Tales of woe and expensive promises

While America Aged
By Roger Lowenstein
Penguin $25.95

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