the pension swindle

“I’d gladly pay you Tuesday for a hamburger today,” J. Wellington Wimpy famously said. I’d like you to keep that phrase in mind while I talk to you about pensions.

Recently Rush Limbaugh was talking about the “shocking” statistic that some retired government employee annual pensions in San Francisco are larger than the average annual salary of working people in San Francisco. Isn’t it terrible that these people are sitting around doing nothing, but the taxpayers are having to subsidize their lavish retired lifestyles?

Now I’d like you to take a moment and ask yourself the question: How do you think that situation came to be, in the first place? How did these pension amounts end up being so large?

Conservatives, like Rush Limbaugh, would like you to believe that the conversation went something like this:

union thug: “Look, we are fat and lazy and greedy, and we know that the government has access to an unlimited amount of funds by soaking the taxpayers—who we don’t care about—so you’d better give us huge, cushy retirement packages or else (threatening gesture).”

wimpy government employer: “Um… uh…. ok! (shivers in fright)”

But as it turns out, surprisingly enough, this is not how large pensions are bargained for. A vast majority of the “large” pension packages that are out there were the result of a negotiation that went something like this:

government employer: “Look, you have a skill that we need. We really, really need you to perform this service for our city. But we just don’t have enough money to pay you what you deserve. Instead of settling for someone who is less skilled than you are, we want to offer you a deal: you agree to accept a lower salary now, because we just can’t afford anything more, and in return we will make up for it later by paying you a large pension. Is that ok with you?”

government employee: “Um… uh…. ok.”

The types of jobs that have these “lavish” pensions are the ones where the salary is less than the market value for the work being done. Sometimes, this is because it’s a job with very high personal danger or risk (e.g. some types of factory workers). Sometimes it’s a job that our culture recognizes as being critical (e.g. teachers). But in all cases, they are jobs that are worth more money than the government actually has to give.

Why doesn’t the government have the money to pay these people? Maybe because taxes are too low. Maybe because too much money is being spent on other things. That is open to debate. But to make up for the fact that the government needs jobs with value $X to be performed but only has $(X-Y) to spend, they make a bargain with the potential employees.

And in case you didn’t notice, that deal is: “I’ll gladly pay you Tuesday for a hamburger today.”

That’s what a pension is. It’s the payment that the Teacher agrees to take on Tuesday (after retirement) in return for the hamburger (skilled labor) given today.

And like the inherent joke behind Wimpy’s famous saying, it’s the kind of deal you only agree to when you really, really, really trust the person with whom you are making the agreement.

Dear government: our public school teachers and other government employees trusted you. They said: Yes, you can pay me later for the work I give you now.

So if we take away those pensions, that trust is destroyed. You are telling those teachers that they were taken for the fool: the same way that anyone who made Wimpy’s deal is obviously a fool.

In the long run, it will be fine. If these pensions are cut, then it will send a long-term message in our culture: “When considering a job, absolutely positively do not take any agreement to have lower wages now in return for a higher pension later. Because you won’t get it.”

And when that lesson is learned, the government will have put itself into a bind: either pay teachers and other employees what they are really worth, as part of their annual salary, or there will be no skilled teachers. In the end, it will be the government that will have to learn the lesson.

I just feel bad for the generation’s worth of teachers who made a deal in good faith, who said “I’ll be paid less than my work is worth because I can expect to get that money later,” who will be swindled out of the income that they were promised when they took their jobs.

Wimpy