Thursday, April 29, 2010

Government Workers and Pensions

In today's WSJ (April 29, 2010), Gary Shilling delivers the lowdown on government pensions:

Years ago, there was an informal "social contract"—public employees generally received lower wages than private-sector workers, and in return they got earlier retirement and generous pensions, allowing them to catch up. That arrangement has long since gone by the boards. The result is a remarkable trend. State and local government employees for years have received pay increases in excess of inflation, and BLS figures show they now have wages that are 34% higher on average than in the private sector.

To me, it's even more simple. It is foolish to spend lots of money on unproductive people, because each dollar that goes to someone who isn't working is a dollar taken away from someone who wants to work or is currently working. Typically, working and non-retired people contribute more to the economy because they spend more money on purchases such as homes, cars, appliances, and miscellaneous items, including items for their children.

Also, if retired people--whether Joe the Plumber or Joe the Police Officer--continue to make large purchases, they would actually hurt younger, newer couples by raising demand and prices. For example, if a retired person has a large pension and decides to buy a second home, s/he takes the home off the market for a first-time homebuyer who now has to look elsewhere for a home or try to compete with someone who has a stable pension and who has had decades to built up assets.

In a world where products and money are not infinite, each dollar makes a difference, whether positive or negative.

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