Friday, March 18, 2016

The Affordability of the Welfare State

The Detroit experience should have been an alarm bell.  Two or three years prior to the city of Detroit going bankrupt, there was no discussion in the press about the pension fund blowing up. Apparently folks thought the Detroit pension system was in good shape.  Too bad for those whose lives depended upon that pension plan.

It is now obvious that Chicago and most Illinois public employee pension funds are going belly up as well.  Why?

The disaster in Detroit, soon to be visited upon Chicago and Illinois, is the result of two facts:

1) no public employee pension system anywhere in the world that is a "defined benefit" system is properly funded.  Not a single one;

2) the folks that administer these funds never tell the truth about the funded status.

This combination of these two facts guarantees that all public pension funds will, sooner or later, go bust and that it will be a surprise to all when it happens.

Citigroup has now released a major study of public pension plans around the world including those in the most highly developed countries, meaning Japan and Western Europe.  Guess what?  They aren't funded properly either.  See today's NY Times are a report on the Citigroup study (which is also available for download from the NY Times website).

Citigroup estimates that the unfunded liabilities that developed countries are hiding from their unsuspecting citizens is three times their national debts.  Keep in mind that the national debts in these countries are unsustainable to start with.  Add on the pension liabilities and financial disaster lies ahead.

Meanwhile politicians are saying: "why can't America provide universal health care and universal old age benefits, when every other developed county in the world can do so?"  The answer: there is no other country in the world that can afford this.  The other countries are just hiding the looming disaster from their citizens.

No country can afford benefits that no one is setting aside funding for.  If none of the squirrels are gathering acorns for the coming winter, then there will be no acorns to consume, come winter.

The idea that somehow a handful of rich folks can be taxed to provide unlimited free things for everyone else is so ridiculous as to make one wonder about the sanity of those who suggest the idea.

Unless someone or some institution saves, this is all a house of cards that coming demographic changes will expose as the greatest hoax in history.  Once again, average folks will be the victims while the elite will find a way to live off of government largesse, even as public pension funds and other government promises of free stuff will implode (see today's Detroit to see this in action).

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