When are contracts ironbound, and when are they optional? Via the Center for Economic & Policy Research, Dean Baker writes:
The debate over public pensions clearly shows the contempt that the elites have for ordinary workers. While elites routinely preach the sanctity of contract when it works to benefit the rich and powerful, they are happy to treat the contracts that provide workers with pensions as worthless scraps of paper.
We see this attitude on display currently in the Detroit bankruptcy proceedings. It is even more clearly on display in efforts by Chicago Mayor Rahm Emanuel to default on the city’s pension obligations.
The basic story in both cases is that the contracts that workers had labored under are being laughed at by the elites because they find it inconvenient to carry through with the terms.
In Detroit, paying for pensions or anything else without outside assistance poses a real problem. In Chicago, the cost of the city’s pensions is an inconvenience.
While media like to play the scary number game — $20 billion in unfunded pension liabilities – this comes to about to about 0.5 percent of the city’s GDP over the next 30 years, the time period in which the shortfall would have to be made up. The city could of course raise this much revenue, but the current mayor Rahm Emanuel thinks it would be too inconvenient. And hey, these are just contracts with workers, not obligations to people who really matter.
Emanuel’s cavalier attitude toward contracts with the city’s workers apparently does not apply to its other contracts, for example its deal with Morgan Stanley to lease its parking meters for 75 years. The city arguably received less than half the market price for this long-term lease, but Emanuel apparently thinks the city can still afford to honor its contract with the huge Wall Street bank.
Contracts with Wall Street types always seem to draw more respect than contracts with workers. Folks may recall that when AIG was bankrupt and effectively a ward of the government, we were told by the Obama administration (where Emanuel was then chief of staff), that it had to pay out $165 million in bonuses to its senior staff.
The other notably instance where we have gotten lectures recently about the sanctity of contracts has been with underwater mortgages.
So there is a clear lesson on morality in modern America. Contracts are sacred when respecting them works to the benefit of the rich and powerful. Contracts that imply obligations to workers, like pension commitments, are a joke. Got that?