Sunday, October 15, 2006

Still the worst article ever

A while ago I panned Gladwell's New Yorker article on pensions. He responded, arguing a number of positions, including the fact that he interviewed many experts, and that what he included in his article reflected the insights of those experts.

At one point, he argues that pensions would be in safer hands if they rested with local or national government, because this would spread the risk further. I certainly agree that putting all of your pension eggs in one basket is a bad idea (as Enron employees found out), but having them gauranteed by local and national government isn't about spreading risk, it's about tying your future income to a source that can print money as needed.

State and local governments have promised pensioners $2Trillian more than they have. When the bill comes due, they will raise taxes on everyone else, and/or cut benefits for their employees. This is clearly a case of people responding to the incentives of all PAYGO schemes, be they corporate, state, or federal, by overpromising on a future they won't be around to deal with. I cannot see any great triumph of risk mitigation, or why this is a better system than *making* people save for their future selves in private accounts.

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