Detroit’s Descent into Fiscal Madness

Detroit’s bankruptcy is due in no small measure to a single government policy: the city government promised its workers more and more, but it refused to set aside sufficient funds to pay for these benefits. More than half of the Motor City’s $18.25 billion debt represents unfunded retirement liabilities. The lesson? “It’s that when governments promise benefits they are unwilling to pay for, the system can very quickly come to resemble something designed by Bernie Madoff,” writes John C. Goodman, author of Priceless: Curing the Healthcare Crisis.

Had a private corporation acted like Detroit’s politicians—promising employees a defined-benefit plan but not funding it annually—the company’s officers would have landed in legal hot water. Not so for government officials. Perhaps this is why some experts estimate that the total amount of unfunded state and local retirement liabilities ranges from $3.1 trillion to $4.4 trillion.

“It really doesn’t matter whether public employees are under-paid or over-paid,” Goodman continues. “What matters is that city government pay for whatever they promise at the time the promise is made and do not try to shift those costs to future taxpayers. Put differently, government at all levels (including the federal government) should have to play by the same rules that government the private sector.”

How Do Ponzi Schemes End?, by John C. Goodman (Townhall, 7/27/13)

Priceless: Curing the Healthcare Crisis, by John C. Goodman

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