"WE HAVE OPENED up a new sport for America's elite," economist Dean Baker shrilled in a widely circulated December 2013 column for truthout.org. The sport? "Pension theft." Baker is panicked, like so many on the left, about the prospects for public sector pension benefits in cities where legislators are facing bankruptcy and starting to make hard decisions about trimming benefits for future government employees. Cutting pension payouts instead of raising taxes to pay for the underfunded promises, Baker argued, is tantamount to stealing: "Rather than inconvenience all those rich folks at the Chicago Board of Trade or other highly successful businesses with a larger tax bill, the plan is to stiff the firefighters, the schoolteachers, and the people who collected garbage for 30 years."
The fights over who is going to get paid and who is going to get screwed in fiscally distressed cities can seem like a game, albeit one with wildly arcane rules. But it's the public sector unions--especially the ones representing police and firefighters--who are the most adept at playing it.
Baker is peddling nonsense, but he is inadvertently right: There has been a massive theft, totaling hundreds of billions of dollars. But the real victims of pension graft are current and future taxpayers, who face ever-higher taxes and ever-lousier public services. The beneficiaries of this gravy train are the very people whose plight Baker bemoans: public sector workers.
Thanks to the pension-hiking bonanza of the last two decades, the public sector pension system, even in a time of rising municipal bankruptcy, is a massive redistribution of wealth from the young to the old. It also is a transfer from some of the nation's poorest residents to some of the nation's best-paid retirees. The few pension reductions that legislators have passed across the country have mostly been for future employees, not current recipients. The very fact that unions are getting hysterical about new hires being offered a slightly less generous benefits package demonstrates just how unmoored the debate over pension reform has become.
The Illinois Supreme Court tossed the state's efforts to slightly trim pensions for current employees. And only one bankrupt city is cutting vested pension benefits for current retirees. That's the post-apocalyptic crime scene of Detroit--and even Detroit's emergency manager is executing just a modest trim, a 4.5' percent cut of current pensions and reduced cost-of-living increases. While those pensioners are certain to be less than thrilled about having their promised payouts crammed down, what's happening to them is also happening to all of the city's creditors. It is "theft" only to the degree that all bankruptcies deprive some people of the full amount they are owed. Indeed, some bankrupt cities' creditors are recouping only pennies on the dollar from their investments, while pensions remain completely untouched.
Kids Pick Up the Check
Occasionally, a city will try to reduce benefits and pay when in extremis. In 2012, the mayor of Scranton, Pennsylvania, cut his city workers' pay to minimum wage for a while when the city went broke. The firefighter, police, and public works unions then took the city to court and won, but the mayor still didn't have money to pay them. (Eventually, the state provided a bailout.)
But such direct confrontations between elected officials and unions are rare. Mainly, despite heavy breathing from the likes of Baker, politicians shower largesse on powerful union members and impose debts on future generations.
That's how the defined-benefit pension systems that the public sector demands are designed. In the private sector, employees typically...