the Coming Crisis – Part I

Pension Plans And Municipal Bankruptcy

   Detroit is in Bankruptcy. Detroit is Bankrupt. As of the date of this article, August 19, 2014, Detroit is the debtor in a municipal bankruptcy. Not only individuals or persons, or corporations, can file Bankruptcy. Cities can also file bankruptcy, and seek its benefits and protections.

A major issue in the Detroit Bankruptcy, and a major reason for its bankruptcy, is the pension benefits and medical benefits promised to the civil servants of Detroit, both present and retired. Those in political power with the authority to negotiate or proclaim such benefits, often granted for political expendency, votes, money or other favors, are often long gone by the time the full burden of such benefits hits the cities, states, and federal subjects of such policies.

The issue of collapsing government pensions creates many diverging sympathies. The government workers who expect such pension likely will not receive the full benefits promised. The taxpayers, who had no hand in granting such pensions, often are not sympathetic to the government workers’ plight. The pension programs are often much more generous than any retirement offering most private employees or even private employers, could receive.

Many government workers are eligible for pension benefits after service of twenty years. Many programs will pay the beneficiaries full salary for the full term of their life, and many programs do not require any contribution from the government employee.

A government employee who begins employment at the age of 22, under such programs, can retire with a government provided pension and medical benefits, at the age of 42. Most persons that own or work in private business, could never imagine such a benefit for themselves. Why? Because such a pension scheme typically violates basic principles of economics and finance. The benefits could never have been provided without bankrupting the cities or states for whom the government workers served.

No or few private employers could provide such a pension scheme, as to do so would most likely destroy that private enterprise. The politicians and unions who negotiated such terms do not have the same restraints. To spend other peoples’ money is one of the easiest things one can do. It is especially easy when one has the power of the state to forcefully take earnings from taxpayers and business people to perpetuate one’s follies.