The Need for a Reserve Fund to Fund Underfunded Pensions

by Glen Wallace


Here is another one of my responses to another essay by John Mauldin about the looming pension crisis:

This is something that the federal government should be building a lock box rainy day reserve fund for.  We should be looking under every revenue sofa cushion for every extra potential revenue source and raising corporate tax rates and taxes on the wealthy -- those best able to absorb the increased tax rates.  There are all sorts of taxes that could be imposed on Wall Street such as a high frequency trading tax and special capital gains tax that would only be applied to stock gains realized by the wealthy one percent.

While some may claim that the looming pension crisis is not their problem, it may well become everyone's problem insofar as we are all tied to the overall economy that will be negatively effected when the crisis hits.  Part of the problem is that, as John touched on in his piece, if all these retirees have their pensions reduced or eliminated altogether, all those retirees will have less money in their pockets to spend on purchases -- a reduction in aggregate demand.

Additionally, don't forget that the last economic crisis almost sunk the entire economy.  Maybe the pension crisis, when it hits, will not be something that, like the last crisis, that we can muddle through and dig ourselves out of.  The pensions may be too big to bail.  And an economic disaster that the economists warned could have happened in 2008, if it were too happen, could lead to a physical disaster on the scale of a natural disaster.  All the goods and services we take for granted in a developed economy could be in jeopardy in an economic crisis because all the providers of those goods and services, and in turn their vendors, depend on the ability raise funds through the ability to borrow money.  If a pension crisis, perhaps combined with another crisis such as mass student loan default, a complete stalling of the economy could lead to an inability of the chain of suppliers of those goods and services, including groceries, to reach the everyday consumer.  But instead of engaging in massive financial reform and the building of a massive rainy day bailout fund, we've only seen some mild patchwork repairs and bracing that everyone can only hope, perhaps unrealistically, will safeguard us from another crisis like we saw in 2008.  People don't seem to realize how disastrous an economic disaster could be and how it could lead to a civil emergency or how close we came to that happening in '08.  

   We should be seeing any potential economic disaster as something that we need to invest big dollars in too defend against just as we invest big dollars in the military for defense -- whether we need to spend so much for military for defense is an open debate, but my point is that the public generally agrees that spending large sums on defense is considered worth while and so they should be considering the possibility that investing in defense against economic calamity is worth while as well.  Maybe we should be shunting towards economic defense reserve funds some of that massive sum currently spent on the military.