MAKING SENSE -- August 24, 2011 at 11:08 AM ET
Are Public Pensions a 'Gravy Train' and Other Answers To Your Questions
Paul Solman answers questions from NewsHour viewers and web users on business and economic news most days on his Making Sen$e page. Here are Wednesday's queries.
Name: Ava Stanton
Question: The rating agencies that sold us down the river and rated worthless CDOs [collateralized debt obligations] AAA are now the agencies that will determine the credit rating of the entire U.S. government? Doesn't that seem farcical?
Paul Solman: (Written before the S&P downgrade: Yes it does. But I'm not sure anyone will pay much attention if they do. See my post for sentiments similar to yours.)
That's what I wrote when your question first came in, before the downgrade. What happened in the aftermath? Bond yields went down, not up. S&P was accused, with justification, of making a $2 trillion dollar accounting error by assuming government spending would grow with non-inflation adjusted economic growth, as opposed to growth adjusted for inflation, which seems the more reasonable approach. It may be no coincidence that the CEO of S&P resigned Tuesday. See Baseline Scenario's James Kwak for more on S&P's Delphic deficiencies.
Name: Henri Doriol
Question: All systems are eventually undone by the abuse of the very principles on which they are founded, wrote Comtesse de Boigne (early 19th century). Are we witnessing the undoing of the free unregulated market economy?
Paul Solman: The Comtesse de Boigne? Do I have classy readers, or what?
My candidate for 'abused founding principle' that matters most right now: the Supreme Court's First Amendment ban on campaign finance restraint. See Tom Ferguson's book, "Golden Rule": He who has the gold makes the rules. Adam Smith's "Wealth of Nations" was essentially a diatribe against this mercantilist state of affairs in 18th century England: that the merchant class shaped policy to its own ends.
Name: Adam Weiss
Comment: Rhode Island has 157 public pension plans, including Woonsocket and Central Falls. They are deep in the doodoo! Pennsylvania has five or seven public pensions whose pay is as generous as Rhode Island's. Just imagine, [the] majority of pension players in R.I. are making more retired than they ever did working. Same here in Pa. Great gravy train and I speak from an experience of 19 years. Let's keep that fact a secret.
Paul Solman: Your secret is safe with me. But remember, the "gravy train" was negotiated by workers as an alternative to pay raises: compensation come retirement rather than money up front. It's legitimate to imply, as you do, that workers were overcompensated but why not make the same argument about non-public employees? How about corporate executives and CEOs, whose pay skyrocketed in the supposed fat years via stock options and the like? Are you suggesting public employees give back the benefits they got? And if you are, shouldn't everyone who was "overpaid"?
Image of Adélaïde d'Osmond, the Comptess de Boigne painted by Jean-Baptiste Isabey [Public domain], via Wikimedia Commons.
*Final note: *We posted a correction Wednesday after a few of you questioned this statement in the Aug. 18 Making Sen$e post: "In 2008 alone, Ohio had more heroin-related overdose deaths than traffic fatalities." We've contacted the Drug Enforcement Agency's Anthony Marotta, from whom the statement original came, to check. It turns out that the agent had his facts wrong. We've corrected the line to reflect that Ohio had more drug-related overdose deaths than traffic fatalities in 2008. The most common drug-related OD? Oxycontin. We apologize for the error and thank our readers for their swift and insistent notice, particularly @CineBex.