Is New York the next Detroit?

A lot of people would like the city to return to more conservative investments managed by in-house managers; former Mayor Michael R. Bloomberg (who is, full disclosure, my employer as the founder and majority owner of Bloomberg LP, the parent company of Bloomberg News) oversaw an effort to move in that direction a few years back. But one major thing is standing in the way: politics. It’s not just the fiscal hit that the city would take from adopting a less risky, more realistic approach; it’s also opposition from unions.

In theory, unions should be leading the charge for more conservative accounting standards; after all, it is their job to make absolutely sure that their members will be able to count on those pensions in their old age. In practice, unions often have other priorities. Witness Detroit, where the unions did nothing to stop the absolutely grotesque mismanagement of the city’s pension funds.

In New York, reports the Times, the unions don’t want to move to more conservative pension accounting, because if they do, the city will be required to put more money into the pot… and the taxpaying public might mobilize against the union workers who put them in this spot.

Of course, putting it off will ultimately just make the problem worse; the inexorable logic of compounding is just not very forgiving. Over the next few decades, we are going to come face to face with more problems like Detroit’s: pensions that must be paid, legally and morally, but cannot be paid while still offering an acceptable level of government services. Taxpayers’ wallets are not an inexhaustible resource, and cities and states that demand too much will see their citizenry depart for more fiscally responsible climes.

The problem is that at any given time, it always looks better to delay — and the worse a crisis gets, the more attractive a delay looks, because the reckoning is already very painful. New York’s new mayor has so far said little about the city’s pensions, and it’s probably in his best political interest to keep mum. It’s too bad that the interests of future pensioners — and the city’s — are so different.