Blame Traders, Not Teachers

James A. Parrott

James Parrott is the deputy director and chief economist of the Fiscal Policy Institute.

Updated August 2, 2013, 1:13 PM

The economic crisis turned many things upside down. Resentment induced by an out-of-control finance sector was redirected toward government. This, even though federal action pulled the economy back from the brink, and state and local governments are trying to respond to the bursting of the housing bubble and the deprivation caused by the crisis.

How Mayor Giuliani and Wall Street speculators created this problem.

Today, popular ire is focused on public workers and their benefits. Misinformation abounds. Conservatives pounce on the opportunity to eviscerate public pensions in the same way that corporate pensions have been dismantled and the retirement security of private sector workers eroded. Here in New York, those at the top don’t seem to mind the race to the bottom for everyone else.

Those not eager to win that race might want to consider the following.

The Mayor is doubly disingenuous when he compares the current $7 billion city pension contribution to the 2001 level of $1.5 billion.

The earlier level was low because Mayor Rudolph Giuliani wanted the pension funds to take advantage of the late 1990s stock market boom earnings so he could reduce pension contributions and use the savings to pay for tax cuts.

The current level is high because taxpayers now have to make up for losses the city pension funds suffered during the financial meltdown. The five city funds lost a total of $31 billion in assets between 2007 and 2009, a 28 percent loss. Think of the higher contributions that must be paid now as one of the costs of cleaning up after the financial blowout. Maybe Wall Street with its resurgent profits and bonuses should pitch in.

We should strive to provide decent retirement security for all workers. Only a Wall Street marketing genius would try to pitch a "defined contribution" pension -- in which the benefit depends entirely on investment results minus fees -- as the key to a secure retirement. For a given level of retirement benefit, by contrast, a defined benefit plan costs half of what a defined contribution plan costs. Guess who pockets the difference.

Topics: Michael Bloomberg, New York City, pensions

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