Coronavirus panic provides Trump a great opportunity to make a deal on pensions
The Wuhan virus has brought out the worst in lefty Democrats. For pure evil, you can't beat the governors like Cuomo, who stuffed infected patients into unprotected nursing homes, killing thousands. Next worst is the insane resistance to the cheap and effective hydroxychloroquine therapy. When used in proper dosages and with zinc, it works great, like in the NYU study released just this week. But Nutty Professor Tony Fauci and his federal colleagues want to run only "rigged" studies on patients near death and without the zinc, such as this New York State mess.
Now enters Nancy Pelosi and her $3-trillion wish list. The bill includes the usual Democrat boilerplate: giving illegal aliens amnesty, legalizing election theft practices through ballot-harvesting, lots of Green New Deal, and on and on. I can't get too mad about this; it's what these people really believe in.
On our side, Mitch McConnell made a particularly inept opening move on the spending bill with his offer of a new federal law for state government bankruptcies. This was an ugly policy misfire. Conservatives should want no part of state governments in bankruptcy court, turning themselves over to the arbitrary rule of unelected Article 1 federal judges to do who knows what.
Instead, this is a great time for using federal money to buy off Democrats and make a deal to reform things like state pensions and federal loans to college students — a once-in-decades financial opportunity with virtually no downside. We have the unique situation of near zero interest rates, deflation — as measured by broad commodity prices — and yet a strong dollar. At this point, the Federal Reserve can safely hike its balance sheet, as it is currently doing.
A lot of conservatives have a hard time getting their heads around this concept. They imagine that all our "money" must come from tax revenues or be borrowed from China, as Tucker Carlson recently mused. This just isn't true. Much of our money is essentially "printed" by the Federal Reserve, as we have had a pure fiat money system since 1970, when Mr. Nixon, per Milton Friedman's advice, ended what was left of the gold standard. The trick is, you cannot keep printing money with inflation running rampant.
But that's not our problem now, or really since the end of the Cold War. The whole world is happy to take all the U.S. Bucks Uncle Sam can crank out. This is truly a "windfall" we can put to good use. Take the easy money now, while we have this low inflation window, and fix the long-term financial problems of pensions and college debt waiting in the future.
To his credit, Donald Trump understands this better than the Beltway fossils in both parties. He has mused about using these unique circumstances to refinance the national debt, much as savvy homeowners are refinancing their residential mortgages. He has also suggested using the Fed to pay for some of his big infrastructure ideas. He should do both and offer Democrats a generous relief package for state pension problems and help to those struggling with college debt — but only with real reforms attached.
You see, while state governments are afflicted with massive pension problems, they are caught in straitjackets of their own state constitutions and state supreme courts, which are firmly in the pockets of public employee unions. Even when legislators find the courage to pass modest reforms, such as in Illinois or Kentucky, the state courts stop them.
Reform through federal law solves this problem. Many savvy blue-state conservatives have already figured it out, like Ira Stoll and Richard Porter. Specific federal reform legislation fixes pensions but doesn't get into the bigger mess of putting a whole state government into reorganization.
My reform suggestion is three simple rules in federal law for state and local pension plans to stop the bleeding and allow them to finally get whole after a few decades.
The first would be to end all defined benefit pension plans for any new state and local employees. No longer would pension costs be open-ended, nor could state governments cheat by putting IOUs in the kitty. Rather, every new employee from here on out would get a 457(b) plan, the government version of a 401(k). Each employee's pension plan is then principal and earnings from whatever he and his employer actually contributed to it.
Second, for current employees with less than 10 years in the system, their retirement could not begin before age 65. We have retirees in Kentucky under the current system, for example, who can claim a full retirement package in their late 40s. That is costly and deeply unfair to the hardworking taxpayers, many of whom will never get a pension of any sort.
Third, cap all government-defined benefit pensions at $100,000 a year. In places like Illinois, big-shot government employees have rigged the system so that tens of thousands of them now draw outrageously large retirements.
As for college debt, we conservatives have been railing about this modern-day peonage system for years. We can finally do something about it by using our federal windfall to reform this as well.
I suggest that for about $500 billion, we can wipe out most student debt by giving a onetime $10K pay-off voucher, as most college debtors owe less than $15K anyway. This would be taxable, so well-to-do debtors would benefit much less.
In return, the federal government would strictly limit new college loans to less than $10K for undergraduates in aggregate at any time. These loans could also be modified under the Chapter 13 of the Bankruptcy Code, the debt work-out provision, for students who have truly worthless degrees.
And there would be no new loans for non-STEM graduate degrees. There is zero reason for the high tuitions at schools of law, business, and liberal arts other than ridiculously inflated teacher salaries. For example, Liz Warren and her hubby each made about $400K a year teaching at Harvard Law, which took up only a few hours a week, six months out of the year. Believe me: Harvard could get lawyers with much higher I.Q.s to teach there for a lot less money.
A guy from Chicago once said never to waste a crisis. I hope Mr. Trump follows his instincts and makes a grand bargain this summer. Lots of federal cash for greedy Dems, but with badly needed reforms attached. That would truly be the art of the deal.
Frank Friday is an attorney in Louisville, Ky.