Reason.tv Replay: Why Public Pensions Are Like Throwing a Brick Into a Washing Machine


Unless you've been pulling a Rip Van Winkle for the past few years, you know that your state is more busted than Larry Craig in an airport toilet. The only possible exception is the state of Denial, and it closed its borders to new arrivals sometime in late 2008.

One of the main drivers of this sorry state of affairs is the massive disparity between public-sector and private-sector compensation, especially when it comes to benefits such as pensions. Various studies have found anywhere between a 70 percent and a 34 percent differential in total compensation, with public-sector employees getting not just more pay and benefits but near-absolute job security and early retirement. Consider California:

A bipartisan bill…passed virtually without debate unleashed the odious "3 percent at 50" retirement plan in 1999. Under this plan, at age 50 many categories of public employees are eligible for 3 percent of their final year's pay multiplied by the number of years they've worked. So if a police officer starts working at age 20, he can retire at 50 with 90 percent of his final salary until he dies, and then his spouse receives that money for the rest of her life. Even during the economic crisis, "3 percent at 50" and the forces behind it have only become more entrenched.

In the midst of California's 2008–09 fiscal meltdown, with the impact of deluxe public pensions making daily headlines, the city of Fullerton nevertheless sought to retroactively increase the defined-benefit retirement plan for its city employees by a jaw-dropping 25 percent. What's more, the Fullerton City Council negotiated the increase in closed session, outside public view.

More on that here.

Unfunded state pension liabilities run in the neighborhood of $1 trillion. To understand just how this sorry state of affairs came about, read this report from ALEC.

There is a solution to this mess, the same solution that has been adopted by the private sector over the past several decades: switching from defined-benefit retirement plans to 401(k)-style defined-contribution plans. In a state such as Ohio, which is facing a $8 billion budget deficit and where state and local employees earn about 34 percent more in total compensation than their private-sector counterparts, bringing public-sector compensation into line with the private sector would cut the state's deficit by about 28 percent.

The alternative? Well, there isn't really one, other than destroying your state's economy. The politics of cutting public compensation are never easy but they have also never been more critical.

Reason on pensions.

Video produced by Josh Swain.

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  1. Please stop. I've had enough for the week.

  2. You HAVE TO re-edit this video. The prolonged death spasms on the ground are the best part - there's at least another 15 seconds of it - it looks like its alive, and dying.

    1. I also suggest you put in a dramatic pause when he brings the brick out. I can't read what it says before he throws it in the washing machine.

  3. I want to see this with a top loading washing machine.

  4. So how do you stop the plans that are already in place? If the muni/state goes bankrupt, can they escape their contractual obligations to their former and current employees?

    There is a small up-side to inflation - sweetheart deals like this are eroded ever so slightly as the value of the promised dollars drops.

    1. If Shiller is right about deflation, we're really fucked.

      1. Specifically, he suggested that schools employ an additional person in each class room as a teacher's aid. Not only would it employ millions, he said, but it would be good for the children.

        Wow, Schiller is a douchebag.

    2. You can't get out of them, and they are probably indexed to inflation.

      The best that can be done is to stop the bleeding.

  5. Looks like the reason staff has been watching Tosh.0...

  6. Or we could just take government employees out and shoot them... The problem with state budgets isn't pension plans, it's a bad economy. The bad economy caused by the private financial markets you want to sink even more people's livelihoods into.


    2. Tony|8.27.10 @ 7:07PM|#
      "...The bad economy caused by the private financial markets..."
      And a "good" economy is caused by?

    3. Right. The same government policies that caused people to over-invest in housing had nothing to do with the relatively poor returns of the stock market over the same time.

      The fact that capital was leeched from potentially productive investments into a government sponsored bubble is entirely the market's fault. And the fact that those capital starved companies didn't grow as fast as they would have otherwise is also due to the market.

    4. Or we could just take government employees out and shoot them...

      First thing any leftard has ever said that made much sense. You first, Tony. You're a parasite and a traitor and we can't have a "public employee" like you sucking the public teat any longer.

    5. Tony, while it's nice that you remind us of your visceral hatred for the private sector, it's not always necessary to reiterate it at every opportunity.

  7. I smell a rat. That totally looks like a CGI effect Reason added to an existing video to make it fit their narrative. There's no way a washer smokes that much on spin cycle.

  8. "Progressive Public Employee Pension Windfall Tax Act of 2010". An additional tax on top of all other income taxes to apply only to government retirees, state, federal and local. To be placed in a lockbox at the end of the rainbow:

    Over $40K--20%
    Over $50K--30%
    Over $60K--40%
    Over $70K--60%
    Over $90K--80%

    1. After further review, we realize that the originally proposed tables would lead to multi-million dollar pensions. New tax table:

      Over $40K--30%
      Over $70K--90%
      Over $90K--100%

  9. can they escape their contractual obligations to their former and current employees?

  10. government retirees,

  11. I don't understand why cutting government employee salaries and benefits is "never easy" -- they can't possibly make up a majority of the voters. Everyone else should be against overpaying them.

    Heck, even current government employees should be all for cutting the retirement benefits of future government employees, if only to protect their own gravy train.

    1. They don't have to be a majority, just a sizeable enough percentage to influence an election. Also, police & fire & teachers are groups that have some political clout.

  12. Anecdote in lieu of data: about a year ago I was in a blue funk and contemplated applying for a job with the state. (I never actually went through with it.) The job was "Features writer" for the state's parks/environmental department; my job would've been to write stories like "Touring this lovely state park with Ranger Rick" or "It's rabies season! Here's how to keep your pets and children safe." In other words, pretty much the same dreck I wrote for my then-current job at a miserable daily paper, only instead of being expected to produce stories every single day, I would've only had to produce a story or two every week.

    Had I applied for and received that state job, my workload would've been only one-fifth what I did at the privately owned paper, the lowest possible starting salary I'd've received was $12,000 per year more than I made at the paper, PLUS a couple more week's paid vacation each year, PLUS more paid holidays, PLUS better/more expensive health and dental benefits, PLUS a guaranteed pension at a relatively young age.

    And that's not even for the type of government job which is arguably necessary -- maintaining the infrastructure, say. That would've been for a PR gig convincing state taxpayers that their money's going for a good cause.

  13. The American government does not have the political will to be honest with the American people about our financial condition. The politicians will most likely take the easy way out by printing us into hyper-inflation rather than admit their folly and take the responsible action of implementing Greek-style austerity. It doesn't take Adam Smith to see the invisible hand reallocating profits from west to east. The robust growth economy in Asia just can't be ignored. Diversification is a well known and proven strategy for wealth preservation as it mitigates risk exposure to risk while increasing chances of riding the wave on the next bull market. For more visit Path to Asia - http://pathtoasia.com

  14. It is important for people to also understand why a state would knowingly and willingly allow these public pension funds to bankrupt them. There is a concerted effort by union and socialist/communist groups to do exactly that.


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