Why is Detroit bankrupt?
Why is San Bernardino following in Detroit’s footsteps?
In these cases, and in many other states, the answer is their pensions. They are supposed to pay up to retirees but they never properly managed the money. They have no way of paying what they owe now or in the near future except by direct taxation on current residents.
Note that all of this is somehow legal. No one ever goes to jail for it. People pay into the pensions system. They are promised a pension on the basis of these payments. But the money is not properly invested. It is spent for immediate political benefits and the future obligation is ignored. The decision-makers decide that actually getting the future retirees the money they are owed will be Someone Else’s Problem.
So naturally, now that this is all starting to break open, the states are shamelessly claiming that the private sector has failed to provide retirement savings and so the states can and should do it.
From AP News: “States look to provide pensions for private-sector workers to ease widespread retirement fears.”
Dorry Clay, a small business owner unable to save for retirement, is counting on the Connecticut legislature to establish a state-run retirement savings account accessible to millions of workers.
Lawmakers in Connecticut and other states are responding to a widespread loss of private-sector pensions, a lack of access to employer-sponsored retirement accounts in smaller businesses and stagnant incomes that make it hard for workers to contribute to their own retirement plan or company account.
The measures vary in their details, but the general aim is to establish a retirement fund in a state agency that would collect employee contributions, invest the money and pay out benefits when employees retire.
Financial services businesses are fiercely lobbying to defeat the proposals, calling the proposed state-run enterprises unnecessary and a threat to private business..
Of course they are opposed to the proposals! If most people are too strapped to save for retirement then there is heavy competition in the industry for relatively few potential customers. Now the state is threatening to interfere in the market, with lots of promises, and (undoubtedly) subsidized prices, and take away many of those customers. So basically, people who work in the financial services industry in Connecticut are about to see their taxes used to compete against them and destroy their livelihoods.
Notice also that the human interest angle with Dorry Clay does nothing to show why the plan should be implemented. Clay, we are told, is “unable to save for retirement.” But the plan expects to “collect employee contributions.”
I wouldn’t doubt that the private retirement industry is somewhat weak in Connecticut, but that is because the Connecticut state government is hurting all business within its jurisdiction. Constructing a government competitor only adds to the damage.
Anyone with eyes should see what is going on. The state wants new source of revenue. By the time people are ready to retire the money they are owed will have been spent years and decades earlier.