Pension Socialism?

Fight disinformation: Sign up for the free Mother Jones Daily newsletter and follow the news that matters.


Over at Tapped, Ezra Klein points out that as the Pension Benefit Guaranty Corporation starts bailing out more and more troubled companies by taking over their pensions, it will start controlling more and more stocks, which means that Congress will technically “own” a greater share of corporate America. Bam! Instant socialism! He also points out that privatizing Social Security would have had a very similar effect—if Congress could choose the index funds in which workers invested—thus “potentially wreaking all sorts of havoc.”

Interesting thought, though it’s hard to see how worried we should be about all of this. Here in California, the two big pension funds—CalPERS ($180 billion) and CalSTRS ($125 billion)—have, under Angelides, engaged in a limited bit of activism, dumping tobacco stocks and the like, but it never seems to go anywhere. Divesting doesn’t have much effect on a company’s share price. On the other hand, a government-run pension fund could acquire enough shares in a company to influence the vote on this or that. Maybe this is cause for concern, though I have a hard time believing that activist pension-funds could do any more damage to the economy than hedge funds that regularly buy up shares of a company, tip the vote in favor of bad mergers, and then reap the profits at the expense of shareholders—as might have happened with the Compaq-HP deal. So I’m conflicted. William Greider’s “The New Colossus” made a decent case for activist public pension funds like CalPERS, but there also won’t always be progressive activists at the helm, obviously.

At any rate, reading Roger Lowenstein’s “The End of Pensions” reminded me of yet another way in which America’s pension problem is related to Social Security privatization—or any mandatory savings plan. For years, many companies have been predicting wildly optimistic rates of returns for their pension-fund stock holdings so that they could scale back contributions to the fund and use the cash for other purposes. Which, in turn, drives up the price of their own stocks, many of which were held by… pension funds. Can we all say “Ponzi”? Right. But the system’s falling apart now that those rates of return have failed to materialize, and there’s no way out for corporate pensions, which are under-funded by some $450 billion.

The Bush administration, to its credit, wants to tighten the rules for pension funding. But if firms were required to set aside even more money for pensions, many might go bankrupt, or stock prices might decline, which would in turn further endanger pensions, and on and on. Conversely, if the PBGC started bailing more funds out—with taxpayer money—that would only increase the “moral hazard,” causing more firms to make risky investments. Either way, disaster. One conceivable exit strategy, then, is for Congress to create mandatory savings accounts for all workers and hence pour all that taxpayer money—or the Social Security Trust Fund—into the stock markets, creating a bubble which could help some of those rickety pension funds out. It’s not clear that this would actually work, though. So disaster’s probably inevitable, unless someone dreams up a clever exit strategy.

AN IMPORTANT UPDATE

We’re falling behind our online fundraising goals and we can’t sustain coming up short on donations month after month. Perhaps you’ve heard? It is impossibly hard in the news business right now, with layoffs intensifying and fancy new startups and funding going kaput.

The crisis facing journalism and democracy isn’t going away anytime soon. And neither is Mother Jones, our readers, or our unique way of doing in-depth reporting that exists to bring about change.

Which is exactly why, despite the challenges we face, we just took a big gulp and joined forces with The Center for Investigative Reporting, a team of ace journalists who create the amazing podcast and public radio show Reveal.

If you can part with even just a few bucks, please help us pick up the pace of donations. We simply can’t afford to keep falling behind on our fundraising targets month after month.

Editor-in-Chief Clara Jeffery said it well to our team recently, and that team 100 percent includes readers like you who make it all possible: “This is a year to prove that we can pull off this merger, grow our audiences and impact, attract more funding and keep growing. More broadly, it’s a year when the very future of both journalism and democracy is on the line. We have to go for every important story, every reader/listener/viewer, and leave it all on the field. I’m very proud of all the hard work that’s gotten us to this moment, and confident that we can meet it.”

Let’s do this. If you can right now, please support Mother Jones and investigative journalism with an urgently needed donation today.

payment methods

AN IMPORTANT UPDATE

We’re falling behind our online fundraising goals and we can’t sustain coming up short on donations month after month. Perhaps you’ve heard? It is impossibly hard in the news business right now, with layoffs intensifying and fancy new startups and funding going kaput.

The crisis facing journalism and democracy isn’t going away anytime soon. And neither is Mother Jones, our readers, or our unique way of doing in-depth reporting that exists to bring about change.

Which is exactly why, despite the challenges we face, we just took a big gulp and joined forces with The Center for Investigative Reporting, a team of ace journalists who create the amazing podcast and public radio show Reveal.

If you can part with even just a few bucks, please help us pick up the pace of donations. We simply can’t afford to keep falling behind on our fundraising targets month after month.

Editor-in-Chief Clara Jeffery said it well to our team recently, and that team 100 percent includes readers like you who make it all possible: “This is a year to prove that we can pull off this merger, grow our audiences and impact, attract more funding and keep growing. More broadly, it’s a year when the very future of both journalism and democracy is on the line. We have to go for every important story, every reader/listener/viewer, and leave it all on the field. I’m very proud of all the hard work that’s gotten us to this moment, and confident that we can meet it.”

Let’s do this. If you can right now, please support Mother Jones and investigative journalism with an urgently needed donation today.

payment methods

We Recommend

Latest

Sign up for our free newsletter

Subscribe to the Mother Jones Daily to have our top stories delivered directly to your inbox.

Get our award-winning magazine

Save big on a full year of investigations, ideas, and insights.

Subscribe

Support our journalism

Help Mother Jones' reporters dig deep with a tax-deductible donation.

Donate