Pensions and Rear View Mirrors

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For quite some time now I have been warning of a pending pension crisis. At the end of last month, even the President felt it was prudent to get it on the record by also warning of a pending American pension crisis. The first hit against workers took place this week when a bankruptcy court judge granted United Airline's request for abdicating its responsibility to its approximately 120,000 employee's and retiree's pension plans.

Apparently, United's management floated operations by dipping 9.8 billion into worker's pension plans, and now can't recover the money. Our Republican government is saying to employees, tough! We are only insuring 5 billion and you lose the rest. This 4.8 billion cut in the pension plans' balances will mean thousands per year losses by United's pensioners. The BBC link above states:

The troubled US carrier said it would save about $645m (£343m) a year, in what would become America's largest corporate pension default.

United plans to transfer responsibility for its four defined-benefit plans to the US government's pension agency. The company said the move was crucial for its survival, but unions described it as a "devastating blow".

Compare the risk reward of United's private pension plan and Social Security. United's workers lose and they have no vote on the matter. United's employees lose, and they have no voice in who will run the company next. United's employees lose because private corporations which mismanage their funds and companies have nothing to worry about. Exec's have their golden parachutes compensation packages, shareholders have past earnings and profits to more than compensate for these short term losses which will go away largely by cheating workers out of their contracts for a total pay compensation package which included a pension.

Social Security recipients on the other hand have a voice over who manages their FICA taxes. Social Security is guaranteed by the very politicians who will be thrown out of office if they mismanage Social Security to the point of bankrutping it and the government at large. Politicians and SS Adminstration officials have no court they can go to file bankruptcy. They have only voters to appeal to. Social Security benefits are guaranteed and there is no judge that can say "sorry voters, you lose!" Privatizing Social Security should be viewed in this light.

Back in the 1980's America saw 11% unemployment and double digit inflation around 15%. It was coined, Stagflation. Similar periods preceded the 80's though not as steeply. Given the perpetual erosion by Republicans of the government's future ability to borrow to offset a stagnant economy or recession, due to massive deficit spending, and given America's ever growing dependence upon the global financial and economic markets, it is very possible we will see another stagflation period over the next 6 to 20 years. The further out in years one goes, the higher the probability of such a period becomes. Stagflation kills retirees quality of life.

Back in the 1980's, retirees were eating cat food because it was all they could afford and such stories were frequently in the headlines. Given the huge and growing costs of medical care and prescriptions, retirees may not even be able to stay alive through such a period due to lack of medicines or sacrificing food altogether to pay for medicine if Social Security is privatized.

Just today, Ford Motor Company's bond ratings were dropped to junk status. Last week, General Motors rating dropped to junk. Folks, this is the tip of the iceberg. The President is right, America is facing a huge pension crisis. In anticipation of that, Republicans reformed bankruptcy laws in such a way that corporations and the wealthy can still seek and receive an elimination of their debt, while United's, and Ford's and GM's retirees may be forced to repay their debts by the new bankruptcy laws, even as they see their pension plans evaporate.

I used to think that Republicans just didn't see that such a future will inevitably hurt the economy and corporate and investor profits. However, even an ostrich can see that if massive numbers of consumers are forced to stop consuming there is trouble ahead. That loss of consumption can result from loss of private retirement savings, erosion of SS benefits and eventual dissolving of the entire program affecting 50 million Americans, and almost certain periods of recession and inflation in the future, as well as erosion in Medicare/Medicaid funding as is now taking place under the Bush administration.

Even the wealthy and corporations will lose some in the future due to the loss of demand and consumerism. So, if Republican leaders can see this, and I believe they can, for even the Cato Institute and the Fed are acknowledging some of these dangers ahead, then why are they pursuing this course?

Certainly, some Republican leaders are blinded by the trickle down theory. There is the belief that if the wealthy are getting wealthier, that wealth will trickle down. But, it is not trickling down to make up for the pension plan losses that are underway. Nor will it trickle down to make up for the trillions in extra national debt and future payroll taxes that privatizing Soc. Sec. will incur. So, ideological myopia appears to be part of the reason.

Some of the wealthier Republicans like Cheney and Bush, will remain wealthy even if the economy tanks. So why should they care as long as they are amassing more wealth today.

But for most Republican leaders and even some Democratic leaders, I believe this amounts to nothing less than short-sightedness. They are focusing so intently on current political solidarity and power acquisition and protection, that they have no time, energy, nor perspective with which to step back and look at the larger picture. That picture includes in addtion to what is mentioned above, an ever growing competitive advantage by other nations like India, China and Malaysia over the United States for many decades, or even a century to come. The big picture also includes an exploding world population and world economies that will hasten the depletion and fouling of natural resources.

It is probably too much to ask that American voters take the time to step back and take in the big picture if in fact, those charged with doing so, won't. I mean, it is not like American citizens on average are educationally endowed for such reflection. But if American voters don't, America's young entering the work force in just a decade or so, will likely see this nation's best and brightest years only in the rear view mirror. This is absolutely the worst time in the last half century to be losing focus on education. Education is America's last great hope for responsible government held to account by the people. And even that is falling prey to partisan politics and power plays.

Related Pension Crisis stories:

CSM - Is it time to switch jobs if your company's pension plan is underfunded?

Wa. Post: Pension Agency Wary of UAL Deal

NY Times: The Nation; Pension Funds Think Twice About Stocks

Cato Institute: Is Pension Insurance the Next S&L Crisis?

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This page contains a single entry by David R. Remer published on May 12, 2005 11:25 AM.

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