The Deadman Night Rider

A forum for evening students of the SMU Dedman School of Law and other outlaws..

Friday, November 04, 2005

Socialism's last gasp

Bradford Plumer, a blogger for, has a link up to a very thorough New York Times article on the public and private pension crisis. In his blogpost, Brad spins the thrust of the article as an indictment of corporate execs who gamed lax government actuarial rules to consistently under-fund their pensions (which is true to a great extent), but if you read the whole article, you’ll see that organized labor deserves just as much blame, if not more, since they still have their foot on the gas pedal to drive up benefits. For especially galling examples, skip to the bottom of the article to read about the public employee unions in California and New Jersey.

Defined-benefit obligations are a great example of how collectivist theory just doesn’t fly in the real world. Hopefully the coming crisis will spell the end of them, at least in the private sector—the whole idea is a socialist holdover from the New Deal that is long overdue for the dustbin of history. They create dependency, which is why governments and unions swarm to them like flies.

Government—any government, Republican, Democrat, communist, or capitalist—is inherently incapable of accurately assessing economic value—you need a market mechanism for that. The Pension Benefit Guaranty Association, the pension-payer of last resort set up to underwrite the entire system, is under-funded because the premiums it collects are a political decision, not an economic decision. The same goes for the ERISA calculation that governs the contributions employers make to their plans. Is it any wonder they come up short? How well do you think your health insurance would work if the policy-holders got to vote on what the rate should be? Wouldn’t you always vote for higher benefits and lower premiums?

Bottom line—never, ever trade autonomy for security. No one looks out for you like you look out for you. This just rubs some people the wrong way, though. Both Brad and Roger Lowenstein (the author of the NTY article) take a dim view of 401(K) and other defined-contribution plans because, in Lowenstein’s words “people are imperfect savers. They don't save enough, they don't invest wisely what they do save and they don't know what to do with their money once they are free to withdraw it. Quite often, they spend it.”

Again—dustbin of history calling


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