Fifty years from now the Collapse of 2008-? might be looked at as primarily a fight between the old and the young. The New York Times yesterday carried a story about the city of Pittsburgh taxing college tuition to pay pensions:
“a 1 percent tuition tax on students attending college in Pittsburgh, which he says will raise $16.2 million in annual revenue that is needed to pay pensions for retired city employees.”
This is the most direct example I’ve seen of a tax on the young (the tax will be collected from universities but substantially paid by customers, as with most taxes on business) to benefit the old. An 18-year-old will pay more for college so that a 50-year-old can enjoy his retirement as though the Collapse of 2008 had not occurred. In California the pensions of those over age 50 are preserved while students at the University of California will pay 32 percent more (source).
The young start out with a lot of advantages. They have tremendous energy and physical health. But one wonders how much can be loaded onto their backs. Let’s look at what the U.S. government and state/local governments are doing to hobble young people:
- running schools with unbreakable standards for what administrators and teachers are paid and how much they will be paid decades after retiring, but no standards at all for the effectiveness of teaching (this is probably the worst because it will deprive many of America’s kids of the option to emigrate to countries where good jobs are available)
- borrowing trillions of dollars to pay for programs that primarily benefit the old, e.g., Medicare; this money to be paid back by today’s youth once they enter the workforce
- making it a legal requirement for healthy young people to pay for overpriced health insurance (Congress’s latest health care scheme includes new limits on the maximum difference that insurance companies can charge based on age)
- minimum wage laws that make young workers who would otherwise be cheap to employ unattractive to employers
- laws forcing employers to recognize unions; unions are run by older workers and they tend to organize things for the benefit of older workers at the expense of the young (which is why a 65-year-old airline pilot might earn over $200,000 annually for working ten 8-hour days per month while a 30-year-old airline pilot will earn $19,000 for working twenty-two 16-hour days per month)
- immigration policies that allow young inexperienced workers from foreign countries to flood into the U.S. and compete for low-skill jobs (a 50-year-old lawyer or doctor does not face competition from a 20-year-old coming in from Sudan, Iraq, or Latin America, but an American 20-year-old who received a poor public school education does)
- transferring hundreds of billions of future tax dollars into the pockets of Wall Street bankers, who tend to be older (we haven’t heard about too many 18-year-olds paying themselves $100 million bonuses)
- corporate governance laws for public companies that allow trillions in shareholder wealth to be transferred into the pockets of executives (I wrote about this in my economic recovery plan); senior executives at public companies tend to be older than average and the reduction in value for public company shares tends to weaken pension funds and inevitably it seems that taxes on young working people are required to bail out those funds… so that people aged 48-120 can continue to receive a pension (see GM and Chrysler)
- outlawing certain recreational drugs, which tend to be consumed disproportionately by the young, and therefore raising prices. Drug laws also result in a lot of young people being sent to prison while old people benefit from well-paid and pensioned government jobs in drug law enforcement, prison administration, etc. The drugs most preferred by old people, e.g., alcohol, tobacco, and various prescription opiates, remain legal and inexpensive.
- consuming the Earth’s resources at a rate greater than natural replenishment (a 35-year-old friend, when asked his views on global warming and pollution, replied “I don’t understand what the problem is; the Earth only needs to last another 50 years.”)
As a 46-year-old who has the right to vote, when I look at teenagers these days sometimes I wonder “What did they do to us that was so bad that we’ve decided to do all of this to them?”
Could it be possible that the young wield disproportionately less political power, because they are less inclined to vote? The other lobbies you mention (unions, seniors) have strong political organizations.
Additionally, no matter where we are talking about, pensions are a looming demographic disaster. The number of Gen X’ers that will pay for retiring baby boomers is far lower. Pensions work well only when you have a lot of young people paying for fewer old people. Absent a miracle, eventually the country will be forced to do away with pensions altogether in favor of defined _contribution_ plans.
Pennsylvania is one of those sorry formerly-industrial states that has the second most aged population in the nation but that lacks the tax base to pay for all of the legacy promises made to those former government workers. Of course it doesn’t help that the state tolerated a form of graft in the way of inappropriately generous state and municipal pensions some of which are being received by “retirees” who spent only a very few years “serving” as public employees, many as elected local officials. This is the result of their cupidity: they are leeching off one of the only decent enterprises left in that city.
“What did they do to us that was so bad that we’ve decided to do all of this to them?”
I think a better question is, what didn’t we do. I’m 24 years old. My parents’ generation went through the Cold War and Vietnam. When the old people running the show decided to send them off to Vietnam when they were young, they protested, shut down Universities, in short, made life difficult enough for the old-and-in-charge that, even if they didn’t change their behavior outright, they at least had to consider the wants and needs of the young.
My generation is a lesson in apathy. We’ve watched our schools decline, our skills fall in relation to our international competitors, our currency dilute, sat by as our cultural ideals (the right of all people to self determination, not torturing people, the American dream, etc.) have been systematically dismantled by the old-and-in-charge. We’ve more or less watched this happen with nary a peep, and instead of shutting down Universities, we’ve circulated email petitions and created angry Facebook groups.
If you were in charge, and you had to choose a group of people to take advantage of, which would you choose?
Philip,
It’s a little off-topic, but I was reading the Wikipedia page on the US postal service today.
I wanted to share some key text, hidden away in the “Delivery days” section:
“On January 28, 2009, Postmaster General John E. Potter testified before the Senate[74] that if the Postal Service is not able to readjust their payment toward the pre-funding of retiree health benefits, as mandated by the Postal Accountability & Enhancement Act of 2006,[75] the USPS would be forced to consider cutting delivery to five days per week during the summer months of June, July & August.”
You missed a big one: Social Security. Quite literally, it’s a pyramid scheme which transfers wealth from the young to the old. Asset inflation is another part of the pyramid scheme economy. The old have become wealthy because their (paid off) houses have appreciated far faster than incomes. Bubbles always benefit the established at the expense of the young.
Postal Service: At least they are working on “pre-funding” it (though how that is possible given the uncertainty about investment returns, I don’t know; all that they know is how much they’ll have to pay out per ex-worker still alive; they can’t know how long each former worker will live nor how much money put aside today will yield; if they miscalculate they will presumably have to dig up additional money from revenues or taxpayers). The rest of the public employee pensions seem to be post-funded. For example, the retirement age for the Boston subway and bus system (MBTA) is 41. Consider a worker who retired in 1990 at age 41. If he lives to be 91, his pension will be paid until the year 2040. A teenager today who rides the subway pays extra so that health care and pension can be delivered to a guy who stopped working years before the teenager was born. If he continues to live in the Boston area, he will make additional payments to the 1990 retiree until the guy dies 31 years from now. Our retired MBTA worker didn’t dig the tunnels (those we have inherited from a century ago), so why is today’s teenager paying for the benefits that this worker may have delivered to people before he was born?
You forgot that young people are also sent to die in wars.
A Modest Proposal
For Preventing The Children of Poor People in the US from Being Burdened with Their Parents or Pensioners
I think it is agreed by all parties that this prodigious number of pensioners in the arms, or on the backs, or at the heels of their children, is in the present deplorable state of the democracy a very great additional grievance; and, therefore, whoever could find out a fair, cheap, and easy method of making these children sound, useful members of the commonwealth, would deserve so well of the public as to have his statue set up for a preserver of the nation.
I am assured by our merchants, that a retiree after 70 years old is no salable commodity; and even when they come to this age they will not yield above thirty pounds, or three pounds and half-a-dollar at most on the exchange; which cannot turn to account either to the children or democracy, the charge of nutriment and health care having been at least four hundred times that value.
I shall now therefore humbly propose my own thoughts, which I hope will not be liable to the least objection.
I have been assured by a very knowing American of my acquaintance in London, that a old sick adult well nursed is at 70 years old a most delicious, nourishing, and wholesome food, whether stewed, roasted, baked, or boiled; and I make no doubt that it will equally serve in a fricassee or a ragout.
Phil,
To quote you: “In California the pensions of those over age 50 are preserved while students at the University of California will pay 32 percent more”
I looked through the article without success to find a reference to that quotation. However even if I couldn’t find it, it makes sense.
As a recently retired (btw, heavily influenced Phil, by your article on Early Retirement!) technical support person at the University of California, Santa Barbara, I’m now enjoying retirement while my fellow remaining workers are demoralized by pay cuts/furloughs.
Interestingly, 80% of current faculty, staff, and administrators have NEVER paid a penny into the University’s retirement system (disclosed this November by System-wide UC), since the number crunchers in Oakland decided long ago that the fund was doing “just fine.” Obviously, this isn’t going to continue anymore, but it does point out one of the reasons for the fuster-cluck in which we now find ourselves.
Mr. Lawson: Congratulations on your retirement! Sorry for the confusion regarding the California sentence. I cited that NY Times article as a source for students (typically 18-25) being hit with a 32 percent increase. I did not mean to cite it to support my statement that pensions for those over 50 are preserved. I didn’t think it necessary to cite a source for that. No bankruptcy procedure is available for a state and California has not hinted that payments for people already receiving pensions are in jeopardy. I picked 50 as roughly the earliest age at which a public employee in California can retire (I have read about retired 50-year-old former sheriff’s department employees, for example).
Phil-
Any thoughts on military pensions? I have read a lot of your writing on pensions, but never on the military. I know it is not politically possible to even discuss, but the military deal is the nicest deal of all:
Retire after twenty years (38 y.o. for enlisted, 42 y.o. for officers). Here are the perks: 50% of previous pay a year, FREE health care for your and your family, free college for you and/or your children (new GI Bill), discounted groceries on bases, free gym membership (again on base). All of these things for the rest of your life, with survivor benefits for your spouse. Most of the time these benefits last for 40+ years for 20 years of work.
Benefits for military keep increasing. For example, a new government program will pay the loss difference of selling your house if the value has gone down since you bought it. The military figures they are making you move. They never mention that the military member knew they would be moving too, but chose to buy instead of rent.
Granted service comes with a price. But most military members do not deploy, are not in danger, work in an office with exactly the same jobs as civilians, etc. The minority who do deploy (and often!), face real dangers might deserve the benefits. Maybe there would be a way to distinguish the difference.
(I say all this as a prior military member, now a federal civil servant)
Mike: Federal pensions will probably never seem quite as much of a problem as state and local government pensions because the federal government can and will print money to pay for whatever expenses it has. The military is small compared to the total number of government workers, e.g., about 500,000 regular U.S. Army compared to more than 4 million public school teachers.
It also doesn’t seem quite as unfair to me to make a young American today pay for an old soldier. After all, the U.S. might not exist at all if not for the hard work and sometimes heroism of former soldiers (let’s ignore the pointless nature of our current engagements; it was not the military that decided to do nation-building in Afghanistan). So I don’t think it is as bad as making an 18-year-old today pay for someone’s subway ride back in 1980.
I hadn’t heard about the house resale reimbursement. That is amazing. The government never runs out of ideas for ways to prop up and subsidize the housing market!
I do think that the military is a special case, even though obviously most who serve never face danger. The government can tell a soldier to pick up and move to a new state or pick up a rifle and walk into a potentially deadly situation. Skills learned in the military may not be transferable to the civilian economy (though I guess the senior guys can do very nicely helping contractors sell stuff to the government; see http://www.usatoday.com/news/military/2009-11-17-military-mentors_N.htm ).
The best evidence that the military is not insanely overpaid, all things considered, is that they still have to recruit. Most government agencies need do little more than post an ad and thousands of qualified applicants will apply. In http://philip.greenspun.com/blog/2008/07/22/why-johnny-cant-add/ I wrote about a school superintendent who said that she could replace all of her teachers within a week or two, if necessary. And that was before the Crash!
On the other hand, now that the Commander in Chief is a Nobel Peace Laureate, perhaps the military is overpaid. Surely with such a wise and just leader the chance of being sent into combat has been greatly reduced…
Right now it looks like the West is collapsing or soon to collapse under greed and mismanagement. The best way of making a dent in this retirement mess would be to immediately move minimum retirement age to 65 years for all public sector positions. Then there is the question of what to do with the current retires, one possible action would be to reduce the benefits to sustainable levels. One way to do this would be a requirement that the current retires would have to ask the current workers how much they are willing to pay into the retirement fund, if the current workers say no increase, too bad your retirement gets cut. This way the young get to control the old 🙂
Retirement should be every bodies individual responsibility with only a small portion backed up by a government pension to provide a minimum standard of living. Otherwise, the current retires and about to retires will always get the system to work in their favor. The question is how to define this minimum standard of living? How many CT scans and MRIs are you allowed in retirement ? 🙂
Or maybe we should just adopt the method of dealing with old age as in the Octospider society described by Author C Clarke in the third book of the Rama series 🙂
I can see some of these public sector employees looking at bank executives pay and saying I am still asking for a lot less than the big king CEO of Take All Your Money Wall Street Bank. How can all these bank executives threaten to quit if there salaries are cut? Are all the major shareholders of these corporations such sheep that they get so easily intimidated?
The question still remains how to convince the majority of the population that the current lifestyle and way of doing things is not sustainable? I guess we will all find out when the system collapses.
That whole drug thing is about to go out the window…
http://www.austinchronicle.com/gyrobase/News/Blogs?oid=oid%3A824901
Maybe some of this is just demographics. In the 60’s, a rallying cry was “don’t trust anyone over 30.” While the Vietnam war protests and civil rights movement were great reasons to agitate, there are just as many reasons for the young and old to hate each other now as there were then. It’s just that the baby boomers had the numbers on the old folk back in the 60s. Now, they have the numbers on the young folk, and they’re trained for generational warfare. The young folks won’t know what hit them.