Promises, Pensions, Problems: A Proposal
Higher wages will come, at least for the next few years, out of your budget—and there are a lot of other things you would like to spend the money on. Higher pensions will be paid, almost entirely, from the budget of later governors. It looks like an easy choice. And, since you aren't the one paying, there is no good reason for you to be stingy in your offer, especially if being generous might end the strike sooner and buy you future political support from the currently striking union. Follow out the logic of the situation and one can see why many U.S. states currently face serious budget problems, in part due to very generous employee pension plans.
There is a fairly simple solution to the problem. Change the relevant laws so that a contract with the state government as a party is enforceable against that government only until the end of the term of the present governor. The governor still has the power to pay people with promises, but only promises that are binding for his current term in office.
Suppose, however, that pensions really are the right answer, that for one reason or another the state employees would rather get a thousand dollars worth of pension than a thousand dollars worth of salary, both figures calculated properly allowing for when and with what probability the money will be paid. The solution is for the state to provide pensions—and pay for them. That could be done by putting money into a fully funded pension plan. It could be done by buying pensions from a private firm. The one way it could not be done would be by making binding promises of future state payments.
My proposal does not, of course, solve all problems. The governor may have ways of binding his successors that do not depend on legally enforceable contracts—if he agrees to a pattern of wages in the future based on number of years of employment, it may be politically costly for his successor to reneg on that promise. And it solves the problem only for state governments. I will leave to readers the problem of how one constructs corresponding rules for the federal government.
Nor is the problem limited to governments. To take an obvious recent example, GM was able to buy peace with the UAW by promises of future pension payments. When it turned out that GM was unable to make those promises good, the federal government intervened to bail them out. Presumably the UAW's willingness to accept pensions instead of pay raises in part reflected their correct prediction that, if the situation arose, that would happen.
The same issue can arise, to some degree, even without government involvement. CEO's of private corporations are limited in their ability to make their performance look good at the cost of creating future obligations for their successors by the rules of accounting, which show, or at least are supposed to show, future obligations as present liabilities on the balance sheet. But the process is, given the limits of accounting methods, imperfect.