The Blue Model Needs Wall Street to Survive
...The cycle of dependence on Wall Street usually follows a pattern. Public employee union leaders demand generous benefits as the price of their political support; politicians promise things like higher future pay and early retirement. Wary of public backlash, however, these officials don’t advocate cutting services or raising taxes to cover the shiny new pay packages they have established. The discrepancy between benefits promised and funds available becomes unbridgeable. Desperate to keep from falling too far behind, pension funds turn to the risky side of Wall Street, which gets rich off the panic. All too often, the Wall Street solution to blue model imperatives leaves taxpayers and pensioners stranded.

Fingers have been pointed at both sides. A piece in Rolling Stone last month argued that slimy “Gordon Gekko wanna-be[s]” have basically been stealing money in the dead of night from honest, hard-working pensioners. A piece from AEI this week shot back that pension funds are forced to approach Wall Street hat in hand by the self-serving politicians who make unaffordable promises in the first place....