Wednesday, August 23, 2006

Worst Malcolm Gladwell article ever? Update

Gladwell himself has a response to my recent post critisizing his article in the New Yorker about corporate pensions.

One of the points Gladwell made in the piece was that tying pensions to corporations was a bad idea because if the corporation went down, then those employees were in trouble. He recommended tying pensions to broader regions, such as states, or maybe even the whole country. I point out the obvious fact that the state pensions and national pensions we do have -- government employee pensions and social security -- are in the same straights as corporate pensions. Gladwell's response?
Social Security issue hasn't convinced me that the program is in all that much trouble--that is, with a number of not entirely painless (but not debilitating) adjustments now, we can avoid a lot of the trouble down the line. Put it this way: would you rather, as a retiree, put your faith in the federal government or General Motors?...

...she pointed out that its not pensions we should we worried about so much as retiree health care. But even there. General Motors is currently $40 billion behind in funding its retiree medical obligations. The federal govermment is behind as well. But I'd still rather take my chances with the feds than with GM.
So, to paraphrase:
1) I'd still trust the government before I'd trust a company, and
2) We should really be worried about health care, not pensions

Gladwell's first argument -- that it is betted to trust a government who will only renege slightly and shaft other people on your behalf rather than trust a company who will renege a lot and shaft you is true as far as it goes. It's also a weak position when there are perfectly good zero-shaft options out there (private accounts) which, if administered correctly, would have low operating costs and mandatory contributions. But I do not want to get into policy prescriptions here, I want to take issue with Gladwell's argument that broader paygo pension bases are somehow immune from the "promising what you cannot deliver" issues with corporate paygo pensions.

Secondly, the old healthcare/pension switcheroo is a common one and is also correct. Uncovered liabilities in healthcare (both medicare, medicaid, and corporate healthcare) overshadow the unfunded liabilities in pensions. This does nothing to solve the problem in pensions, however, and it makes the pension problem harder to solve by raising taxes on those still working (since you've already raised taxes on them to cover the sick).

Lastly, I am not sure why people talk about pensions and health insurance in the breath -- the two are quite different. I don't see pensions as being any kind of insurance at all -- after all, what is less uncertain than old age? The risks you run around aging are 1) living longer than you thought you would, so you run out of savings and 2) the asset your savings are in goes down the tubes. The first risk can be dealt with using annuities (which are very unpopular) and the second through diversification (which corporate pensions, critically, do not have). (Thanks to Reemer for the trackback)


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