While America Aged: How Pension Debts Ruined General Motors, Stopped the NYC Subways, Bankrupted San Diego, and Loom as the Next Financial Crisis (Hardcover)

by Roger Lowenstein (Author) "Once upon a time, General Motors was a symbol of success..." (more)
Key Phrases: pension mess, pension scandal, pension sponsors, San Diego, New York, Social Security (more...)

Editorial Reviews

From Publishers Weekly
Starred Review. America's impending pension problem is brutally simple: private companies and governments have pledged to provide retirement income and health care for workers, but have not set aside the money to make good on their promises. Typical accounts of the crisis tend to obfuscate the issue and fixate on laying blame, but Lowenstein (Origins of the Crash) has a refreshing perspective—he tells three fascinating stories in American economic history and situates the current pension problems in the struggle for dignity for workers. Lowenstein regards fixing pensions as a worthy culmination to a century's struggle for justice rather than a painful chore unfairly foisted on the present by the past. Unfortunately, after this incisive and inspiring history lesson, the 10 pages at the end devoted to solutions are too abstract and unoriginal. The book gives the reader lively stories and historical insight, but may disappoint those looking for policy recommendations. (May 5)
Copyright © Reed Business Information, a division of Reed Elsevier Inc. All rights reserved.

From The Washington Post

Reviewed by Phillip Longman

For a married couple, talking about money can be hard. But the cost of using a credit card to put off the conversation is almost always worse. So it is with a company, a city or a country. In While America Aged, financial journalist Roger Lowenstein uses the stories of three deeply encumbered institutions -- General Motors, the New York City subway system and the City of San Diego -- as examples not only of the way most individual Americans conduct their personal finances, but also of how the country as a whole has long lived beyond its means. What these institutions have in common is a sad history of over-confidence in their financial futures, combined with a pattern of half-conscious decisions by all involved -- labor and management, politicians and voters -- to avoid tough choices at the expense of tomorrow. And, as it happens, that tomorrow is now.

Lowenstein's account of how pension debt undid General Motors is particularly telling. In 1949, management and the United Auto Workers were battling over the terms of their next contract. Times were flush as Americans flocked to buy autos in the postwar boom, so GM management was eager to avoid a strike. Meanwhile, autoworkers lacked pensions and feared correctly that the country was still far away from adopting universal health care. These circumstances created an opportunity for a seemingly perfect bargain that came to be known as the "Treaty of Detroit."

GM jumped at a UAW proposal that, in lieu of large wage increases, would set up a pension plan and offer half-price health insurance. The short-term costs would be minimal because, as the UAW pointed out, the average GM worker then had only seven years of experience and a mere fifth were over 50. Left unconsidered was the inevitability that these workers would age, and that if GM did not put aside sufficient funds to pay for their future benefits, the next generation of GM managers and workers would be saddled with an impossible encumbrance.

And that's what happened. Time and again, management and labor struck deals for more generous future benefits without taking into account the resulting liability. As actuaries warned of a long-term buildup of pension debt, GM made the debt disappear on paper by using sunny assumptions about the company's growth prospects -- assumptions that ignored the competition GM would face from foreign automakers that did not have to build huge pension and retiree health care costs into the prices of their cars. By the mid-1990s, GM was compelled to pour so much into its pension fund to make up its deficit that, with the same money, it could have acquired half of Toyota or funded the development of market-dominating, high-efficiency cars to better compete.

This pattern recurred throughout American industry during the second half of the 20th century, and it accounts for much of the decline in the country's industrial competitiveness as well as for myriad market distortions. Railroads, for example, have always been far more energy efficient than trucks and in recent years have made spectacular gains in labor efficiency. Yet among the freight railroads carry is a huge legacy of pension debt under the industry's government-administered and historically underfunded pension plan, which now costs 16 percent of payroll. Most truckers, by contrast, don't even have pensions, let alone have to carry the burden of paying for drivers long since retired. That difference in legacy cost is enough to keep a lot of freight barreling down crowded highways on energy-guzzling trucks instead of going by rail.

The federal government's pension bailout agency, the Pension Benefits Guarantee Corporation, itself faces a liability of more than $14 billion as it pays off the benefits of more than 1.3 million people whose plans have failed. Many other businesses, from Sears to IBM, have frozen their pension funds and shifted workers into defined contribution, or 401(k) plans, which require workers to bear the full risk if their investments lose value. As Teresa Ghilarducci points out in When I'm Sixty-Four, another new book on America's crumbling pension system, these trends leave the next generation of retirees in sorry shape. According to Ghilarducci, the average balance in the 401(k) plans of people approaching retirement age is just $59,000. At today's interest rates, that buys an annuity yielding less than $500 a month, with no adjustment for inflation. A report released last Thursday by the McKinsey Global Institute finds that 69 percent of Americans approaching retirement age lack sufficient funds to avoid a significant decline in their standard of living.

Lowenstein also chronicles the enormous debts now coming due for state and local pension plans. Ever wondered why it costs $2 to ride the New York City subway? Lowenstein will show you that much of the fare goes to cover rides taken in the 1960s and '70s -- that is, for unfunded pension debt. San Diego's municipal pension fund was $1.7 billion in the hole by 2005, a debt equivalent to $6,000 for every family of four in the city.

Having struggled for years to make my own writing on pension issues interesting enough for anyone to want to read, I particularly appreciate Lowenstein's use of real people to illustrate the deeper financial issues involved. Even if they sometimes contain too much detail, there is a kind of gripping, slow-motion train wreck quality to the long, sad stories Lowenstein tells about people and institutions in deep denial. And those stories certainly have a clear moral. Boiling it down to its essence on the book's final page, he concludes, "The most effective remedy -- in pensions, health care, and even in Social Security -- is to banish the credit card. Benefits should not be charged to a future generation; they should be paid for now." Sadly, though, even if we can refrain from borrowing more from our children, we will still bear the dead weight of past borrowing that now falls to us.

Copyright 2008, The Washington Post. All Rights Reserved.

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Product Details

• Hardcover: 288 pages
• Publisher: Penguin Press HC, The (May 1, 2008)
• Language: English
• ISBN-10: 1594201676
• ISBN-13: 978-1594201677
• Product Dimensions: 9.3 x 6.1 x 1.1 inches
• Shipping Weight: 1.1 pounds (View shipping rates and policies)
• Average Customer Review: 3.9 out of 5 stars See all reviews (22 customer reviews)
• Amazon.com Sales Rank: #129,066 in Books (See Bestsellers in Books)

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Customer Reviews

Most Helpful Customer Reviews

21 of 22 people found the following review helpful:

4.0 out of 5 stars Economic and political history, May 16, 2008

By	Maxim Masiutin (Chisinau, Republic of Moldova) - See all my reviews (TOP 1000 REVIEWER)    (REAL NAME)

Roger Lowenstein is the author of my favorite books "Buffett" and "When Genius Failed". His ability to collect the historical facts is amazing: the author gives 575 references to other sources throughout the book. I like this approach very much. This book is also timely and accurate: it is not only a spell-binding economic and political history, the origin and the problems of IRAs, 401(k) and other mechanisms - it is an urgent call to action and a prescription for reform. You will also find what do the precedential candidates of 2008 campaign think about this issue. Besides that, Lowenstein, a regular contributor to many financial periodicals, proposes his own solution. The author recognizes that the workers are entitled to decent security in their retirement - a critical issue as the country ages. He warns that the pension wars that erupted in Detroit, New York and San Diego are only the first. Government and corporations across the country used pensions as a seemingly easy way to curry favor with unions (easy because the expense would be deferred until a later generation). But now, with cumulative retirement deficits approaching $1 trillion, the day of reckoning has arrived.

The author declares that pensions are perfect vehicle for procrastination; in the financial world, they are the most long-enduring promises that exist. The only rival is the federal Social Security system - but there, surprisingly, the commitment is no so airtight. Congress, if it chose, could reduce or cancel Social Security benefits tomorrow. Pensions are forever.

There is a noteworthy example in the book: the young men who went to work for General Motors after World Word II, when GM ruled the roost of American business, were promised pensions and health care benefits that remained in force for half a century. One GM retiree, who died at 111 in 2006, had been collecting pension and retiree health benefits for forty-eight years. When he first went to work, in 1926, GM's managers could not have had the faintest conception of what the company could or would be paying in benefits eighty years later.

I do also recommend the other books by Roger Lowenstein in addition to his book.

22 of 24 people found the following review helpful:

3.0 out of 5 stars Three Good Anecdotes Don't Tell a Complete Story, June 16, 2008

By	American Bandersnatch (New York, NY) - See all my reviews

Although Lowenstein is a talented writer and the topic of retirement in America is an important one, the narrow focus of this book makes it hard to recommend. Lowenstein skillfully recounts in detail the pension plan difficulties faced by General Motors, the New York City subway system and San Diego.

However, these three stories seem to exist in isolation. He doesn't spend enough time putting them in the context of other government and private pension and 401(k) plans. Lowenstein seems to have focused on making sure the three stories are easy to read and in this he has succeeded. But in doing so, he has not provided the hard data that a reader needs to really understand the issue. There is not a single chart of table in the book. There are virtually no benchmarks in the book - it's hard to judge the appropriateness of the pay and pensions described in the book without details of the payroll and benefit costs of other American workers.

Although the stories were good, after reading 230 pages I didn't feel that I had learned anything significant that I did not know before.

6 of 7 people found the following review helpful:

4.0 out of 5 stars Excellent Book-Really drills home pressures on public plans and collectively bargained plans, July 15, 2008

By	Bruce E. Gold (South Plainfield, NJ USA) - See all my reviews (REAL NAME)

I enjoyed reading this book and it gave me an better understanding on how public and union plans can succumb to the pressures to increase benefits now without having to pay for them until later. Gives a good historical perspective of what was going on at GM, in NYC, and San Diego when their pension plans developed their problems.

One thing that is never explicitly stated is that all these governments and unions that crippled their finances by promising generous postretirement medical benefits must be praying for the enactment of universal health care to bail them out of paying for their promised benefits.

I had to take a star off for the final chapter on what should be done going forward. I suppose after an excellent history lesson, Mr. Lowenstein felt the need to tie his three vignettes together, generalize the lessons here to the state of all US pension plans, and come up with a set of solutions. However, the problems facing public and union pension plans are different from those that have put private pension plans in decline. Private pension plans have been hurt by overregulation and by the high cost and volatility that these plans have on a company's financials under new and evolving accounting standards. A private company can freeze it's plan (if its not collectively-bargained) and many have chosen to do so to provide benefits with 401(k) plans whose costs are easier to control.

The other failing of the last chapter is that, after keeping his politics mostly in check through most of the book, he starts reciting liberal talking points to come up with his solutions. He lauds Hillary Clinton by name for her solution of providing government-paid 401(k) accounts for low income people, but condemns President Bush (along with the right wing) for exaggerating the funding strains on the Social Security system and proposing to partially privatize Social Security with a 401(k)-based solution. After spending the whole book expounding on the problems caused when current benefit promises rely on future cash outlays, he then brushes off the same dynamic when it applies to the Social Security system.