Fatted Leviathan
The time bomb of runaway benefits for government employees
The collapse of the housing market has been an object lesson for America. Households and banks borrowed too much on expectations of continuing appreciation in real-estate prices. This extra borrowing inflated a bubble until it burst. By discounting the future too optimistically, we let the good times roll away.
The collapse of Chrysler and GM has been another object lesson. Management and unions pledged too many worker and retiree benefits on expectations of continuing demand for their gas-guzzlers. By discounting the future too optimistically, they let the good times roll away.
The private sector is now rethinking its unrealistic optimism. It has to, since its asset valuations have tumbled. Payrolls are shrinking. Benefits are being cut back. Both management and workers are accepting that they have to work harder for less. Government is upping the pressure by hiking taxes, requiring banks to raise more capital, and demanding more-objective risk reporting.