The Pension Mess

While America Aged: How Pension Debts Ruined General Motors, Stopped the NYC Subways, Bankrupted San Diego and Loom as the Next Financial Crisis
Roger Lowenstein

When events in Madison and other mid-western capitals were exploding earlier this year the rhetoric grew hot and heavy. Since the issue revolved around people’s livelihoods the emotional investment was not unexpected. But emotional storms aren’t the best way to understand the enormity of some situations let alone work towards solutions. For that you need a bald-faced look at the facts. Thankfully Roger Lowenstein has provided just that.

Lowenstein previously penned a biography of Warren Buffet and the best book on the Long Term Capital Management meltdown. There’s no hint of a personal agenda in Lowenstein’s writing although I suppose as a former reporter for The Wall Street Journal he’s a member in good standing of the capitalist team. He may well be but no one comes out looking good in this tale.

In many ways the subtitle is a great précis of the book. (Complete aside: I may be alone in this, but has anyone else noticed the re-emergence of 19th century length subtitles? This one rivals the length of the one for Heat, although none has yet achieved Poe’s page-long sub for The Narrative of Arthur Gordon Pym of Nantucket.) Lowenstein uses three big stories, reported in-depth, to illustrate how cynical bargains, short-sightedness and self-interest combined to create a fiscal disaster.

Let’s be fair, the fiscal disasters are for shareholders and taxpayers. The retirees who benefited from these retirement plans are, for the most part,  just folks. Sure, there are bad apples like the San Diego fire department official who managed to get his pension based on his combined union and city salaries (why are the most excessive cases of any social phenomena always found in California?) but those are the exceptions.

The retirees are guys like my dad, a  31-year veteran of the NYC Transit system. It’s probable that his pension and health care today exceed what his final salary and benefits were 20 years ago. It’s hard to begrudge him his modest home and during the years I was growing up–the years in which the salary and pension increases Lowenstein reports on were negotiated–we didn’t live large. One car, maybe a week away at a motel by the beach each year, the occasional pizza. That was life and we thought it was great because we didn’t know any better and everyone around was in the same boat. I remember my mother saying, at the depths of the City’s fiscal crisis when a month’s pay was withheld (a fact not in Lowenstein’s book), “We’ll pay the mortgage, keep food on the table and the heat on.” And they did.

Is there any way out? Maybe. But I think it’s going to look a lot more like my mom’s bargain and those 1970s luxuries than what folks have gotten used to in the last couple of decades. In the meantime, I think people need to educate themselves and revisit their opinions. Facts are stubborn things and all the foot-stomping, placard waving and union busting in the world won’t change the basic economics of the situation. Almost everyone I know–a number of whom were quite vocal in their support of the Wisconsin unions–would benefit from reading this book. You might, too.

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