Tuesday, February 15, 2011

The Fallacy of Blaming Pensions

One of the variables in the complications of operating both in the private and the public sector is pensions and a lot of blame is being put on pensions for why entitites such as the State of Illinois are failing. Too many payouts in the pension. That makes pensions a convenient problem for the extremely wealthy to point at.

However, there is a fallacy to this and there are other places to cut costs.

Ironically, the concept of pensions came out of a period of history when greed and wealth brought the nations economy to it's knees: The Great Depression.

Here's the way it should (and could) work.

The idea of pensions was based on a valid notion that population would continue to expand in this country (and it has) which means that the workforce would expand. Since the productivity of the workforce had a direct relationship with input into the pension funds, there would always be funds for pension, as long as there was a workforce. Well the population has continued to increase, but the workforce has 1) diminished in size and 2) diminished compensation.

What changed was that we shifted to a paradigm of an economy that favors the rich and big business in terms of return on capital by moving to a credit/loan/debt econonmy where money could be made (by a few) simply by the movement of money. No need to keep thrivant workforce. Having more jobs offshored didn't help. Consequently, what happened is that the paradigm shifted from the importance of people in the workforce to the importance of making money from money.

So, now the pensions which are being drawn upon by those retiring is a burden. One that is pointed to and blamed a lot for fiscal insolvency. What those who point the finger don't want you to see is that the other side of this, is that the money which once went to "Main St." got redistributed from supporting workers to private equity. So, the other solution to dissolving and/or renigning on pension funds, is to restribute some of that money (not all) back from the exceedingly well of people who make money from the movement of money (private equity), back to financing a work force.

Understanding how this happened is to understand how to fix the problem. The problem is a cause of deregulated Freidmanesque total free market supply side economics. Now, I am not against free market competition, but we no longer have a competitive market. And the answer is simple.

Regulation.

Greed begats greed. Allow for competition in the market, but regulate it so it doesn't take advantage of the populous that is the foundation.