think pension fund investments go?)

    Its not where they go = its where they come from. In his civic-minded goodness, he realizes the only reliable long-term source of returns is Taxpayer Pockets. 'The Market' is far too fickle. They are vampires who shun red meat and demand fresh blood from virgin children.

  • robc||

    403b is generally well liked by the people I know who have it.

    Maybe he thinks they are boondoggles.

  • GILMORE||

    That's just a 401K for non-profits. Rose, by another name.

  • SugarFree||

    I've been happy with mine, but I'm not sure they were substantially different from one another. I will say that the pressure (and assumption) that you would only invest your 403(b) in some hippie fund that only did "socially conscious investments" was pretty strong. And there is little incentive to diversify across funds.

  • ||

    I hate mine because my only options are annuities. The tax benefits still make up for the fat fees that the annuities providers charge, but it still sux.

  • GILMORE||

    Speaking of another dimension of pension badness = political manipulation.

    See = CALPERS

    due to popular, electioneering optics, pols demanded the pensions invest deep in Green Energy & Local Municipals, forgo Tobacco, Guns, Gambling, etc.

    Guess which ones make money, and which rely on taxpayer funding?

  • Gozer the Gozerian||

    Don't a lot of them make money *by* relying on taxpayer funding?

  • Anonymous Coward||

    Recall this is in the heart of a region whose governments infamously spent $55 million of taxpayer money in 1975 (or a whopping $180 million in inflation-adjusted dollars) on one professional football stadium, then spent another $300 million on yet another football stadium, then sold off the original stadium for just $583,000. Or, just note that Detroit is the largest city in a state that, according to the New York Times, spends more per capita on corporate subsidies — $672 or $6.6 billion a year — than most other states.

    Only ratbagging, teafucker reich-wingers support civic vanity projects and public playgrounds for the rich, like stadiums, and symphonies, and art museums, and zoos.

  • Gozer the Gozerian||

    It's a damn shame that our tax systems drive us into such frustrating retirement systems, investment vehicles, etc. We shouldn't even need to be making these comparisons.

    (My apologies for playing the role of Captain Obvious; sometimes you just need to vent.)

  • Invisible Finger||

    I'll add that "tax systems" include the ability of FedGov (via Federal Reserve) to tax savings by diluting the dollar.

  • Gozer the Gozerian||

    At least interest rates respond accordingly -- or do you mean the perverse effect of inflation with the taxation of, say, capital gains?

  • Bert Loftman||

    The real problem is the income tax that incentives third party retirement plans. When governments do not fund them, they are suddenly surprised.

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