December 14, 2005

Pay Go, No Go
Alex Tabarrok

It's not just GM, United Airlines and the Federal government who have made unsustainable promises to current and future retirees.

State and local governments have also been irresponsible, to the tune of perhaps a trillion dollars in _unfunded liabilities_

(http://www.nytimes.com/2005/12/11/business/yourmoney/11retire.html) .

For years, governments have been promising generous medical benefits to millions of schoolteachers, firefighters and other employees when they retire, yet experts say that virtually none of these governments have kept track of the mounting price tag.

The usual practice is to budget for health care a year at a time, and to leave the rest for the future.

Off the government balance sheets - out of sight and out of mind - those obligations have been ballooning as health care costs have spiraled and as the baby-boom generation has approached retirement. ...most states and cities have set aside no money to pay for retiree medical benefits.

Instead, they use the pay-as-you-go system - paying for former employees out of current revenue.

December 12, 2005 at 07:10 AM in _Economics_

(http://www.marginalrevolution.com/marginalrevolution/economics/index.html) _Permalink_ (http://www.marginalrevolution.com/marginalrevolution/2005/12/pay_go_no_go.html) _TrackBack (0)_ (http://www.marginalrevolution.com/marginalrevolution/2005/12/pay_go_no_go.html#trackback)

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