Nostalgia Economics

A.D. Freudenheim, The Editor

Roger Toussaint could not have chosen a more timely and opportune moment to lead his Local 100 branch of the Transit Workers Union on strike against New York’s Metropolitan Transit Authority. His timing was perfect not because of the Christmas holiday, not because of the cold weather or the inconveniences and hardships he and his union and their 34,000 followers imposed on the City – but because at no point in the last decade has the issue of pension and health care costs been as prominently placed within the American political, economic, and social psyche as it is now.

It seems, though, that most Americans are delusional on the subject, or at least in deep denial. Several weeks ago, The New York Times ran an article about Duluth, Minnesota, a town that has apparently woken up to the cost of providing permanent, post-retirement health care for all of its former city employees, and which went on to track similar challenges in municipalities places across the country.¹ Meanwhile, changes to Medicare and Medicaid are an evolving, complicated, and expensive proposition, while a “fix” for Social Security remains elusive (mostly because no one in our government seems willing to address it from a practical – as opposed to an ideological – perspective).

Nor could one read a news story about the strike and avoid getting hit with the completely-valid-but-increasingly-tired set of analogies to the crises within the automotive (or airline, or steel) industry. The joke about pensions and our economic future is so obvious that even some lefties are in on this one: Anya Kamentz wrote quite articulately about the strike for the Village Voice, where she has had a regular column addressing economic issues for the young-worker set; in her item from 21 December, “Pensions: Why All You Whipper-Snappers Are Walking to Work,” she mentioned both cars and airlines in the 3^rd paragraph.² This column is as guilty as any, with much space dedicated to the subject of Social Security, General Motors, pensions and retirement planning, etc., in recent months.

There is a reason for all the hullabaloo about how we in these United States (must) approach and address the issue of pensions, retirement funds, and health care (both for current and retired employees) – one to which Toussaint is either intentionally oblivious or merely in deep denial. Put simply: the systems are not sustainable in their present form. More to the point, it is this evident unsustainability – the obviousness with which our health care costs continue to rise, the fact that most Americans have a negative rate of savings, that employer-driven pension programs are dramatically underfunded – that made Toussaint’s and the TWU’s demands that much more galling.

It is a phenomenon I like to call “nostalgia economics” – which means exactly what it sounds like, a longing for what we perceive as the better, old-time economics of a previous era or generation.

So, Toussaint hit the nail on the head, and got quite a loud reaction.

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The Times attributed a specific desire to Toussaint’s strike leadership: to keep the MTA from doing what other government agencies and corporations are doing (or at least considering): changing their benefit programs. The paper wrote “But Roger Toussaint, the president of the transit workers' union, said the walkout was aimed at stopping an employer offensive nationwide to cut pensions and other benefits. He said the transportation authority was mimicking corporate America. ‘What you have here is a scandalous attempt on the part of the M.T.A. to jump on the bandwagon,’ he said.”³ As if the TWU, by scrapping the process of binding arbitration and bringing an ungrateful city to a stand-still, would on its own change the course of American capitalism.

The situation is reminiscent of the unrealistic attitude many (western) Europeans have – one that says that after 50 years of relatively cushy, post-WWII, state-supplied benefits, their systems that allow early retirement and lush benefits are somehow immutable, regardless of what other changes may occur within their society or economy.⁴ Nonsense; it is absurd to say that benefits cannot change when the economic and demographic circumstances that underpin those benefits have changes. If nothing else, two basic facts necessitate modifications to these systems: the general increase in human life expectancy within the industrialized world, and the decline in birthrates in those same nations. Pension funds that once offered 10-20 years of comfortable retirement and now must provide for closer to 30 or 40 years; a retiree at 55, who lives until his or her mid-80s, is significantly more costly, both in terms of pension payouts and medical benefits, than the retiree who dies at 70.

Moreover, if our life expectancy has increased so, the expectation that we should not adjust retirement ages upward as a result is also delusional. Nor is it so absurd to ask that workers, if they wish to sustain an early retirement age like 55, therefore make an increased contribution towards their retirement funds in order to make it possible – or ask that they make the kind of sacrifice that comes with an early-retirement/buy-out package, namely: an overall reduction in benefits.

Even more offensive than Toussaint’s blustery fighting over benefits for current employees was his argument that the salary and benefits packages offered by the MTA must be maintained at the same level for workers who had not even been hired yet; these are the employees Toussaint referred to as the “unborn.” To argue that the MTA has a contractual or fiduciary obligation to live up to the terms of the current agreement and, therefore, not to change benefits for present employees is one thing; a case can be made that the MTA must live with and within the terms to which it previously agreed. However, for the union to demand that benefits must remain static even for employees who do not yet exist on the MTA’s payroll is beyond foolish. Has Toussaint even looked at the mess created by the absurd agreements between the aforementioned automotive or airline industries and their unions?

The TWU worried that to agree to a change in benefits for future workers would create a two-tiered system, with inequalities between workers of different hiring eras – presumably an inequality that would have a negative impact on newer employees. Yes, the idea that there might be a two-tiered system is correct, were the union to agree to changes in benefits. Yet this is no different from any other situation in which a firm hires one employee under somewhat different terms than another, because the needs, abilities, and obligations of the firm change over time. For example, the company that I work for once offered life insurance, but does no longer; but I don't resent my colleagues who joined at an earlier moment, when that benefit was still available; situations change, and so do benefits. (And in a competitive job marketplace, I am also free to look elsewhere for employment if I feel the need.) Furthermore, it is possible that the changes could benefit the newer employees: a switch from a defined-benefit pension plan (as is currently offered) to a worker-driven 401(k) investment model could create opportunities for those workers to control their retirement savings more effectively, as well as providing a source of savings against which they could borrow (e.g., for the purchase of a home). Newer employees might be willing to trade the risks of a 401(k) for the benefits offered by employee control.

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The MTA is fundamentally supported by two economic streams: taxes and fares from riders. Any of us who use the MTA are making a choice and deciding to pay the MTA in exchange for the service it provides. But those of us who live in New York also pay for the system implicitly, as part of our taxes. Unlike, say, buying a car, where we have choice – we can decide that the price of a given model is too high, or the quality too low, or we object to the corporation’s (or even the union’s) practices, or we don’t like the pitchman’s tone or the salesman’s suit – and might opt to buy from a different manufacturer, with the MTA and its workers, New Yorkers have no choice. Their raises, their pensions, their health care costs comes from our pockets. That is absolutely as it should be, but that is also absolutely not permission to milk as much from the public purse as possible.

If it is not already clear, the MTA made mistakes here: in decisions about what to do with its surplus (and even in the way it announced it); in the decision to offer riders discounts during the holidays instead of making other investments with those funds; and in the run-up to negotiations as a strike loomed, when it was clear to almost everyone that Toussaint seemed determined to strike. Perhaps that was the MTA’s goal, to rid themselves of Toussaint-the-stickler, by forcing him to over-reach in moving so rapidly towards a strike. This may yet have been a successful strategy.

And cynically, but generally left unstated and uncommented-upon in the current brouhaha, is the obvious fact that a change in benefits might also negatively affect the Transit Workers Union’s own power, and the number of its future members. The union’s relevance is in clear measure tied directly to its ability to control as much about its employees lives as the MTA itself. That is threatened by a two-tiered system of salary and benefits. At a time when unions are very much on the decline in the United States, this is no small matter. It is also no excuse.

“In the harshest possible sense, employees, unions, and investors have all conspired to create the present disaster by choosing, for many years, to ignore the obvious implications of their respective actions, and by pushing for short-term gains without evaluating the real, substantive, long-term impact.” That’s what I wrote several weeks ago, apropos the corporate world – but it is no less relevant for public sector employees. Let me be clear: unions are an important component of an effective work force, they can be valuable in protecting basic rights, preventing unsafe working conditions, etc., etc. None of this, however, justifies behavior that is any more piggish, thuggish, or clueless than that of the union members’ employers, whether public agencies or private corporations. Fighting for one’s rights is essential, and worthwhile; fighting for licensed greed is not. Most of us carry around some nostalgia for “the good old days,” whatever they were to each of us individually; but we cannot go back in time in our economic choices any more than we can in our personal lives. Best to focus on the future in a practical, realistic, and eyes-wide-open manner. “Nostalgia economics” is unlikely to help.

1“The Next Retirement Time Bomb,” by Milt Freudenheim and Mary Williams Walsh, The New York Times, 11 December 2005. [The author is no relation to me.]

2The subject is so compelling that Kamentz is, according to her blog, now the author of a forthcoming book on why the vast population of post-college job-climbers seem (in many cases) so unconcerned about their economic futures. Should be a good read. As for lefties – fear not – The Nation stands firm with the union.

3“Transit Strike Reflects Nationwide Pension Woes,” by Steven Greenhouse, The New York Times, 24 December 2005

4Never mind the phenomenon of “Ostnostalgie,” in which citizens of the former “German Democratic Republic” – that is, East Germany – express their longing for the days of state-sufficiency that kept them happily penurious whilst forcing them to spy on each other. The only economic uncertainty they faced was the open question of when they would be arrested by the Stasi.