Sunday, November 11, 2012

Pension Negotiations and Accountability

While I agree with Entertainment Weekly that Boomerang would not be the first book I would recommend on the financial crisis, I found Lewis to be an excellent story-teller, bringing together many plot narratives into a cohesive piece, with a lot of interesting facts along the way.  While ultimately the reader is forced to take Lewis's stories as the right ones, at the very least he brings a social environment perspective into the discussion.  From my experience, his description of Greek life and culture was definitely too simple, and used selective narratives to draw a much harsher stereotype of the Greeks than they deserve -- but simplicity is essential to story-telling, I suppose.

I was also very interested by his discussion of the emerging social trends in the United States, that we will most likely be forced to painfully confront in the (perhaps not so far) future.  In particular, I thought that Lewis aggregated the issue of budgeting, even on the municipal level, too far.  It is not that challenging to believe that people everywhere, not just California, like services and don't like paying for them; isn't that really just a factions problem, a la Federalist No. 10? A very important function of government is to help us non-angels actually coordinate how we will spend (and tax) our money (the exact function which fell apart in Greece under the corrupt members of government).

More problematic, however, is the lack of accountability both in and out of the government, and this is the element which Lewis rolls all together into "too fat to fly."  For example, the pension negotiators for the police and fire departments in many (now broke, or close) cities were in fact acting AGAINST the longer-run best interests of those they represent -- when San Bernardino recently declared its bankruptcy, it's by-far largest segment of debt was for pension and retirement plans, and the sums to actually be paid post-bankruptcy were decided by the courts.  Had the representatives for the government employees negotiated for sustainable policies (and encouraged good budgeting practices, or even asked for evidence that these were sustainable), rather than just pushing for the best deal they could get at the time, many of these cities may have avoided crisis, and the recipients of the pension plans would actually be getting more than they are now.  I believe this is quite similar to the issue of bank CEOs in the recent financial crisis - apart from the culture of risk-taking and the lack of some important regulations, the lack of long-term accountability on a firm-specific level added up to a significant issue in the market.  

In short, the problem is not just a lack of match-up between willingness to receive services and willingness to pay for them.  These economic crisis rarely pay off for anyone (except, apparently, Kyle Bass) - on a more specific level than just the entirely societal, many organizations and institutions are acting in non-rational ways.  More accountability and encouraging responsibility for long-term interests, on every level, will be essential moving forward, helps markets and governments to function much better, and is also probably much less difficult to institute than getting us to stop paying attention to our lizard brains.  

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