One of the big issues floating around right now is the problems companies and units of government are having meeting the pensions which they have promised to past and current workers. We hear that this or that public pension fund is way underfunded, or that such and such corporation went through bankruptcy in order to shed long term pension responsibilities and if it's not your pension they're talking about we just sort of move on with life. But it is somebody's pension and breaking that promise to a worker carries harm far beyond that worker alone.
Pensions, either private or public, are simply a future benefit earned by today's work. It's a promise to the worker that funds, either from the worker, the employer, or both will be set aside to be given to the worker when he or she retires. At least that is the intent. Of course, we've heard for years about this or that union boss or politician who raided the union's pension fund for their own gain. So now we have 401ks and defined contribution pensions and all manner of other vehicles to provide the benefit and avoid the graft. But what about the promise itself?
It must be remembered that a worker, and her family, whether consciously or not, took the promise of a benefit into account when accepting the job in the first place. That was one of the reasons that government jobs were considered by many to be real plum employment. The government pensions were great.
But now we are in the age of the disappearing pension. Funds are under funded. Public pensions are seen as an undeserved perk for already over paid drains upon the body politic.Workers with 20 or 30 years in worry if they will get any of what has been promised and fear for their future. And that fear is where the harm spreads to the whole economy.
As I, and just about anyone looking at the state of the economy who avoids Fox News, have said repeatedly, we are in a demand crisis. Before the Great Recession 70% of the US economy was consumer spending. Now I have heard some on both the right and left applauding the recent upsurge in consumer saving (from less than 0% to 5%) and in so doing framing the consumption vs. saving argument in moralistic terms. It would be wrong, they say, to go back to our wicked excessive consumption ways. Now, whether it's wrong, wicked or even evil to be a consumer is not for me to say. But anyone who thinks that our broken economy is going to turn around just because folks are putting a little away for a rainy day is, in a word, deluded! It is not possible to transform a consumer driven economy into a saving and investing economy over night. Or even over decades. It can't be done. If we are going to recover it is going to have to be because people start to consume again. Buy things. Use things up and then buy more. That's what we are as a country and we are not going to change any time soon.
The problem is, when someone worries that the pension that they have been promised won't be there when they retire, they don't spend the money that they have. They start to hold on to it. And that means less demand in a demand driven economy.
I have little hope that this state of affairs will change any time soon, but I think we really need a national conversation about promise keeping. That to me is the morality problem we face, not whether or not someone is putting a little back. The threat of losing one's pension thus sweeps across the entire retail landscape. And if that threat, as most do, impacts thousands or hundreds of thousands of workers, like teachers and police and firefighters, then that threat can hold our whole economy back.
You want stability in our broken economy Mr. Politician? Stabilize the countries pension nightmare first. That stability will then spread. Just like the fear.