Thursday, August 08, 2013

But I have promises to keep

Megan McArdle has a great article today titled "We are all going to pension hell" and it follows a theme I've been following a long time (usually with regard to Social Security): promises have been made to past generations and the bill has been placed on future generations.  What happens when the well runs dry, Detroit-style?

On the one hand, as short-sighted as these promises were, they were promises:
Yes, I know that this was often bad politics, not sound public stewardship. But we have to treat decisions made by elected officials as, well, decisions made by the citizens of those locales. If the citizenry can demand to renege at any time because they don’t like the outcome, government can’t function at all -- not even the bits we like, like police and roads.
A perfectly rational opinion...assuming there's a tax base to support these civic obligations.  What happens when the workers of today decide they're not to be impoverished by the over-the-top promises of yesterday?
There is, in the end, a limit to how tightly past taxpayers, or their representatives, can bind the citizens of the future. It is a genuine tragedy that people who worked hard for the city of Detroit for 30 years should lose pension benefits. But that doesn’t mean that the city of Detroit should turn off the streetlights and get rid of schools and ambulance service in order to fund those lost pensions. And it’s hard to argue that the taxpayers of other places are morally obligated to step in.
But how much should cities have to cut, once the tax base is exhausted? Senior centers? Parades? Maintenance at city parks? We’d better start asking those questions, because pretty soon, we’re going to need to answer them.
If there's one lesson I've learned about my (fruitless) argument for entitlement reform, Washington and/or Americans will exhaust every avenue to avoid the problem until it's at our doorstep.  It's unthinkable that Detroit would sell its art collection to pay for pensions...until it's thinkable.

1 comment: said...

USA Today:
Suddenly, everyone's a Detroit expert, whether he or she has ever been here or not.

Greedy unions. Decades of neglect. Too much government. Not enough government services. Over-dependence on the auto industry. There's probably someone who has blamed the bankruptcy on bad pizza.
There are two misconceptions often repeated the past several weeks: The domestic auto industry and Detroit are synonymous, and that bloated pension benefits pushed the Detroit budget into ruin.

The fact is that the auto industry — now posting strong domestic profits as demand rises — has not been connected financially to the city proper and its operations for decades.

Meanwhile, Detroit police and fire pension benefits, when compared with those in other major cities such as Kansas City, Mo., and Los Angeles, are modest. Many Detroit public safety retirees — perhaps most — are just getting by.
"City governments don't equal city economies. It's possible to have unsustainable city budgets and dysfunctional politics and very exciting regional growth prospects, and all of those trends happening at once," [Brookings Institute researcher Bruce Katz] is quoted as saying.
"If Detroit manages to wiggle out of its pension liabilities, then other cities may start to think bankruptcy isn't a bad idea," Time quotes Paul Dales, senior U.S. economist at Capital Economics, as saying.