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Fiscal Responsibility: A Tea Party Cause

An Owl-Eye Opinion

Is There A Way To Solve the Public Pension Problem?

The Problem

States and municipalities across the USA face spiraling and potentially crushing costs, and one of the drivers is public pensons, which are almost always defined benefit plans. Such plans are invitations to abuse and irresponsibility. Here's why:

  • The monies are promised in the present, but the promises must be kept in the future. Most people lack the math skills (or math awareness) to do the computations. Few people have the actual numbers available. And everything depends on "external" factors.
  • Politicians have every incentive to promise what someone else must deliver. Unions have every incentive to promise the moon, complete with an all-inclusive tour.
  • The "external factors" are the success of investments made to provide for the pensions. Most pension plans are underfunded in degrees ranging from woeful to disastrous. Politicians have every incentive to overestimate investment success and avoid actually committing the money needed.
  • Investment success is a function of the investment markets. The investment markets depend on the wisdom or oppressive folly of politicians and the wisdom or folly of all citizens (not just investors) in voting for them. So long as a worker believes that his pension is secure from the market but vulnerable to the politician telling the truth, they will have every incentive to vote against the market—the very market that his pension depends upon.  And he will ruin the economy and the nation by so voting.
The Solution

There is, in the end, only one solution. It is a simple solution. It will be unpopular with the most vocal and best-monied constituencies. But in the current climate, with the right politicians in office, it will be possible.

The solution is this: There must be no more defined-benefit public pensions, whether for unionized workers, civil servants, public safety workers or public officials. Every worker should receive 401K funds with a wide range of investment options and the ability to divide the money among them as he will. The options should include annuities that must be bought on the open market from investment companies.

And this law must be written into the State Constitution:

Neither the State of <insert name> nor any county, municipality, or other division or subdivision thereof, nor any agency of any such government, will commit to any fixed pension or benefit payment later than twelve months from the time of the work performed to earn it, whether for employees, contractors, or public officials, and any pension monies provided must be paid at the same time as other earnings for the same period, for investment in such tax-preferenced manner as may be allowed by law, using investment vehicles available to the public at large and not sponsored by any government or government agency (except that government bonds offered to the general public to fund actions for public purpose may be used), in a manner chosen at the discretion of the recipient of the pension or benefit monies.

Could such an amendment be made to the New Jersey State Constitution? Yes, for the following reasons:

  • It is become almost impossible to deny the time bomb that public pensions represent.
  • Public sentiment is turning against public employees and their unions.
  • Public sentiment against the privilege of public officials is strong, and will remain so as long as the public is reminded of abuses of that privilege.
  • The Amendment requires that the bosses—the politicians—live under the same laws as the ordinary worker, not as to the amounts, but as to the rules. This will be popular, and any politician who will take a stand against it will be admitting that he belongs, and wants to belong, to a privileged class.
  • Any grounds that a State Court can find for overturning it would be so tortured as to further undermine their legitimacy and invite appeal to the Federal courts—assuming that the State can be given the backbone to defend it properly.  (The case might easily attract amicus briefs from free-market legal heavyweights.  Such briefs weigh heavy in the Obamacare arguments.)

Note that such plans, implemented successfully by several States, would provide example and impetus for free-market reforms to Social Security, and that impetus would grow as years passed.  Unlike the reforms in Chile, they would be right here at home and constantly visible to the public. 

The principle obstacles to the passage of such an Amendment is placing it in public debate against the will of the Left, fighting back the influence of statists of all kinds including those that recognize the threat to the Social Security Ponzi scheme, and holding to the fire the feet of politicians and state attorneys general. Those who are invested in the corrupting of Social Security and other pension systems won't dare to make their arguments explicity on a State-and-local pension issue but they can pour money into campaigns.

Of these, the biggest problem is the first: getting the plan into the public arena. Here's how we can do it:

The key is getting Tea Parties on board across New Jersey and getting Tea Party candidates to come out publicly in favor of it. The critical part will be making sure that elected and appointed officials are included, and making sure that our candidates make the reform a large part of their platform, so that the media can't completely "bury the lede" when they report on the races.

If such a plan for fiscal discipline and reform were to receive the full support of all Tea Parties and all Tea Party candidates, it could be brought to a vote within the next Presidential election cycle.


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Reader Comments (1)

Walter Russell Mead, a classical liberal, on the underfunded illinois pension system--and the reasons for it.

June 9, 2012 | Registered CommenterBayshore Tea Party

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