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Private benefits, or public welfare

News that United Airlines is suspending pension plan contributions, and may soon terminate these plans altogether, is more evidence that workers shouldn't count on corporate benefactors to provide security for them in their old age.

Stronger unions would help. Ironically though, the unions themselves may have contributed to current worker insecurity with their strategies of the 1950s and 60's. By focusing their energies on winning more generous private pension benefits, instead of on increasing public-sector benefits like Social Security, the unions may have sacrificed long-term stability for short-term gains.

Michael B. Katz explains what happened:

In the 1950s and 1960s, federal officials would have accepted a tradeoff: lower private pensions for higher Social Security. Unions, however, balked at this alternative and cut their own deals with business for higher pensions. In fact, the slow rise in Social Security benefits during these decades reflected the growth in private pensions. After major unions had "carved out a . . . private welfare state for their own members," pointed out historian Nelson Lichtenstein, they "no longer saw an increase in federal welfare expenditures as an urgent task." . . .

"After World War II," argued Charles Noble in his history of welfare, "the best organized industrial workers all but gave up the struggle for universal public provisions to wrestle with employers over private benefits . . . . Organized labor's determined pursuit of the mixed-benefit strategy made it impossible to mount an effort to win universal public benefits or redistributional taxes." [Katz, pp.176-77, footnotes omitted.]

"Private welfare" as Katz calls it, including pensions and employer-provided health insurance, may have seemed safe back in the 1950's when Dad could get a job with Ford for the rest of his life. If the dollar value of the benefits unions could win from private employers was higher than what they could get out of Social Security, it might have made sense in that bygone era to focus on private welfare benefits. Even if , as Katz suggests, this strategy "divided the American working class into a unionized segment, which until recently enjoyed an almost West European level of social welfare protection, and a growing group--predominantly young, minority, and female--who were left out in the cold." [Katz, p.177, internal quotations omitted.]

Today, though, the differences between the solid working class and the poor unemployed riffraff have melted away. Everyone who lives on their wages, and not on their invested capital, is subject to becoming a new member of the riffraff class in the blink of an eye. In this environment, public benefits seem to be the only sure way to provide economic security to wage-earners in their old age.

Another problem with private benefits in America (including employer-sponsored health insurance) is that the "right" to these benefits is always trumped by the right of private business to pursue profits. This, in itself, might not be a bad thing. Why, after all, should private business be expected to provide for the public welfare? That seems to be a role that private business is least well-equipped to play.

The public welfare ought to be provided for by the public, acting through the democratic state. Risks that threaten all of us ought to be insured by the only entity that represents all of us--the government. This includes the risks of old-age poverty, and it also includes the risks of unexpected sickness and injury. So long as we continue to rely on private pension plans and employer-sponsored health insurance, we will ensure that only those citizens fortunate enough to hold a stable job will be protected from risks that confront all of us.

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Comments

Yes. And that "stable job", as you point out, is becoming more of a myth than a reality.

Even in my own very successful career, after 25 years of work, I have no pension benefit to look forward to. People don't stay at one employer for 20-30 years any longer, for a wide variety of reasons (only some of which are actually under their control). And, whatever pension or health benefit they may have enjoyed at one place does not follow them to the next. Much of our work force is employed in small business. Small businesses are the least able to afford to foot this bill on their own. This is a national issue, it deserves a national solution.

I wonder what I could have done if I had been given the social security taxes that were collected from my paycheck and from my employers over the years. Add to that a portion of the pension plan funding for groups I have worked for that I will never see again. I can't give up the belief that pension plans, whether run by industry or by the government, are simply Ponzi schemes. And unless you're Mr. Charles K. Ponzi himself, you're on the losing end of it every time.

If you treat pension plans like just another investment, they do share a lot of structural features with ponzi schemes.

Note also that what makes a Ponzi scheme a bad investment for most is the end of the scheme and not the beginning or the continuation. Recent investors get the shaft; older investors can actually make out like, well, like bandits.

Private pension plans, because they tend to come and go more frequently than government plans like Social Security, exacerbate this negative feature. If you're fortunate enough to have worked for a firm early, well before it goes bankrupt (e.g. United), then you're fine. If you've just been hired, you can kiss your pension plan contributions goodbye.

Government plans haven't ended very often, and crisismongers to the contrary, they don't seem likely to do so anytime soon. Unless, of course, our politicians keep calling up the Cato Institute for advice on how to run the country.

But all that aside, pension plans are NOT just another investment. They're a form of insurance against risk. If you buy private insurance against the risk of fire, and nothing ever burns, you're happy. You don't complain about not getting a good return on your premiums.

A few decades ago, the sight of old people eating food out of garbage cans and freezing to death on the street convinced us that our society ought to insure people against poverty in old age. Even if these people hadn't "invested their own money properly" when they were younger, we thought it was barbaric to let them die on the street when they were too old to work anymore. The libertarians would have us choose another course: everyone for themselves, and damn the consequences.

If we get rid of pensions, public and private, workers will have more cash immediately available. But because individual people suffer unemployment, get old, and don't always make perfect investment decisions, many of them will end their lives on the street, just like in the good old days. This won't be pleasant for wealthy people to watch, either.

Without pensions, our community will be on the losing end of things every time.

"Without pensions, our community will be on the losing end of things every time."

Agreed. But I have never seen a compelling argument that either business or government does a good job in managing those pensions. Until I see evidence that either "big government" or "big business" can effectively provide that insurance, I would rather (or perhaps am forced to) provide the insurance myself. Keeping an additional 12.4 cents on every dollar I earn would be a nice start.

"Until I see evidence that either "big government" or "big business" can effectively provide that insurance, I would rather (or perhaps am forced to) provide the insurance myself."

And I'll agree with that. Self-reliance is always the best insurance policy in my book.