6 ms·

Can we close the book on this "unfunded pension liability" nonsense? The government can create the raw dollars needed to fund the pensions. Just listen to Alan

Can we close the book on this "unfunded pension liability" nonsense? The government can create the raw dollars needed to fund the pensions. Just listen to Alan Greenspan himself shut down Paul Ryan's perverse anti-social security zealotry: https://www.youtube.com/watch?v=DNCZHAQnfGU https://www.youtube.com/watch?v=DNCZHAQnfGU

function_seven 8y ago
Some other government could (federal), but not the municipal or state governments. That’s the rub here. These liabilities are hanging around the necks of governments that can’t pull a monetary supply lever.
- omegaworks 8y ago
  Bailouts are a tried and true mechanism for addressing this liquidity problem for the private sector. I don't see why it shouldn't apply here.
  - rayiner 8y ago
    In the private sector, bailouts were used to address a liquidity problem—if the companies could survive the crunch, they could be in a position to pay the money back. Municipalities aren’t facing a liquidity problem—they’re insolvent. They owe far more than they can ever hope to pay back, because their tax bases aren’t growing at the rates needed to make their obligations manageable.
  - function_seven 8y ago
    I don’t disagree in the abstract. But Erie can’t tell its municipal bond holders, “Don’t worry, we’ll just wait for the bailout. Your debt is safe” This would make a potential future crisis an actual current one.
  - rmilk 8y ago
    The question then becomes how to acquire the money for the bailout. You can’t just ask for money or acquire funding through buyout. Tax increases or bonds are really the only sources of money, and they require voter approvals. Costs can be reduced by cutting services or through bankruptcy, both of which bring their own side effects by reducing the appeal of the city or county or by making future debt more expensive. See this link for a survey of California issues with pensions. The source is the league of CA cities, so there is some bias but the results are still meaningful and eye opening regarding future mandatory spending commitments. http://www.cacities.org/2018PensionSurvey http://www.cacities.org/2018PensionSurvey
thaumasiotes 8y ago
> The government can create the raw dollars needed to fund the pensions. Having the ability to mint fiat money doesn't mean you can pay for whatever you want. Costs adjust to the amount of money there is. In the limit case, printing a very large amount of money is the same thing as imposing a 100% wealth tax. It will get you all the purchasing power there is to be gotten... but not more than that. (It will also pretty sharply reduce the absolute amount of purchasing power that "all the purchasing power there is" represents.)
- omegaworks 8y ago
  Your claim that inflation is inevitable is addressed by Greenspan in his response. "Too many dollars chasing too few goods" is what causes it. Governments can address that by progressively taxing money out of the system. It is possible to actually pay workers what they've been promised and not cause an economic collapse. The issue is gathering the political will to do so.
  - AnimalMuppet 8y ago
    "Taxing money out of the system" requires Congress to do so. Do you actually think Congress will have both the wisdom and the political will to do this right? I don't. So under this scheme inflation is perhaps not inevitable, but it is almost certain given the dysfunctional mess that Congress is.
    - omegaworks 8y ago
      Having Congress act is a part of gathering that political will. It usually requires altering popular perception of the possibilities that direct, mass action can result in. As mentioned in other replies to this thread, there are many potential solutions for the so-called crisis that don't involve reneging on the promises we've made to workers.
      - AnimalMuppet 8y ago
        You're never going to get the popular will to remove the money from the system, because removing the money from the system means removing it from people.
dragonwriter 8y ago
> The government can create the raw dollars needed to fund the pensions. Only if it wants to collapse confidence in the currency; a major reason we have an independent central bank is to divorce monetary from fiscal policy for exactly that reason. Also, while the federal government can do that once if it is willing to destroy faith in the currency forever, that doesn't really have any material impact on state and local government options since they can't direct the federal government to do it.
- roenxi 8y ago
  The situation is more complex than that. The US Federal Government can create the raw dollars needed to fund the pensions, and it likely won't crash the dollar. They've been allowing new dollars to flow into the system for years and it hasn't bitten them yet. The issues are threefold: 1) Printing money reallocates wealth to government-chosen winners instead of consumer-chosen winners. This will destroy some wealth. Although, as long as it does not destroy most of the wealth in the country the currency will likely hold. This issue is made complex because the pensioners were promised wealth way back when, but now the question becomes why are today's taxpayers paying rather than the people who made those promises. 2) We don't know who's wealth is being destroyed (although the numbers suggest it is the Middle Class, imo). 3) The incentive structures created by bailing people out are atrocious. There is no way anyone will make hard decisions and change if they are bailed out. The banks did not meaningfully reform in '08. Cities will not meaningfully reform pensions if they are bailed out way. The rot will accrete as resources continue to be directed to people and institutions who have demonstrated that they do not know how to manage them.
  - dragonwriter 8y ago
    > The US Federal Government can create the raw dollars needed to fund the pensions, and it likely won't crash the dollar. They've been allowing new dollars to flow into the system for years and it hasn't bitten them yet. It has been doing so, but allowing new dollars to flow into the system has been a policy to avoid deflation that would have occurred without the policy (that is, to reduce the value of the currency in a controlled way), not a monetization of government obligations. You collapse confidence in the currency not by allowing new dollars to flow into the system in general, but by violating the confidence-building implicit commitment inherent in having an independent central bank, that is, the commitment that monetary policy will not be driven by fiscal concerns.
michaelt 8y ago
If my college age son gets trapped in credit card debt he can't pay off, I can pay it off for him. And maybe I would do, many parents would. The problems are (a) he might just get into debt again, for the same reasons he did the first time; and (b) his brothers and sisters might be upset I gave him $$$ for fucking up, or even decide it's clever to emulate him. In other words, by paying off something I can afford, I would fear triggering a chain reaction leading to something I can't afford.
- omegaworks 8y ago
  The moral hazard created by an unfunded pension system can be avoided with adequate legislation. By accepting bailout money, the state could be legally obligated to restructure some of its processes. What you describe in your family dynamic applies so minimally as to be a strawman representation of the far more complex systems at play governing the dynamic between the federal and state economies.
  - michaelt 8y ago
    The only attempt I'm aware of to obligate saving for employees' retirement is the USPS PAEA and it's received some pretty heavy political criticism in the press as "the most insane law" ever passed by Congress, creating a "manufactured crisis" and making the USPS less competitive. [1, 2] And pensions are just one way a municipality can take on debt. Even if you force them to lock up savings ready for their employees' retirement, they can still load up on debts with municipal bonds, signing long-term contracts, delaying payments to suppliers, and suchlike. Have there been any examples where a federal bail-out has been accompanied by legal mandates, and it's been successful? And even if federal pension fund bail-outs bring with them strict rules that prevent them recurring in the same city, unless you can impose such rules on other cities without giving them bail-out money, you've still got the issue that paying off City A's unmanageable pension deficit will encourage City B, which is struggling with its pension deficit, to make it truly unmanageable to get a bail-out. [1] https://www.cnbc.com/id/45018432 https://www.cnbc.com/id/45018432 [2] https://www.bloomberg.com/opinion/articles/2018-04-04/congress-not-amazon-messed-up-the-u-s-postal-service https://www.bloomberg.com/opinion/articles/2018-04-04/congre...

function_seven 8y ago

Some other government could (federal), but not the municipal or state governments. That’s the rub here. These liabilities are hanging around the necks of governments that can’t pull a monetary supply lever.

omegaworks 8y ago
Bailouts are a tried and true mechanism for addressing this liquidity problem for the private sector. I don't see why it shouldn't apply here.
- rayiner 8y ago
  In the private sector, bailouts were used to address a liquidity problem—if the companies could survive the crunch, they could be in a position to pay the money back. Municipalities aren’t facing a liquidity problem—they’re insolvent. They owe far more than they can ever hope to pay back, because their tax bases aren’t growing at the rates needed to make their obligations manageable.
- function_seven 8y ago
  I don’t disagree in the abstract. But Erie can’t tell its municipal bond holders, “Don’t worry, we’ll just wait for the bailout. Your debt is safe” This would make a potential future crisis an actual current one.
- rmilk 8y ago
  The question then becomes how to acquire the money for the bailout. You can’t just ask for money or acquire funding through buyout. Tax increases or bonds are really the only sources of money, and they require voter approvals. Costs can be reduced by cutting services or through bankruptcy, both of which bring their own side effects by reducing the appeal of the city or county or by making future debt more expensive. See this link for a survey of California issues with pensions. The source is the league of CA cities, so there is some bias but the results are still meaningful and eye opening regarding future mandatory spending commitments. http://www.cacities.org/2018PensionSurvey http://www.cacities.org/2018PensionSurvey

thaumasiotes 8y ago

> The government can create the raw dollars needed to fund the pensions. Having the ability to mint fiat money doesn't mean you can pay for whatever you want. Costs adjust to the amount of money there is. In the limit case, printing a very large amount of money is the same thing as imposing a 100% wealth tax. It will get you all the purchasing power there is to be gotten... but not more than that. (It will also pretty sharply reduce the absolute amount of purchasing power that "all the purchasing power there is" represents.)

omegaworks 8y ago
Your claim that inflation is inevitable is addressed by Greenspan in his response. "Too many dollars chasing too few goods" is what causes it. Governments can address that by progressively taxing money out of the system. It is possible to actually pay workers what they've been promised and not cause an economic collapse. The issue is gathering the political will to do so.
- AnimalMuppet 8y ago
  "Taxing money out of the system" requires Congress to do so. Do you actually think Congress will have both the wisdom and the political will to do this right? I don't. So under this scheme inflation is perhaps not inevitable, but it is almost certain given the dysfunctional mess that Congress is.
  - omegaworks 8y ago
    Having Congress act is a part of gathering that political will. It usually requires altering popular perception of the possibilities that direct, mass action can result in. As mentioned in other replies to this thread, there are many potential solutions for the so-called crisis that don't involve reneging on the promises we've made to workers.
    - AnimalMuppet 8y ago
      You're never going to get the popular will to remove the money from the system, because removing the money from the system means removing it from people.

dragonwriter 8y ago

> The government can create the raw dollars needed to fund the pensions. Only if it wants to collapse confidence in the currency; a major reason we have an independent central bank is to divorce monetary from fiscal policy for exactly that reason. Also, while the federal government can do that once if it is willing to destroy faith in the currency forever, that doesn't really have any material impact on state and local government options since they can't direct the federal government to do it.

roenxi 8y ago
The situation is more complex than that. The US Federal Government can create the raw dollars needed to fund the pensions, and it likely won't crash the dollar. They've been allowing new dollars to flow into the system for years and it hasn't bitten them yet. The issues are threefold: 1) Printing money reallocates wealth to government-chosen winners instead of consumer-chosen winners. This will destroy some wealth. Although, as long as it does not destroy most of the wealth in the country the currency will likely hold. This issue is made complex because the pensioners were promised wealth way back when, but now the question becomes why are today's taxpayers paying rather than the people who made those promises. 2) We don't know who's wealth is being destroyed (although the numbers suggest it is the Middle Class, imo). 3) The incentive structures created by bailing people out are atrocious. There is no way anyone will make hard decisions and change if they are bailed out. The banks did not meaningfully reform in '08. Cities will not meaningfully reform pensions if they are bailed out way. The rot will accrete as resources continue to be directed to people and institutions who have demonstrated that they do not know how to manage them.
- dragonwriter 8y ago
  > The US Federal Government can create the raw dollars needed to fund the pensions, and it likely won't crash the dollar. They've been allowing new dollars to flow into the system for years and it hasn't bitten them yet. It has been doing so, but allowing new dollars to flow into the system has been a policy to avoid deflation that would have occurred without the policy (that is, to reduce the value of the currency in a controlled way), not a monetization of government obligations. You collapse confidence in the currency not by allowing new dollars to flow into the system in general, but by violating the confidence-building implicit commitment inherent in having an independent central bank, that is, the commitment that monetary policy will not be driven by fiscal concerns.

michaelt 8y ago

If my college age son gets trapped in credit card debt he can't pay off, I can pay it off for him. And maybe I would do, many parents would. The problems are (a) he might just get into debt again, for the same reasons he did the first time; and (b) his brothers and sisters might be upset I gave him $$$ for fucking up, or even decide it's clever to emulate him. In other words, by paying off something I can afford, I would fear triggering a chain reaction leading to something I can't afford.

omegaworks 8y ago
The moral hazard created by an unfunded pension system can be avoided with adequate legislation. By accepting bailout money, the state could be legally obligated to restructure some of its processes. What you describe in your family dynamic applies so minimally as to be a strawman representation of the far more complex systems at play governing the dynamic between the federal and state economies.
- michaelt 8y ago
  The only attempt I'm aware of to obligate saving for employees' retirement is the USPS PAEA and it's received some pretty heavy political criticism in the press as "the most insane law" ever passed by Congress, creating a "manufactured crisis" and making the USPS less competitive. [1, 2] And pensions are just one way a municipality can take on debt. Even if you force them to lock up savings ready for their employees' retirement, they can still load up on debts with municipal bonds, signing long-term contracts, delaying payments to suppliers, and suchlike. Have there been any examples where a federal bail-out has been accompanied by legal mandates, and it's been successful? And even if federal pension fund bail-outs bring with them strict rules that prevent them recurring in the same city, unless you can impose such rules on other cities without giving them bail-out money, you've still got the issue that paying off City A's unmanageable pension deficit will encourage City B, which is struggling with its pension deficit, to make it truly unmanageable to get a bail-out. [1] https://www.cnbc.com/id/45018432 https://www.cnbc.com/id/45018432 [2] https://www.bloomberg.com/opinion/articles/2018-04-04/congress-not-amazon-messed-up-the-u-s-postal-service https://www.bloomberg.com/opinion/articles/2018-04-04/congre...