I've been very busy as of late. In September, I moved to a new work location and had less time to do the things I enjoy. So, it's back to blogging - and I hope I find the time for this while dealing with both a long commute and the resumption of classes....
Lately, I've been thinking of the perceived tension between social cohesion and economic efficiency. Most people have seen this as an issue of distribution of wealth - 10% of the population has 90% of its wealth. They look at this issue and ask - how do we more rationally distribute wealth in society -or- how do we maximize the creation of wealth? I look at this issue differently. I see situations where we can have complete economic equality but no economic growth, and situations where we've maximized growth but have few people holding an extreme amount of wealth - recreating the feudal system of the middle ages. No one is talking about a "Sweet Spot" where the balance between economic efficiency and social cohesion maximizes the common wealth in society.
After WW2, America had 50% of the world's manufacturing capacity - a state which was not able to be maintained for the long term. But we had a flawed economic view - we expected businesses to take care of social welfare, while government did little to regulate the economy. As the economy became global, businesses had less incentive to invest in the American worker, yet our laws and regulations assumed that business could continue to follow the implied social contract of 1950. This was a recipe for disaster.
In the early 1960's, the failure of the Studebaker corporation showed us how risky company pensions were when companies went bankrupt. So we changed our laws to make sure that pensions were guaranteed by the federal government. However, we didn't change who held the investment risk for those pensions. As a result, more companies either disbanded the pension plans, or changed them into 401k plans with corporate contributions. Sadly, these realities never were reflected in the plans offered to public workers. These plans still gave their participants defined benefits for a given number of service years - leaving communities to shoulder investment risks. And when yields are low, as they are now, this forces many communities to make a hard choice - pay retirees, or pay for new employees to keep services running.
So, where does this leave us? Recently, I've been advocating that states go into prepackaged bankruptcies, so that they can renegotiate all of their union contracts and pay off all of their bonds 100 cents on the dollar. Pension liabilities would go to the federal government's Pension Fund Guarantee Board, where a maximum of $43k/year could be paid to any recipient. Yes, many retirees who get exorbitant retirement benefits would get hurt - but it might just save the states' ability to provide needed services (such as education, police, fire, etc.)for current and future generations. However, if this is done, we need to repeal the 11th amendment to the US constitution, so that people can sue the states in federal court - as we need some federal oversight in the process for when states break their contracts with the unions, and when the states break federal laws that are means to protect the rights of US citizens....
In short, to solve an important problem, we need to eliminate the idea of State Sovereignty. No longer can the sovereign be immune from court action. This is a major change in legal principle - but it is one which is long over due.
