Thursday, December 22, 2005

Why DovBear is Wrong on Pensions

DovBear wrote an editorial earlier today which on its face seemed quite sensible. However, when one thinks about what his points are, it is actually quite illogical.
According to the newspapers, the MTA has subjected New York City to a transit strike in the name of trying to get current workers to agree to have new workers put 6 percent of their pay toward pensions.

This demand, though not unreasonable on the face, is actually an attack on the pensions of all public workers. If accepted, the proposal will create divisive contract with different benefits for new workers versus existing workers. Seen in this light, the MTA's proposal is a pretext for weakening unions.

That's intolerable, and the transit workers are right to fight it.
There are a number of responses to these points, including that there are numerous other issues (as I mentioned on Tuesday). But his primary complaint seems to be that the divisiveness between the old and new workers is an issue that we cannot afford to face. The question is, simply: Why? What's wrong with there being a different set of rules? Clearly, the current pension structure is incredibly problematic. As many commenters noted, GM is a perfect example of poorly planned pension benefits driving a company into a huge deficit. The same issues that exist with Social Security exist here: When these plans were designed, life expectancy was far shorter than it is now. As this is no longer the case, it is impossible for the city to continue paying these benefits.

Gil may have put it best when he noted:
Is it just me or has declining pension benefits been the standard throughout the private sector for over two decades? Pitting old workers against new workers??? What do you think a change from defined benefit to defined contribution plan does? But it's still the standard!

I don't understand how the government is supposed to run a financially viable enterprise based on economic conditions from 40 years ago.
Exactly. As in any other situation where a problem needs fixing, this is a problem that needs to be fixed. If the MTA's raises were well under the cost-of-living increases, it is clear that the unions would be justified in raising this as an issue that must be solved. The same applies here in reverse: The current pension benefit structure is ruinous to the city and the MTA. It needs to be changed.

DovBear continued:
Unions are the only ones doing anything to stem the declining standard of living for working people. A few generations ago, during the nostalgic 50s, a blue-collar worker could expect to own his own house and retire in comfort. Those days are gone, and they are gone, in part, because unions have been weakened. Workers' rights, pay and pensions have eroded as unions have eroded.
I'm not sure any of those claims are true, but that's neither here nor there. Unions served an important role, particularly in the 1950's. However, there are no true monopolies in today's world, and unions do more to upset the economic system we have in place than to protect workers' rights. By keeping wages higher than market level, they ensure that many unemployed workers are not able to find jobs as companies cannot afford to hire more workers. By protecting members, they assure those members that mediocre work is sufficient to hold onto a job - costing both the city and taxpayers money. And by asking for extremely generous benefits, they drive cities to raise prices, thereby hurting primarily those in the lower and middle economic classes.

The Transit Workers Union, as I noted earlier, is not worried about protecting the lower or middle class, nor about helping the citizens of New York City. They are worried only about themselves, no matter what damage it does to the economic stability of the MTA and the city. On a related note, DovBear very much liked this question on his blog by mycroft:
(mycroft) The real effective cost of using the subways and buses is cheaper in real terms than it has been in a long time. Why is it than when the MTA is in debt-the workers have to have cutbacks but when they are awash in funds they can't be treated properly?

(DovBear) Fantastic question.

Ezzie? CWY? Tully?
I actually think the question answers itself. When the MTA shifts into the red, it has two choices: Raising prices or cutting costs. As mycroft noted, the cost of the subways is relatively cheap - which means that the MTA is running them efficiently. That leaves either raising prices or cutting salaries when they need more money. If the MTA determines that raising costs would not help as much as cutting (salary or pension) costs, then it makes perfect sense to cut those benefits.

But the reverse is not true: The TWU members are not shareholders in the MTA, and they should not expect to 'share in its profits'. As long as the MTA is in the black, costs should either remain stable or drop. Therefore, the MTA should charge less to riders, just as it costs the MTA less to transport them - it is a not-for-profit organization, and should only be charging as much as it costs them to run, maintain, and expand the transportation system as necessary.

It is nice that the strike has ended, although it is disappointing that the union seems to have received most of its demands. It will be interesting to see how much this hurts the city in the long run, and how long it will be before these issues resurface - as they inevitably will. This would have been the perfect opportunity to fix many issues, including, as DovBear correctly noted, a good opportunity to weaken unions. It's too bad the city blew it.

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  1. I wonder whether the city can, after the assessment of its losses, can file another lawsuit against the union. (with respect to the losses.

  2. I've wondered the same thing, though I would imagine that if they thought they could, they would have mentioned it. I'd guess that it's not direct revenue or loss for them, as opposed to the businesses.

  3. I thought DB was pro-liberty.

    Unions strike at the core of liberty- freedom to contract. Watching him try out his new "pro-liberty" philosophy is like watching a child try on his father's shoes. It doesn't fit and all that results is a loud clunking sound. Except when a kid does it, it is cute.

  4. R2JB - LOL. Where ya been, your blog's been quiet?!