consider a hypothetical negotiation between a self-interested mayor and a union negotiator ably representing government employees.
The union negotiator starts by saying, My members have contributed heavily to your campaign, so please give them a huge salary increase.
The politician responds, Id like to help you out, but to give most government employees a mammoth raise, I would have to raise taxes, cut existing spending or borrow money, and all of these options would cost me votes.
The negotiator considers this for a minute, then replies, OK, dont give us anything now, but get the government to make a legally binding promise to give my members greatly increased retirement benefits in the far future, long after you leave office.
Or, like some government employees in California can do, allow my members to retire at age 50 and then for the rest of their lives receive a pension that will be close to what they earned the year before they retired.
The politician then counters by saying: Thats a good idea in theory. But under our accounting rules, I have to put aside enough money today to cover future pension expenses.
But the negotiator defeats this objection, saying, Just assert that the assets you have already put aside for pensions will somehow be invested in a way that earns them a spectacularly high return high enough to cover your new obligations to my members.
With this assumption, you can give my members something they will be extremely grateful for without you needing to raise any additional revenues today. And if anyone ever accuses you of being fiscally irresponsible, just tell them that teachers, police officers and firefighters deserve a first-class retirement.
Our Unfunded Pensions Bomb Is Ticking