Advancing a Free Society

From Madison to Washington, DC

Tuesday, March 1, 2011

Last Friday I was on Fox Business discussing the parallels between the shortfalls in state and local pension systems and those in the federal Social Security program.  As I have described in my recent book, "Pension Wise," and do so again in a forthcoming paper to be published by the Mercatus Center, the parallels are striking.  In each of the employer-provided, state/local, and national defined-benefit pension systems, roughly one quarter of promised benefits are unfunded over the longer term, and for similar reasons.  The sponsors of these respective programs succumb to temptations to defer the decisions required to balance system finances, and do so via similar methods, usually including reliance upon accounting methods that understate the realities of fiscal shortfalls.

Unfortunately, as these necessary decisions are delayed, they grow from relatively minor and painless adjustments into larger and more painful disruptions, precipitating inevitable collisions between taxpayers and beneficiaries.  In Social Security, we are now in a place where the mounting costs of delay are very great, owing to the large numbers of baby boomers now entering the retirement rolls.  Elected officials who downplay the problem and kick the can down the road are engaging in exactly the same behavior that has led to disruptions at the state level.  Continued avoidance of necessary leadership is no more a prescription for stability at the national than at the state level, and can be expected to produce similarly disruptive consequences.

Watch Charles Blahous on Fox Business...