Our backwards backdoor socialism

For a prime example of a screwy situation our fear of 'socialism' and worship or corporate entities have landed us, look no further than the sorry state of Defined Benefit pensions in our country.

The New York Times reports that "Pension officers are putting billions into Hedge Funds". I'll let Vox Baby's excellent post explain exactly why this is a terrible idea. But in a nutshell, this is why they're doing it: Hedge funds, though riskier, have a higher theoretical rate of return if all goes well. Thus, a company can 'justify' (I use that word loosely) committing less money to their employee's retirement today, because the rate of return is theoretically going to be so excellent. And what if the investment turns out to be a disaster and the company end up coming drastically short, ah, but that's where Uncle Sam steps in in the guise of the Pension Benefit Guarentee Corp (PBGC) and bail everybody out. There is no downside to the company for doing this. It just means more money for the company today, more risks for the taxpayers tomorrow. Are they going to be irresponsible and underfund pensions? You bet.

Why do we have the PBGC? Because as a nation we are not prepared to let people who played by the rules end up having to eat cat food. But we also want the facade of unfettered, laissez-faire capitalism. We even disguise our government assistance in a corporate shell, but everybody knows that the PBGC does not and cannot pay for itself.

We're spending plenty of taxpayer dollars trying to increase the welfare of average Americans, but we're loathe to do so too directly. Instead, we subsidizing companies through backdoor means like the PBGC or tax breaks for providing insurance to employees , to induce them to provide benefits to their employees. What a backwards way of doing things. First of all, it's unfair -- all Americans deserve decent healthcare and retirement options, but only employees of some companies enjoy employer-provided healthcare and pension, which are in turn supported in part by everybody's tax dollars. Secondly, as we've seen above, bad behavior is rewarded. Thirdly, it's a damned inefficient way of doing things -- even with all the taxpayer support, employee pensions and healthplans are still a huge drag on the competitive abilities of our companies (G.M., anybody?).

I am assuming that you all read Paul Krugman's excellent column about how Americans are plunged into anxiety because we rely too much on our employers for stability in our lives, and that stability simply is not there any more as businesses face more competition and bearded, benevolent paterfamilias type owners have long been replaced CEOs with MBAs with zero loyalty to employees. I'm assuming that you've read it because it's really, really good. I didn't link to it at the time because I've been linking to Krugman an awful lot lately, and I didn't want to act like such an embarrasing fangirl. Anyhow, here's the relevant paragraph for our purposes today:

We like to think of ourselves as rugged individualists, not like those coddled Europeans with their oversized welfare states. But as Jacob Hacker of Yale points out in his book "The Divided Welfare State," if you add in corporate spending on health care and pensions - spending that is both regulated by the government and subsidized by tax breaks - we actually have a welfare state that's about as large relative to our economy as those of other advanced countries.

The resulting system is imperfect: those who don't work for companies with good benefits are, in effect, second-class citizens.

On the same topic, Mark Thoma's impassioned "The old deal is broken" deserves to be read.