Let’s just put on our rose-coloured glasses for a moment. We see the stock market returning over the next year to 10,000ish and the economy bottoming in Q2 or Q3, setting up for a gradual, but slowish recovery over the next several quarters.
That’s great, but some problems just aren’t going away. For example, retraining all of the people who somehow made their money in housing won’t be easy. That’s one.
Another one is the pensions mess. A combination of public unions, mass retirements and horrible performance won’t easily be solved merely by stabilisation of the economy, or a modest rebound.
This is not, it should be emphasised, exclusively a problem of public sector pensions; private firms are also underfunded. But the scale is vastly different. According to the Pension Benefit Guaranty Corporation, which regulates and insures pensions, the total deficit in private plans covering about 34 million workers was a little over 10 billion as of September 2008. That’s almost certainly multiplied quite a bit since then. But the current underfunding in public plans, which cover about 22 million workers, seems to be something north of a trillion dollars. And they’re not insured.
The funds that are responsible are a different sort of headache; they’ll be slapping heavy levies on local school districts and governments to shore up their capital. That will be a nasty burden on strapped local governments, particularly in places that are already in decline. My mother’s hometown in Western New York now sees its local fiscal picture vary heavily with the financial industry 350 miles away because of teacher pensions.