The Economist

Who pays the bill?

Pensioners are pushing many cities and states towards financial crisis

Friday, July 26, 2013

DETROIT may be an extreme case of fiscal incontinence. But its bankruptcy highlights a long-term problem faced by many American cities and states; how to fund generous pension and health-care promises that are no longer affordable.
The problem has been decades in the making. It has always been easier for politicians to promise generous retirement benefits to public servants than to raise their wages. The bill for jam today falls due immediately; the bill for jam tomorrow can be delayed for decades.
The same mindset once caused Detroit’s big three carmakers to strike deals with workers whereby they could retire as young as 48 with gold-plated pension and health-care packages. In the short term, this bought industrial peace. In the long term, it bankrupted GM and Chrysler; in 2009 the government had to rescue them.