“If something cannot go on forever, it will stop”

From Meep at Stump we get a bit of completely predictable financial news. Original Sin (or Pandora's Box) and Public Finance and Pensions

The title to this post is quote from Herbert Stein in the 1980s, which was itself a paraphrase of 1974 statement by Friedrich Hayek.

I thought about using the phrase, "If you find yourself at the bottom of a hole, stop digging." I don't think NYC or Chicago or Honolulu or the other cities really know how to stop.

I’ve been blogging more about mortality of late, and less about public finance and pensions, partly because I have found public finance so depressing over the past year. The federal government turned on the printing presses, threw a bunch of newly-printed money into a black hole, and I couldn’t see beyond the event horizon. Not at the time, at any rate.

Maybe the state and local governments would put the money to paying down pension debt and not promising more. Maybe money would be used in a prudent way.

Maybe.

Well, things didn't get better.

The reports cited deal mainly with underfunded  pensions, and not funding other retiree benefits, such as health care. There are graphs showing the per-person per taxpayer liability for these promises in New York, Chicago, Philadelphia, Honolulu, Portland, and more.

For example, the per-taxpayer burden (to pay for unfunded liabilities) in NYC is more than $70,000. In Chicago, the per-taxpayer liability is more than $40,000.

Click thru if you think you can stand the details. Like the fact the NYC has funded about 3 percent of the non-pension retiree benefits that they promised to deliver.

There is also quite a bit about the "innovative" ways to fix this mess.

The kinds of messages that are welcomed are “innovative” in terms of telling you that you don’t have to do the thing you really don’t want to do (put more money into the pensions, promise less, cut back on many things, tax more, etc.)

One more bit, then I will break off before I depress myself.

I haven’t been writing much about public pensions during the pandemic because of all the federal bailout money papering over cash flow issues in the states. Not only have they been flush with the direct bailout funds, but their state income tax flows have been strong, inflation has boosted stock market prices as well, and the numbers, on paper, have looked pretty good so far.

The balance sheets, as we see above, don’t necessarily look good. But the liquidity has been fine, and as far as it goes for politicians, as long as they can get their hands on cash, whether from taxpayers, bond buyers, or the money printers, they do not care.