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  • Monkeywrenching Socialism – Ratchet Smashing II

    Posted by TM Lutas on May 23rd, 2009 (All posts by )

    On reading this article on unsustainable public/private compensation gaps I wondered whether I had any pension funds drawing on my tax dollars that were grossly underfunded and would inevitably be coming after my budgeted retirement savings to save their pensions. There doesn’t seem to be an easy way to get that information but it’s vital for financial planning for the long haul to a dignified retirement where one can reliably live on your own money.

    The cycle of negotiating generous government employee contracts, underfunding pension contributions, and then jacking up taxes to make up shortfalls at the last moment is another way the socialist ratchet effect works. Since so many of these pension funding sources are location based, the real estate industry offers us a way out.

    When you buy a house the quality of the local public school district is a large factor influencing prices. Childless couples buying a house with no prospect of children will still take an interest in their local schools because of the influence school quality has on house prices. Most who have gone house hunting knows this.

    If I know that taxes will have to double to pay for some lavish government promises within the timeframe of my likely ownership term, I’m going to not be so enthused about buying in that jurisdiction. I certainly would not pay the same price as a neighboring town or county that set up their pension payments as the actuaries say they should be funded.

    Were there to be an unfunded liability index attached to every house in the US comprising of a basket of future expenditures traditionally paid by property or other municipal, county, or state taxes, housing prices would react relatively quickly to poor governance and the drop in housing values prior to the future crisis where the pension fund simply ran out of money would lead to a secular trend of homeowners increasing pressure for responsible government and likely smaller government.

    Right now such an index doesn’t exist but all the information needed to make such an index are already public record. Any large real estate agent system that created such an index would have a competitive advantage over its rivals, even after those rivals replicated the work. The reputation benefits of being the guys who did it first are likely to last much longer than the exclusivity of the index.


    3 Responses to “Monkeywrenching Socialism – Ratchet Smashing II”

    1. Shannon Love Says:

      This is a really good idea. It would make people think twice about moving to areas with high liabilities. The only hitch is that most people aren’t educated to look for such things when they buy a house. Businesses, however, will automatically make use of such indexes.

    2. david foster Says:

      A very interesting idea. I think it might actually be pretty hard to get and analyze the data: public-sector pension funds are notorious for optimistic assumptions and lack of transparency, so it would probably be pretty manpower-intensive rooting through the data and assessing the true probable costs. Might want to start with a few large cities and expand out from there.

      Not clear that the best vehicle for this would be a real-estate company, given that their usual sales strategy is excessive optimism. Maybe a consumer-oriented financial publication.

    3. TMLutas Says:

      The best of monkeywrenching is self-sustained and one very good way to get self-sustained is profitability. You don’t have to ask about how good the schools are in a neighborhood you’re considering. If they are, the agent will generally let you know. This is a change in agent patter, for the most part.

      David Foster – I see your point. The question I would have is whether the funds or the real estate agents are differentially optimistic. If all funds provide the same unrealistic assumptions, you still have a signal that’s useful. The agent issue is similar. They just won’t mention it if the house is in a jurisdiction with a lousy unfunded liability. They don’t usually mention that the local school system blows chunks either. It’s a ‘dog that didn’t bark’ sort of thing.

      If there aren’t good reporting requirements for public sector pensions that mandate uniform reporting, perhaps a legal change *is* going to be necessary. I’m going to have to think about that.

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