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Review: While America Aged
Jul. 31st, 2009 08:25 pmThe Finance Buff recommended While America Aged: How Pension Debts Ruined General Motors, Stopped the NYC Subways, Bankrupted San Diego, and Loom as the Next Financial Crisis, and because I have a pension, I thought I'd check it out and get educated.
Right away the book made me feel guilty. "New York's public servants now stand a fair chance of collecting a pension for longer than they worked, and in many cases they earn more in retirement (including Social Security) than they did on the job. Thus 'retirement' has expanded from a modest sinecure at the sunset of life to a long and lucrative second career."
The shoe fits. The current rules of my pension will let me retire at age 52 with a little over 60% of the average of my highest five years. That's more than I made when I started. Add Social Security (eventually) and that gets quite close to my higher-earning years. And I only have to live to be 79 to collect the pension for as long as I collected a paycheck. That really does hardly seem fair to the state taxpayers.
I read on.
Some things I learned were less scary than I expected. For example, the biggest problem I hear about Social Security is that there is no trust fund--today's workers are paying for today's retirees and the ratios are going wonky. With pensions, today's workers are paying for their future selves, so there's much less room for wonkiness in that ratio. There is some room because when the calculations are done based on one average life span, but then the actual life span increases, you're still in trouble.
Another problem with Social Security is that although it's supposedly getting funded, that money is then being borrowed for other purposes which means it's being unfunded again. GM would just plain underfund their pension when they were short on money. NYC and San Diego also borrowed from their funds. But I'm pretty sure there is no borrowing going on with my pension.
Some things were more scary than I knew. At least in the three cases described, once you promise a pension benefit, you can't by law go back on that promise. (This is not true for Social Security, by the way.) No matter what. Which means businesses and tax payers who are already squeezed have to pay. That's not as reassuring to me as one might think--it feels more like the sort of promise that could bring down civilization. I'd rather have to go back to work than to lose my civilization. (I know! Where are my priorities!)
Also, there's even more strangeness going on with politics than I suspected. I knew that anytime you have a large pile of money gathered in one spot, it's just begging to be stolen. And I knew politicians love to promise things, even if they don't intend to keep the promise and even if it's impossible to keep the promise. What I really didn't quite get is how certain crimes either go unpunished or the punishment (such as an extremely large fine) is just part of the calculations for politicians and labor unions. If a union strikes illegally, its members do not all get arrested and taken to jail. Even if they also stole public property to prevent things from working in their absence. And companies did not even have to include a category for pension promises in their accounts until fairly recently, let alone show that they were actually funding them fully. And this is even though the government has promised to back up corporate pensions.
Well, it's another area where I wish people would be responsible for their actions.
After reading the book, I still feel about as confident in my pension as I did before (pretty confident but not totally). I'm still saving as much as reasonably possible in other accounts, just in case. I just feel less confident in my civilization.
When I first opened the book I remembered that I hate social science books because they're poorly written and exceedingly repetitive. But this book isn't. The author, Roger Lowenstein, actually makes the history of the pension at GM fun to read. It's interesting and all the wackiness makes perfect sense in his hands.
The part about NYC transit wasn't so well done and could have been left out completely with only a little loss. The part about San Diego was in between.
Then at the end he promises recommendations. The first seven pages of this chapter are not about pension recommendations, in the tradition of bad books, but then he really does present a variety of recommendations:
* "[Reform] ERISA so that pension sponsors would be required to keep their funds solvent," although it would still be too late to save the private pension system. Companies are switching to 401(k)s.
* "[S]ponsor new, national 401(k) accounts and offer matching credits to lower- and middle-income earners" as Hillary Clinton proposed. (This lets companies compete more fairly with companies in other countries that do not have to fund pensions.)
* "[Require] 401(k) sponsors to offer annuities to employees as they retire. Even better, they could make annuities (as opposed to stocks, bonds, and other investments) the default option for new retirees."
* "[States] should require (by means of laws similar to ERISA) that every dollar of state and local pension benefits is funded as the benefit is accrued--not when the legislature or city council happens to feel like it" as suggested by Michael Aguirre.
* Expand Social Security "to the point where private pensions would become unnecessary" as suggested by Walter Reuther. Change Social Security from a pay-as-you-go system to one where benefits are paid for as they are earned, even though this will require a long expensive transition. Quit borrowing SS surpluses.
I've always thought we needed to increase the retirement age, too. Social Security and other pensions were created so that if you got too old to work, you would still get to eat and live indoors. Now people like me want to retire long before we're too old to work and we want to not only eat and live indoors but also have air conditioning, watch movies, go dancing, and travel, all on our pensions. People like me should have to save extra to do that.
All in all, it's a good book. It was mostly enjoyable to read, though a little slow in parts, and I feel like I have a much better understanding what's going on with pensions. I decided the author probably isn't a social scientist but a historian. Historians are much better writers. Then looking at his other book titles, I decided maybe he's an economist. Then I actually found the "About the Author" page which says he's a former Wall Street Journal columnist and regular contributor to financial magazines.
I recommend the first section and last chapter and, if you want a little more, the third section. Here's a typical excerpt (p. 26):
Right away the book made me feel guilty. "New York's public servants now stand a fair chance of collecting a pension for longer than they worked, and in many cases they earn more in retirement (including Social Security) than they did on the job. Thus 'retirement' has expanded from a modest sinecure at the sunset of life to a long and lucrative second career."
The shoe fits. The current rules of my pension will let me retire at age 52 with a little over 60% of the average of my highest five years. That's more than I made when I started. Add Social Security (eventually) and that gets quite close to my higher-earning years. And I only have to live to be 79 to collect the pension for as long as I collected a paycheck. That really does hardly seem fair to the state taxpayers.
I read on.
Some things I learned were less scary than I expected. For example, the biggest problem I hear about Social Security is that there is no trust fund--today's workers are paying for today's retirees and the ratios are going wonky. With pensions, today's workers are paying for their future selves, so there's much less room for wonkiness in that ratio. There is some room because when the calculations are done based on one average life span, but then the actual life span increases, you're still in trouble.
Another problem with Social Security is that although it's supposedly getting funded, that money is then being borrowed for other purposes which means it's being unfunded again. GM would just plain underfund their pension when they were short on money. NYC and San Diego also borrowed from their funds. But I'm pretty sure there is no borrowing going on with my pension.
Some things were more scary than I knew. At least in the three cases described, once you promise a pension benefit, you can't by law go back on that promise. (This is not true for Social Security, by the way.) No matter what. Which means businesses and tax payers who are already squeezed have to pay. That's not as reassuring to me as one might think--it feels more like the sort of promise that could bring down civilization. I'd rather have to go back to work than to lose my civilization. (I know! Where are my priorities!)
Also, there's even more strangeness going on with politics than I suspected. I knew that anytime you have a large pile of money gathered in one spot, it's just begging to be stolen. And I knew politicians love to promise things, even if they don't intend to keep the promise and even if it's impossible to keep the promise. What I really didn't quite get is how certain crimes either go unpunished or the punishment (such as an extremely large fine) is just part of the calculations for politicians and labor unions. If a union strikes illegally, its members do not all get arrested and taken to jail. Even if they also stole public property to prevent things from working in their absence. And companies did not even have to include a category for pension promises in their accounts until fairly recently, let alone show that they were actually funding them fully. And this is even though the government has promised to back up corporate pensions.
Well, it's another area where I wish people would be responsible for their actions.
After reading the book, I still feel about as confident in my pension as I did before (pretty confident but not totally). I'm still saving as much as reasonably possible in other accounts, just in case. I just feel less confident in my civilization.
When I first opened the book I remembered that I hate social science books because they're poorly written and exceedingly repetitive. But this book isn't. The author, Roger Lowenstein, actually makes the history of the pension at GM fun to read. It's interesting and all the wackiness makes perfect sense in his hands.
The part about NYC transit wasn't so well done and could have been left out completely with only a little loss. The part about San Diego was in between.
Then at the end he promises recommendations. The first seven pages of this chapter are not about pension recommendations, in the tradition of bad books, but then he really does present a variety of recommendations:
* "[Reform] ERISA so that pension sponsors would be required to keep their funds solvent," although it would still be too late to save the private pension system. Companies are switching to 401(k)s.
* "[S]ponsor new, national 401(k) accounts and offer matching credits to lower- and middle-income earners" as Hillary Clinton proposed. (This lets companies compete more fairly with companies in other countries that do not have to fund pensions.)
* "[Require] 401(k) sponsors to offer annuities to employees as they retire. Even better, they could make annuities (as opposed to stocks, bonds, and other investments) the default option for new retirees."
* "[States] should require (by means of laws similar to ERISA) that every dollar of state and local pension benefits is funded as the benefit is accrued--not when the legislature or city council happens to feel like it" as suggested by Michael Aguirre.
* Expand Social Security "to the point where private pensions would become unnecessary" as suggested by Walter Reuther. Change Social Security from a pay-as-you-go system to one where benefits are paid for as they are earned, even though this will require a long expensive transition. Quit borrowing SS surpluses.
I've always thought we needed to increase the retirement age, too. Social Security and other pensions were created so that if you got too old to work, you would still get to eat and live indoors. Now people like me want to retire long before we're too old to work and we want to not only eat and live indoors but also have air conditioning, watch movies, go dancing, and travel, all on our pensions. People like me should have to save extra to do that.
All in all, it's a good book. It was mostly enjoyable to read, though a little slow in parts, and I feel like I have a much better understanding what's going on with pensions. I decided the author probably isn't a social scientist but a historian. Historians are much better writers. Then looking at his other book titles, I decided maybe he's an economist. Then I actually found the "About the Author" page which says he's a former Wall Street Journal columnist and regular contributor to financial magazines.
I recommend the first section and last chapter and, if you want a little more, the third section. Here's a typical excerpt (p. 26):
Reuther found clever ways to extract more in every round, both higher levels and new types of benefits. Companies watched their cash wages closely; they found it easier to say yes on items such as pensions, disability, and health care. The UAW exploited this by negotiating wages first; then, as Fraser recalled, "we fit in the programs, pensions, health care." The seemingly routine process of "fitting in" higher benefits began to build daunting future obligations. But to the companies, pensions seemed painless. The near-term cash expense was small, the day of reckoning distant. The accounting was primitive; a pension sweetener didn't necessarily "cost" the company in terms of reported profits.