Fareed Zakaria: Time for Democrats to Face Facts on Public Pension Reform

Fareed Zakaria: Time for Democrats to Face Facts on Public Pension Reform

Writing for Time magazine, Fareed Zakaria has made a solid argument for public sector pension reform. He makes no bones about who is at fault in what he labels “the single biggest threat to the U.S.’s fiscal health.”

[O]n the central issue of the [Wisconsin] recall–the costs of public-sector employees–the Democratic Party is wrong on the substance, clinging to its constituents rather than doing the right thing.

As he notes later in the piece, we’ve gotten where we are because of an unholy alliance between unions and politicians:

Public-sector unions, powerful forces in states and localities, ask for regular pay increases. Governors and mayors can dole out only so much in salary hikes because of requirements for balanced budgets or other constraints. So instead, they hand out generous increases to pension benefits, since those costs will hit the budget many years later, when current officials are themselves comfortably in retirement.

Zakaria is right about both the scale and the source of this problem. There is no path to sustainable state budgets apart from reductions to public sector pensions and, in many cases, health programs. The two elements of society which created this massive problem are the same elements which stand in the way of dealing with it: unions and their defenders in the Democratic Party.

Case in point: yesterday Paul Krugman published an attack on Mitt Romney for daring to say this week, “It’s time for us to cut back on government and help the American people.” As Krugman sees it, this is a demand for austerity at the state level which is leading to higher unemployment. What we should do is borrow more money at the federal level to pass out to struggling states:

America…has an easy way to reverse the job cuts that are killing the recovery: have the feds, who can borrow at historically low rates, provide aid that helps state and local governments weather the hard times. That, in essence, is what the president was proposing and Mr. Romney was deriding.

Reading Zakaria’s piece demonstrates why Krugman’s suggestion that we borrow our way through the problem is absurd. States are going broke because the cost of public pensions is crowding out everything else:

And the problem is growing. In California, total pension liabilities–the money the state is legally required to pay its public-sector retirees–are 30 times its annual budget deficit. Annual pension costs rose by 2,000% from 1999 to 2009. In Illinois, they are already 15% of general revenue and growing. Ohio’s pension liabilities are now 35% of the state’s entire GDP.

We can’t borrow our way through the “hard times” precisely because, unless significant changes are made to public pensions, the hard times will never end. But as Zakaria suggested, most Democrats are more interested in scoring political points than in doing the right thing.


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