ARNOLD KLING
August 14, 2011
The Top Political Contributors
August 11, 2011
Gender and the New Commanding Heights
August 11, 2011
Jamie Galbraith Makes an Assumption
August 11, 2011
Macroeconometrics: The Science of Hubris
August 10, 2011
Real and Nominal Bond Yields
BRYAN CAPLAN
August 14, 2011
The Effect of Thumb Sucking on Income
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The Voice of Cold, Hard Truth to All Would-Be Educators
August 12, 2011
Ability, Morality, and Prosperity: A Paper and a Report
August 11, 2011
The Theory of Time and Frittering
August 10, 2011
Male Variance and the Remnants of the Gender Gap
DAVID HENDERSON
August 9, 2011
Hayek in "Unbroken", Part Two
August 8, 2011
Hayek in "Unbroken"
August 5, 2011
James Bovard on the Peace Corps
August 4, 2011
Summers Way Off on FDR and 1941
August 3, 2011
The "Amazon" Tax
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I think the problem here is a poor incentive that hits both the public and private sector. Pensions are promises to pay far in the future. In theory, employers (gov't or business) should treat a pension increase as a wage increase. More cash is needed today in order to set aside a savings fund large enough to pay the pension tomorrow. In both cases, though, complications intervene. Tomorrow is a long ways off, the people running things tomorrow will be different. If the contribution is cut just a little bit today, there's a good chance no one will notice since market variations alone can make a pension fund swing wildly between under and over funded....
I proposed an idea on my blog to create a standardized, small pension unit. For an amount of around $100, anyone can purchase a 'pension unit' which issue an annuity starting at retirement. The pension unit would be like a US savings bond in that it is small enough to buy as a trivial gift but could be accumulated to become a serious portion of someone's retirement portfolio.
By purchasing pensions from a 3rd party, governments and businesses would have to be transparant in accounting for their obligations. If the police union negotiates a nicer retirement, the state has to purchase more $100 'pension units' right now. Likewise individuals could purchase pension units for themselves if they want less 'lump sum 401K' and more social security like annuity in their retirement.
Because of this sort of thing Government jobs are very desirable and draw employees away from jobs in which they might produce more.
While I don't disagree that investment losses will have to be made up with higher taxes, I believe Mr. McChesney is missing a critical point.
Most private plans are defined contribution. If investments decline the employee loses.
Many government plans are defined benefit. The government has an obligation to pay the employee $X/year upon retirement. If investments decline, taxpayers have to make up the difference with increased funding from higher taxes.
This is going to become a huge issue as taxpayers start to realize how expensive government pensions really are. Another annoying fact is that the higher cost of government pensions are rarely included when journalists compare private and government salaries.