Professor Mark J. Perry's Blog for Economics and Finance
"Few Californians in the private sector have $1 million in savings, but that's effectively the retirement account they guarantee to public employees who opt to retire at age 55 and are entitled to a monthly, inflation-protected check of $3,000 for the rest of their lives."
Dr. Mark J. Perry is a professor of economics and finance in the School of Management at the Flint campus of the University of Michigan. Perry holds two graduate degrees in economics (M.A. and Ph.D.) from George Mason University near Washington, D.C. In addition, he holds an MBA degree in finance from the Curtis L. Carlson School of Management at the University of Minnesota. In addition to a faculty appointment at the University of Michigan-Flint, Perry is also a visiting scholar at The American Enterprise Institute in Washington, D.C.
12 Comments:
The social security administration plus Medicare also promise $1 million in benefits for the average Boomer couple. That promise, too, is unsustainable.
Quote from The Governator:
It's as if Sacramento legislators don't want a government of the people, by the people, and for the people, but a government of the employees, by the employees, and for the employees.
What a great quote from a great article.
So, what can America do about the public pension bubble? The US has but three ways forward: a) austerity measures (as in cutting public pension benefits); b) default (as in canceling public pensions); and c) monetary expansion (as in "printing money" to fund pension obligations). Austerity measures will eventually be rejected by popular vote, and the government cannot allow a default to occur. That leaves (drum roll please) "printing money," which is what all governments eventually resort to historically, or at least since the emergence of fiat currencies. Ironically, inflation is acutally a rather efficient way to rout government entitlements, pensions, public spending through the inflation mechanism itself. Everyone should be preparing for eventual inflation, because inflation is imminent at this point. Even a short period of deflation in the interim will eventually lead to inflation. More at:
http://wjmc.blogspot.com/2010/05/using-inflation-to-reduce-public-debt.html
http://wjmc.blogspot.com/2010/05/student-recently-remarked-to-me-that.html
Thank you for the opportunity to comment...
America will do just what it's always done - inflate its way out of the mess.
My Lord, how young are you people? Weren't you here in the "Seventies?" Weren't you paying attention? We do this about once a generation. Why else do you think we Have a fiat currency?
"So, what can America do about the public pension bubble?"
It will default by destroying the currency. Buy gold.
...Ironically, inflation is acutally a rather efficient way to rout government entitlements, pensions, public spending through the inflation mechanism itself. Everyone should be preparing for eventual inflation, because inflation is imminent at this point. Even a short period of deflation in the interim will eventually lead to inflation. More at:
http://wjmc.blogspot.com/2010/05/using-inflation-to-reduce-public-debt.html
http://wjmc.blogspot.com/2010/05/student-recently-remarked-to-me-that.html
I disagree. Inflation is not sustainable because unless the government gets serious and cuts spending and pensions you will see a loss of confidence in the currency. That will mean hyperinflation, not inflation and that way leads to societal destruction.
Paul Cantor points out that Thomas Mann had an interesting short story describing the damage done by hyperinflation to society. You may be interested in taking a Cantor's comment on the story.
http://mises.org/journals/rae/pdf/RAE7_1_1.pdf
inflation can't work because of indexing
benefits will be cut
that is the only viable solution
Arthur Andersen also calculates the retirement package for military employees, who retire after 20 years, at well more than $1 million--at taxpayer expense.
Plus the VA care.
Private industry has already learned what governments are learning now: unlimited lifetime benefits cannot be sustained. I watched an entire industry dissolve over this very matter. Everyone wants to find a way, but there isn't one, and you destroy your future, then your present, trying to overcome reality.
Besides macro economic issues of devaluing currency, there are political issues that maybe more severe. The US Tbill is the most widely traded thing on the planet, after the US dollar of course. A 50% devaluation of the dollar will not be looked upon fondly by the sovereign holders of $5T worth of Tbills. How will the Chinese react to US inflation?
I'm guessing not well.
They may demand hard assets to back up additional debt purchases. For my vote, I say they can have California Municipal Pensioners.
...How will the Chinese react to US inflation?
I'm guessing not well.
The Chinese expect that the ultimate demise of the USD will be good for China. It is far easier to get all of the commodities necessary for the 400 million rural people that will move to cities if the USD no longer buys anything and China can use its own currency for purchases that have to be made.
Kellogg School of Business: Prepare for War Between Taxpayers and Public Sector Unions Because State Pension Plans Are Only 35% Funded
bix-
there are many who would argue that the precise reason that the CPI calculation was altered in 1992 so that it no longer measured the price of a basket of goods but rather a "cost of living" that could slide downward by substitution flank steak for ribeye etc was to break the link between actual inflation and the CPI adjustment to social security and public pensions.
this will allow money supply to increase with out triggering "inflation" and makes the sort of QE the fed looks ready to undertake more effective in terms of devaluing debt.
juandos-
that's a good article. what i find most offensive in the whole situation is that the public unions use public money to lobby politicians to increase their paychecks and benefits. i have seen the SF muni unions destroy our bus service. they are paid outlandish money ($100k for bus drivers) and provide awful service. price keeps going up, more revenue sources get attached (like parking meters which are now 3 minutes for 25 cents in parts of the city) and services keep getting cut while performance on existing route deteriorates. but somehow, salaries never go down.
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