Promises, Pensions, Problems: A Proposal
5th December 2010
David Friedman is always worth reading.
You are a state governor dealing with a strike of state employees. To end it, you must offer them something. One possibility is to raises their wages. Another is to agree to a more generous pension plan.
Higher wages will come, at least for the next few years, out of your budget—and there are a lot of other things you would like to spend the money on. Higher pensions will be paid, almost entirely, from the budget of later governors. It looks like an easy choice. And, since you aren’t the one paying, there is no good reason for you to be stingy in your offer, especially if being generous might end the strike sooner and buy you future political support from the currently striking union. Follow out the logic of the situation and one can see why many U.S. states currently face serious budget problems, in part due to very generous employee pension plans.