The American way of retirement is crumbling. Private pensions are disappearing. Public pensions are crumbling. Instead of clawing and fighting to save them as they slip away, populists and progressives should just let them die. No one needs pensions. Everyone needs a pension.
In the golden days of old, a pension was taken for granted, as part of the guarantee offered to middle class Americans. The American dream of getting a stable, long-term job, owning a home, and retiring with a pension was all of a piece. It was a lifelong promise from American capitalism as a system: Participate, and you will be taken care of.
That's dead now. Thanks in large part to globalization and the constant downward pressure on wages from cheaper workers abroad, pensions at private companies have gone the way of the rest of the American dream. Most American workers don't have any retirement plan at all; of those who do, the vast majority of them are not the "defined benefit" plans of the past that promised set payouts each year, but rather 401(k) plans that are essentially just personal investment accounts. Whereas old style defined benefit plans were sheltered from the ups and downs of the financial markets, 401(k)s are completely unsheltered and open to the elements, free to be battered around and decimated every time the stock market takes a dive, as it did in 2008. That's in addition to the fact that many workers can hardly afford to contribute to them at necessary levels, and the fact that many employers no longer offer matching contributions. They are, in short, not the sort of pension that most people can count on.
As private workers saw their pensions disappear, public workers became the last redoubt of American pension-havers—a happy legacy of the vestiges of organized labor. But of course public pensions come with their own set of problems. Their money goes into a pool that is overseen by politicians who have, for decades, been only too happy to dip into that money in order to fund more immediate projects. (Alternately, in labor-friendly places like Detroit, the politicians were so generous with the pension payouts that they spent it all years ahead of schedule.) Some politicians simply don't care, since the pension bills won't come due on their watch; others, perhaps, succumbed to the magical thinking that they could underfund pensions today, because the investment geniuses on Wall Street would be able to make up the difference tomorrow. That's led public pensions to become some of the best customers of hedge funds, private equity, and other "alternative investments" that charge extremely high fees in return for allegedly higher profits—which, in the long run, do not materialize, due to math. In this, public pensions have behaved like someone who blew their paycheck early in the month, then borrowed money to buy lottery tickets in hope of making it up before the rent came due.
What we're left with is a mess. Private workers resent public workers for having pensions. Public workers try to zealously guard their pensions at all cost. The politicians responsible for shepherding public pension funds have not funded them properly over the years. Now the pension funds are owed huge amounts of money. The retirees, reasonably, want their money. The average person in the public, reasonably, is resentful of getting a humongous tax bill to fund the pensions that are unfunded not because of something the average person in the public did, but due to greedy irresponsible politicians of long ago. A political movement has arisen to slash public pensions. Everyone is mad. And no one's retirement is secure.
The current system is untenable. Furthermore, if progressives decide to spend all their energy fighting only to preserve the small remaining slice of the American pension dream that they now have left, they will not only lose, but they will be neglecting the larger numbers of Americans for whom this is all a moot point, because they don't have public pensions anyhow, and they don't make enough money to fund their 401(k)s sufficiently. What's needed is for us to scrap the fantasy that every American can retire on a lifetime of stock market earnings, and put in place a retirement plan for all workers, public and private, that will not be looted to hell but will instead be managed in a fiscally responsible way, by grownups, governed by law.
Luckily, we have something like this already. It's called Social Security. Let's consider Social Security, in its current state, as a good first try at a universal system of retirement funding. Then let's make it better. In a way, it is fortuitous that both Social Security and pensions are both now perceived to be in a "crisis" state. Instead of fighting those as separate battles—between right wing forces who want to smash government guarantees and move all retirement money into the "free market" of Wall Street, and left wing forces who are primarily concerned with getting the government to pay what's already been promised, no matter what the cost—let's roll it all up into one single idea. The idea is, "We need a way for all workers to retire, without having to either work until the day they die, or eat cat food every day." What we need is a public institution that will support all retired workers, public and private, and which will not be subject to the whims of globalizing corporations, but which will be supported by taxpayers with money that cannot be monkeyed with by every state treasurer who wants to fund a pet project.
A new report from the Institute for America's Future sets the lack of pension funding in context with corporate welfare from the government, saying that states would be able to fund their pension funds properly if they weren't so busy subsidizing corporations under the guise of "economic development." It's a bit of a cherry-picked comparison, but it does raise a good point: just as we need a federal law banning corporate welfare, the American system of retirement should be federally run, not run by individual state funds. The money that states throw away competing against one another for businesses accomplishes nothing for the nation, in aggregate. Raiding pension funds for that money is a complete waste. The fact that states are prone to do so is reason enough to take the important matter of retirement out of their individual hands, and put it in the hands of the federal government. The last thing retirees need is a competition between states to see who can slash their retirement promises lower, in order to convince companies that locating themselves there would save a few bucks.
We need a federal tax dedicated specifically to a public retirement system. We need that money to be responsibly invested and untouchable by law. Does it take high priced hedge fund managers to invest that money? Not at all. It just takes boring old responsibility and prudence. In Matt Taibbi's new article in Rolling Stone about these very issues, he writes, "In February 2011, [noted economist Dean Baker] reported that, had public pension funds not been invested in the stock market and exposed to mortgage-backed securities, there would be no shortfall at all...In fact, Baker said, had public funds during the crash years simply earned modest returns equal to 30-year Treasury bonds, then public-pension assets would be $850 billion richer than they were two years after the crash."
Like all investors, pension funds went chasing after huge returns on Wall Street, and got burned. That's not necessary. A public retirement fund should set very modest targets for its investments, and fully fund itself every year, so there is no "catching up" to be done, that might tempt the fund towards riskier investments. In return, the retirement age and benefit amounts need to be set at levels that are realistic and mathematically achievable. There are plenty of places that new taxes could be levied to support this (financial transactions tax, anyone? And how about those undertaxed capital gains?), but the left needs to agree not to push for benefits that will make the program financially untenable in the long term, just as the right needs to agree not to try to dismantle the whole god damn program in order to hand its billions over to the private finance industry. The left must not throw a tantrum when confronted with how much things will cost and the tradeoffs necessary to pay for them without plunging future generations into huge debt, and the right must not throw a tantrum when confronted with the fact that taxes will have to go up, especially on high earners and investment income, in order to pay for basic human needs.
It's one of those opportunities for cooperation "across the aisle" that we always hear so much about.
Forget a pension from your employer. The fortunes of employers come and go, rise and fall, but everyone needs to survive in old age. Old people cannot work until they drop dead. Therefore, retirement funding is a universal public need. And just like other universal public needs—like health care—it is just common sense to provide for that need publicly. Taking care of universal public needs collectively is the very essence of what government is supposed to do. It is lunacy to leave retirement funding and health care to the whims of the private market (which is, by its nature, designed to extract as much profit for itself as possible, rather than to fill the needs of its customers—the old and the sick). Raise taxes to take care of basic needs. Let the government sock away retirement money for everyone, and don't let the stewards of that money use it for purposes for which it's not intended, including gambling in the casino called Wall Street. It's basic John Rawls-style fairness, and it's common sense, and by not doing it, we allow a few to retire in opulence as the many retire in squalor.
This is what progressives should focus their efforts on. The rotting corpse of the current pension system is already on life support. Let it die, and build something better.
[Image via Getty]