NY Times floats the balloon of state bankruptcies to rip off workers of hard-earned pensions.

The lead story on the front page of today’s New York Times floats the idea that states enter bankruptcy as a means to avoid paying retired state workers the pensions that the states promised them.  Currently, states are not permitted to seek bankruptcy protection from their creditors. 

As is usual for Times articles that float inherently absurd trial balloons such as invading Iran, breaking up the Euro or privatizing Social Security, the publication takes a squeamish approach to the topic that avoids naming names. 

Take the headline for example, “A Path is Sought for States To Escape Debt Burdens.”  This cowardly use of the passive tense, “a path is sought,” enables the headline writer to avoid telling us who is seeking this seismic change in our laws. It’s a classic use of the passive tense to avoid attribution, which by the way, is a significant and often necessary arrow in the rhetorical quiver of both attorneys and accountants.    

The entire article distances real people from the proposed law change.  Some examples:

  • “Policy makers are working behind the scenes…”
  • “…fear of destabilizing municipal bond markets…has proponents in Congress going about their work on tiptoes…”
  • “…and no member of Congress has stepped forward…”

The writer, Mary Williams Walsh, makes it explicitly clear what’s really going on: the article is part of a campaign to intimidate public unions: “Still, discussions about something as far-reaching as bankruptcy could give governors and others more leverage in bargaining with unionized public workers.”

As the article points out, the idea of a state going into a traditional bankruptcy will have a hard time gaining traction unless the powers-that-be can figure out a way to stop paying pensions but keep paying interest on state bonds.  A bankruptcy under current law would force the bankrupt state to stop paying the bond interest, and that of course would hurt rich people, the major benefactors of any move to cut or end the pensions promised to state workers.

Why do I say that?  Let’s review how we got to this situation: For years, states negotiated contracts that promised state workers pensions in the future in lieu of current salary.  The states all decided to underfund these pensions rather than raise taxes to a sustainable level; some of the strategies that gave lawmakers the intellectual cover to underfund included floating bonds and using overly rosy projections of future stock market performance in their investment models.

If the states had decided to fund the pensions appropriately on a sustainable basis, they would have had to raise taxes and likely gone to a progressive tax, which means charging people with more income a higher rate (like the federal tax system does).  The choice to underfunding therefore saved middle class and poor people a little money, but it saved rich people lots of money.

Now it’s time to pay the piper and, instead of raising taxes, lawmakers everywhere are declaring war on public workers and their pensions. The mainstream chattering class is supporting this effort by attempting to make public workers into enemies of other middle and working class people.  It’s classic Marxist theory: divide the classes.

As I’ve demonstrated several times in OpEdge, it’s all part of the 30-year class war that the rich have waged against the middle class and poor.  A major part of that war has been the destruction of unions, which raise the income of all workers (because employers have to remain wage competitive—at least when we have near to full employment or the work requires a skill).

So by hurting the pensions of unionized public workers, the wealthy get a break in two ways:  Fewer taxes to pay and lower wages for their employees.

The fly in the ointment, again, is the fact that one of the things that the wealthy tend to do with all that extra money they have is to invest in tax-free and up-to-now extremely safe municipal and state bonds.  So the idea of state bankruptcies will sink into the deep sea of other outlandish ideas unless lawmakers figure out a way to pass a bill that enables states to walk away from their obligation to workers without requiring them to walk away from their obligation to investors.

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