Shades Of Things To Come?

Why does the American political class spend so much time jabbering about “gun safety”, about gay marriage, about climate change?

To distract you from the economy, and the oncoming deflation of a huge entitlement debt bubble that is going to have drastic impact on…well, everything.

The California pension system – which is a bellwether for most blue-state-model pension systems around the country – is starting to groan under the strain of the contradictions it labors under (emphasis added):

As Steven Malanga has noted, both of these union-managed funds are notorious for pulling political stunts even as they face gaping shortfalls, going on a misguided “green” investing binge that flushed taxpayer money down the drain, and pulling out of tobacco companies on moral grounds just before those stocks began to rise.

But the underlying flaw with the funds is not their politicization. If anything, these kinds of moves are a distraction from more pressing crisis of public employee retirement systems: That state legislatures have epically over-promised the level of retirement benefits they can reasonably provide, and obscured this reality by presuming levels of investment returns that are impossible to sustain, especially in this era of historically low interest rates.

The choice is pretty stark – massive reforms, including a shift away from defined-benefit pensions for public employees, and other tough choices.

Politicians from both sides hate tough choices – but it’s the blue model that’s given us this debt, and it’s the blue states that are facing the most immediate fallout.

Minnesota’s public plans are – depending on your political point of view – either better-administered, or do a better job of laundering the money.  Maybe it’s a little bit of both, combined with a state that has a better income-to-debt ratio than California for now, but the pain might strike us later.

Emphasis is on “later”.

6 thoughts on “Shades Of Things To Come?

  1. It might be wrong to experience schadenfreude as leftist public union employees retire into abject poverty, but I like to think of it as entertainment for my safe space.

  2. You know how the real world works better than that, swiftee – they’ll all be looking for federal “solutions”, and no one in either party will stand up to them. Call it “return on investment” for the plans’ slushy contributions; probably a much better return than any other investments.

  3. Minnesota’s system – the Public Employee Retirement Association – recently lowered its estimate of annual earnings from 8% down to 7.5%, which necessitated an increase in employee payroll deductions. I wasn’t one of those grumbling – I was one of those asking “7.5% guaranteed annual return? Really? Where can I get some of that action?”

  4. May I point out that it is the Obama administration that adjusted solvency levels for pension funds that make them look even this good? The real funding levels are even worse.

    CA pensions are a big deal because CalPERS sends bills to municipalities every years saying that they own $XXX extra because their funds didn’t do as well as they were projected to do. But they only have to do that after a delay, which is now kicking in. Many CA cities were already having to cut services because the responsibility of backfilling the CalPERS fund, but with CalPERS doing as badly as it is, think of it as raising the price of labor by almost 8%. That’s not a small hit to municipality budgets.

    And CalPERS is actually much more responsible than MN in that they actually have a mechanism for automatically collecting funds when they don’t get the returns they need. In MN it will be the legislature’s job to bail out the retirement funds, which should be politically entertaining .

  5. Sometimes I contemplate running for office–at what level it really doesn’t matter–with the slogan “let’s listen to the actuaries for once.”

    To be fair here, financial advisors did (still do in some cases) note that stock market returns were 7-10% from WW2 to the late 1990s–the problem being that those two points are about the most optimistic two points for calculating returns in history due to the Depression/War Bonds and the dot-com bubble.

    (real values are something like 2-3% after inflation plus dividends….better than a poke in the eye with a sharp stick, but not 7-10%, either)

  6. Well, I don’t know who is managing the Central States Pension fund, but they have been reducing benefit pay outs and raised the retirement age several times over the past couple of years. The biggest unionistss affected belong to the teamsters. Their newsletter has been touting that the management is lobbying for the government to force companies to pay what they owe to the fund, which we can read as asking for a taxpayer bailout.

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