Courtesy Reuters

Stick with Public Pensions


People everywhere are living longer, filling leisure communities and nursing homes, and alarming public policy analysts. The widespread failure to die in a timely fashion has inspired countless predictions of political chaos and economic ruin in the industrialized countries. The large American generation born after World War II will have to cope, it seems, not just with the usual intimations of mortality, but also with the unhappy consequences of their longevity for their societies and indeed for their own children.

But a measure of caution is appropriate because, as Bismarck, often credited with inventing social insurance, noted, politics is not an exact science. Neither is predicting economic, demographic, and social trends. Fertility experts, for example, foresaw neither the beginning nor the end of the American baby boom. And 2030 -- the year of peak U.S. boomer retirement -- is as far away from us now as 1964. How many, 30 years ago, could have predicted stagnation of wages, the decline in birthrates, the rise of computers, the fall of the U.S.S.R.?

The shift in the balance between retirees and workers is real, and the sooner adjustments in retirement programs are made, the smaller they will need to be. But the hit-'em-over-the-head-to-get-their- attention approach is having perverse effects. In the running-scared politics of the 1990s, the insistence on revolutionary changes may frighten off officeholders who need the reassurance of knowing that incremental revisions can preserve the pension safety net. In fact, it would be foolish to react to longer life by throwing out the basic features of successful and popular pension programs.

Although the details of advanced nations' pension plans differ, all rely on pay-as-you-go public systems in which firms, current workers, and often general tax revenues provide support for retirees. Some of these programs, like Social Security today, accumulate partial reserves for the future. All require adjustment and fresh thinking. But, despite superficial appeal and powerful marketing programs mounted by special interests, the most radical suggestions

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