Aug 122013

The Missing Piece in the Pensions Debate

By Christopher Flavelle, Bloomberg News, Aug 9, 2013

Detroit’s bankruptcy has injected new vigor into the argument that public-sector pensions should be scaled back. That’s an important debate, but what’s missing is a topic from which it can’t be separated: racial inequality.

Public-sector workers are disproportionately black. In 2011, about 19 percent of black workers were employed by the government, compared with 14 percent of whites and 10 percent of Hispanics. That figure used to be even higher (21 percent in 2008-2010), but the recession and its aftermath have been hard on public-sector workers. Berkeley economist Steven Pitts has called government jobs a “pillar” of middle-class African-American life.

The share of blacks in the public sector coincides with worrisome economic figures for blacks overall. Just 52 percent of blacks 16 or older were employed in 2011, compared with 59 percent for whites and Hispanics. Median net wealth for black households was $4,900 in 2010 — about 5 percent that of white households.

The situation is just as grim for retirees. The percentage of elderly Americans living in poverty is twice as high for blacks as for seniors as a whole (19 percent versus 9 percent), and that trend is projected to continue. A quarter of blacks ages 46 to 55 today are projected to live in poverty at age 70, according to a report from the AARP Public Policy Institute. For whites, the corresponding figure is 13 percent.

The upshot is pretty clear: Reducing the value of public pensions and other benefits wouldn’t just hurt blacks disproportionately; it would do so at a time when other economic trends have already hurt them more than most. So the question isn’t whether race is part of the debate over public pensions, but how to address it.

One argument is that public-sector jobs shouldn’t double as social policy, and that the government should simply try to get the services it needs at the lowest possible cost. That’s intellectually appealing, but it isn’t an accurate depiction of how government works. From crop insurance to defense contracting, from Medicare Advantage to tax breaks, value for money is rarely the prime objective for government spending; additional policy goals that benefit specific groups are often tacked on, intelligently or otherwise. It’s a fine goal to eliminate rent-seeking in general, but attacking it selectively is politics, not economics.

Another argument is to acknowledge that generous public-sector pensions serve a useful social purpose, while insisting the country can no longer afford it. But though many of us feel poorer than before the recession, economic output per person was about $50,000 last year, up from around $38,000 in 2003, controlling for inflation. Although some governments are struggling financially, the country as a whole is not.

A more honest argument against the current system of generous public pensions seems to be that while it helps mitigate racial inequality, we don’t want to keep paying for it. (Given the unfunded pension liabilities facing so many cities and states, you could argue that we didn’t care enough to pay for it in the first place.)

That’s a legitimate policy preference. And there’s no question that cities need to figure out ways to fund their pension obligations. But before we try to resolve the pensions debacle by simply cutting benefits, we should acknowledge that we’re tinkering with more than just public finance.

(Christopher Flavelle is a member of Bloomberg View’s editorial board. Follow him on Twitter.

 August 12, 2013  Posted by at 12:50 am Uncategorized Tagged with:

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