While America Aged
By Roger Lowenstein
Penguin $25.95

Here is a heroic work. A book about the pensions crisis that is rolling like a tsunami over the US is not a populist venture. This is a story of blunders, short-sightedness and bad outcomes for millions. It also reminds the reader that he or she will one day grow old, and may grow poor. Try selling that.

Given that Roger Lowenstein has written bestsellers on the more alluring topics of Warren Buffett and the collapse of Long-Term Capital Management, it is a surprise that his agent or his publisher did not dissuade him from embarking on such a gloomy story. This features no American heroes or moments of redemption.

It is, however, very interesting and unquestionably important, once one has gritted one’s teeth and settled down to read about 401(k)s, under-funded pension liabilities and disasters at employers from the New York subway to the city of San Diego.

Lowenstein lays out his narrative as three stories, with a coda on what should be done about it. Maybe it was my bias towards the private sector, or perhaps I just ran out of appetite for all of the woe and cupidity after a bit, but I found the only gripping one was the first: that of General Motors.

GM, and the entire Detroit car industry, has been trapped by its huge pension and healthcare obligations in recent years. The need to cover huge liabilities that it carelessly accrued in the good times, when GM produced half of all US vehicles, has driven it for years to discount vehicles and ruin brands just to foot the bill.

A lot of this was down to Walter Reuther, the visionary leader of the United Automobile Workers, who between 1950 and his death in 1970 used GM to pioneer the private sector welfare state in the US. He managed to extend pension and healthcare benefits from white- to blue-collar workers and raise them to unimagined levels.

Reuther worked against the background of Social Security, the New Deal public pension scheme and the growth of post-war welfare states in countries such as the UK. He was sceptical about whether US companies would be able to bear the rising costs of healthcare but they were the entities over which he had leverage.

One Cassandra was Peter Drucker, the management guru, who in 1950 wrote an article titled “The mirage of pensions”, pointing out that no company could predict its capital structure several decades hence. It was reckless to make expensive promises.

GM did not, however, listen. Despite Lowenstein’s sympathy for Reuther, the UAW was also heavily to blame. It was so successful in forcing benefits out of GM that it diverted the company’s cash from investors to workers. In the 15 years leading to 2006, GM paid out $13bn (£6.5bn, €8bn) in dividends and $55bn in pension contributions.

Various things, including longer life expectancy and population ageing have made promises from the past impossible to fulfil. Lowenstein points out that employers and unions also had perverse incentives to strike reckless deals. It made union officials look good and managers could leave it to their successors to pick up the pieces.

If you think private sector pensions are in a mess, you need only look at the US public sector to observe something worse. Lowenstein recounts at length the extraordinary story of San Diego, which was so averse to raising local taxes that it raided and under-funded its pension scheme to provide money for local services. Or take the case of New Jersey, which already has high property taxes and faces unfunded pension and healthcare bills totalling $58bn. Similar bills are coming due across US society – and other ageing societies – and there are no obvious sources of cash. That is one reason why the New Jersey Turnpike – or individual lanes of it – could now be sold.

Lowenstein prefers story-telling to dry analysis and he is probably right in this case. Many panels and think-tanks have debated these issues, only to make their audiences feel confused and depressed. But I felt short-changed by his brief thoughts on solving the knotty problems. He says briskly that the best way to reform US healthcare is for the federal government to extend Medicare (the national health system for the over-65s) to everyone but not to provide services itself. That sounds a lot like the UK National Health Service with a purchaser-provider split, which may be sound policy but also sounds un-American and thus unpopular.

As to pensions, he has some decent ideas, such as enforcing full funding of public pensions and encouraging private pension scheme members to take out annuities. But he does not, and probably could not, have a ready-made solution for the essential problem: that postwar Americans were promised pensions without the need to save.

The reviewer is an FT columnist