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Making Future Generations Foot the Bill

April 10, 2012 3 minute Read by Ike Brannon

Robert Samuelson writes in the Washington Post (April 9) that the pay-as-you-go nature of Social Security surely violates the vision that its founder, Franklin Roosevelt, had for the program, and that this deviation from his vision is at the root of the massive underfunding we are looking at today. All true. But we also have a funding gap that's just as big (if not bigger) for the defined-benefit pension funds in various states, as well as the few that still exist in the private sector, most of which resemble a Ponzi scheme in the same way as our current Social Security system. We also have a highly esteemed prophet from the past who warned about the potential danger these plans represented for future generations. That sagacious individual was — Walter Reuther, who helped found the United Auto Workers with his brothers. While the UAW is today a staunch defender of its pension plans (which now mainly cover only legacy workers, as new employees participate in 401(k) plans), Reuther foresaw a day where the big three auto companies would no longer be behemoths — and it didn't take a genius to figure out that a shrinking work force would have trouble supporting a growing number of retirees living longer and longer in retirement. And he witnessed the bankruptcy of Studebaker, four years after the company promised bigger pension benefits in an attempt to keep its current wages down and negotiate the company out of financial straits, a maneuver that ultimately failed. Today, General Motors has roughly 70,000 employees and nearly half a million pensioners, a truly daunting replacement ratio. As one wag commented, GM is in reality a social-insurance provider that sells cars on the side. While Reuther’s solution to simply nationalize all pension plans is a tad discomfiting for conservatives, in his defense he was looking not only through a different prism but also at an America with healthy and growing fertility rates that showed no signs of dissipating. Today, with the longevity of people who reach the age of 65 going up nearly two months a year and fertility rates slowly creeping below the replacement rate, not even the unions believe in a fully nationalized pension plan today. Counting on future generations to write bigger checks to retirees is the easy way out for politicians and it takes a true statesman to point out the folly of that course and to stand up against it. Roosevelt and Reuther duly warned us, but it was too easy to ignore them — and now we're paying the consequences.


Author

Ike Brannon
Ike Brannon

Ike Brannon served as an Economic Growth Fellow of the George W. Bush Institute from 2012 to 2015. He has a Ph.D. in economics from Indiana University and a B.A. in math, Spanish, and economics from Augustana College. View his full bio

Full Bio