July 01, 2011
The New York Times ran a piece on two court decisions that states were not obligated to maintain cost of living adjustments in pensions. It would have been appropriate to provide more background to these rulings.
In effect the courts were saying that contracts with workers do not have the same standing as other contracts. It is almost inconceivable that the courts would allow a state government to unilaterally cut its contracted payments to a supplier or other government contractor.
The media have often (wrongly) asserted that differing positions on various issues reflect distinct views of government. This arguably is such a case. On the one hand, there are people who believe that the government should re-write rules to protect the interests on the wealthy, on the other hand there are people who believe that the government should act to benefit the vast majority of the population.
At one point the article asserts that:
“Ever since the stock market crash of 2008 wiped out many people’s savings, officials have had a hard time persuading taxpayers of the virtues of covering the cost of inflation-adjusted pensions, which typical taxpayers no longer get themselves.”
If officials have spent a lot of time, “persuading taxpayers of the virtues of covering the cost of inflation-adjusted pensions,” it has not received much coverage in the media. The most obvious basis for the case would simply be that this is a contractual obligation to the states’ workers. It would be interesting to see polling data on the issue of whether states should meet such contractual obligations.
It is worth noting that government officials have openly pushed the sanctity of contracts in other contexts. For example, when he was head of President Obama’s National Economic Council Larry Summers argued for the importance of the sanctity of contract in the context of the bonuses going to AIG executives. Many of the top executives of the company, which was saved from bankruptcy by a massive government bailout, had bonuses that ran into the billions of dollars.
It is likely that the vast majority of the public did not support giving bonuses to these executives. (Bankruptcy voids contracts.) However, these bonuses were paid.
The article also includes the inaccurate assertion that:
“ benefits are adjusted for inflation, but the adjustments can go both up and down.”
This is not true. There is no provision for lowering benefits.
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