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'The Assassins' Gate': Occupational Hazards

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  • Nibedita Ghosh
    The Assassins Gate : Occupational Hazards By FAREED ZAKARIA IN The Assassins Gate, his chronicle of the Iraq war, George Packer tells the tale of Drew
    Message 1 of 4 , Oct 30, 2005
      'The Assassins' Gate': Occupational Hazards

      By FAREED ZAKARIA


      IN "The Assassins' Gate," his chronicle of the Iraq war, George Packer tells
      the tale of Drew Erdmann, a young American official in Baghdad. Erdmann, a
      recent Harvard Ph.D. in history, finds himself rereading Marc Bloch's
      classic firsthand account of the fall of France in 1940, "Strange Defeat."
      He was particularly drawn to a few lines. "The ABC of our profession," Bloch
      wrote, "is to avoid . . . large abstract terms in order to try to discover
      behind them the only concrete realities, which are human beings." The story
      of America in Iraq is one of abstract ideas and concrete realities. "Between
      them," Packer says, "lies a distance even greater than the 8,000 miles from
      Washington to Baghdad."

      Packer begins his absorbing account with the ideas that led the United
      States to war. A few neoconservatives, most prominently Paul Wolfowitz, had
      long believed that ousting Saddam Hussein would pave the way for a grand
      reordering of the Middle East, pushing it away from tyranny and
      anti-Americanism and toward modernity and democracy. Others, including
      Douglas Feith, explained that eliminating Hussein would be particularly good
      for Israel's security. But the broadest reason to intervene in Iraq was that
      it was a bold use of American power that mixed force with idealism. Many
      neoconservatives were Reaganites who believed in an assertive, even
      aggressive, American posture in the world. For them the 1990's - under Bush
      p�re and Clinton alike - had been years of retreat. "They were supremely
      confident," Packer writes, "all they needed was a mission."

      But they wouldn't have had one without 9/11. As one of the neoconservatives
      Packer interviewed correctly points out, "September 11 is the turning point.
      Not anything else." After 9/11, Bush - and many Americans, including many
      liberals - were searching for a use of the nation's power that mixed force
      with idealism and promised to reorder the Middle East. In Iraq they found
      it.

      Packer collects his articles from The New Yorker but goes well beyond them.
      His book lacks a tight thesis or structure and as a result meanders at
      times, petering out in its final sections. But this is more than made up for
      by the sheer integrity and intelligence of its reporting, from Washington,
      New York, London and, of course, Iraq. Packer provides page after page of
      vivid description of the haphazard, poorly planned and almost criminally
      executed occupation of Iraq. In reading him we see the staggering gap
      between abstract ideas and concrete reality.

      Hard as it is to believe, the Bush administration took on the largest
      foreign policy project in a generation with little planning or forethought.
      It occupied a foreign country of 25 million people in the heart of the
      Middle East pretty much on the fly. Packer, who was in favor of the war,
      reserves judgment and commentary in most of the book but finally cannot
      contain himself: "Swaddled in abstract ideas . . . indifferent to
      accountability," those in positions of highest responsibility for Iraq
      "turned a difficult undertaking into a needlessly deadly one," he writes.
      "When things went wrong, they found other people to blame."

      Packer recounts the prewar discussions in the State Department's "Future of
      Iraq Project," which produced an enormous document outlining the political
      challenges in governing Iraq. He describes Drew Erdmann's memo, written for
      Colin Powell, analyzing previous postwar reconstructions in the 20th
      century. Erdmann's conclusion was that success depended on two factors,
      establishing security and having international support. These internal
      documents were mirrored by several important think-tank studies that all
      made similar points, specifically on the need for large-scale forces to
      maintain security. One would think that this Hobbesian message - that order
      is the first requisite of civilization - would appeal to conservatives. In
      fact all of this careful planning and thinking was ignored or dismissed.

      Part of the problem was the brutal and debilitating struggle between the
      State Department and the Defense Department, producing an utterly
      dysfunctional policy process. The secretary of the Army, Thomas White, who
      was fired after the invasion, explained to Packer that with the Defense
      Department "the first issue was, we've got to control this thing - so
      everyone else was suspect." The State Department was regarded as the enemy,
      so what chance was there of working with other countries? The larger problem
      was that Defense Secretary Donald Rumsfeld (and probably Dick Cheney)
      doggedly believed nation-building was a bad idea, the Clinton administration
      has done too much of it, and the American military should stop doing it.
      Rumsfeld explained this view in a couple of speeches and op-ed articles that
      were short on facts and long on polemics. But how to square this outlook
      with invading Iraq? Assume away the need for nation-building. Again, White
      explains: "We had the mind-set that this would be a relatively
      straightforward, manageable task, because this would be a war of liberation,
      and therefore reconstruction would be short-lived." Rumsfeld's spokesman,
      Larry Di Rita, went to Kuwait in April 2003 and told the American officials
      waiting there that the State Department had messed up Bosnia and Kosovo and
      that the Bush administration intended to hand over power to Iraqis and leave
      within three months.

      SO the Army's original battle plan for 500,000 troops got whittled down to
      160,000. If Gen. Tommy Franks "hadn't offered some resistance, the number
      would have dropped well below 100,000," Packer says. At one point, Franks's
      predecessor, Anthony Zinni, inquired into the status of "Desert Crossing,"
      his elaborate postwar plan that covered the sealing of borders, securing of
      weapons sites, provision of order and so on. He was told that it had been
      discarded because its assumptions were "too negative."

      As the looting began and went unchecked, the occupation lost its aura of
      authority and began spiraling downward. Iraq's first czar, Jay Garner, was
      quickly replaced, as were dozens of American officials, in what was the
      first of a stream of shifts, countershifts and bureaucratic battles. Garner
      was followed by L. Paul Bremer. Bremer was an intelligent man but his
      previous administrative experience was confined to running the American
      Embassy in The Netherlands. In any event, his two catastrophic decisions
      were probably made in Washington - disbanding the Iraqi Army and
      de-Baathification, which banned from government service the entire top four
      levels of the Baath Party, regardless of whether any of the individuals
      affected had been implicated in any crime. (In Iraq, to be banned from the
      public sector was effectively to be forced into unemployment.) Packer writes
      that "at least 35,000 mostly Sunni employees of the bureaucracy, including
      thousands of schoolteachers and midlevel functionaries, lost their jobs
      overnight." Thousands more were purged subsequently.

      Bremer has often argued that the deBaathification decree was his most
      popular act. This is probably true, among the Shiites. But that would be
      like saying that had he proclaimed independence for the Kurds, it would have
      gone down well in Iraq's northern regions. As a balancing act that kept
      Iraq's three communities at peace, it was a disaster. Bremer's decisions
      signaled to Iraq's Sunnis that they would be stripped of their jobs and
      status in the new Iraq. Imagine if, after apartheid, South Africa's blacks
      had announced that all whites would be purged from the army, civil service,
      universities and big businesses. In one day, Bremer had upended the social
      structure of the country. And he did this without having in place a new
      ruling cadre that could take over from the old Sunni bureaucrats.

      These decisions did not cause the insurgency, though it is worth noting that
      for the first few months of the occupation, Sunni Falluja was much less of a
      problem for the United States than was Shiite Najaf. But Bremer fueled the
      dissatisfaction of the Sunnis, who now had no jobs but plenty of guns. And
      most especially, his decisions added to the chaos and dysfunction that were
      rapidly rising in Iraq. "We expected the Americans would make the country an
      example, a second Europe," an unemployed electrician told Packer in the
      first year of the occupation. "That's why we didn't fight back. And we are
      shocked, as if we've gone back 100 years."

      Packer describes an occupation that was focused more on rewarding
      confederates than gaining success on the ground. Garner received
      instructions from Feith and Wolfowitz to be nice to the Iraqi exile leader
      Ahmad Chalabi, who was a favorite of the Pentagon. State Department
      officials were barred from high posts in Baghdad, even when they were
      uniquely qualified. Senior jobs went to Feith's former law partner and to
      the brother of Ari Fleischer, Bush's press secretary. Friendly American
      firms like Halliburton were favored over local Iraqis.

      Packer describes in microcosm something that has infected conservatism in
      recent years. Conservatives live in fear of being betrayed ideologically.
      They particularly distrust nonpartisan technocrats - experts - who they
      suspect will be seduced by the "liberal establishment." The result, in
      government, journalism and think tanks alike, is a profusion of
      second-raters whose chief virtue is that they are undeniably "sound."

      The simplest proof of the myriad American errors is that, starting around
      May 2004, Washington began reversing course wholesale. Troop withdrawals
      were postponed. The decision to hold caucuses and delay elections was
      shelved. The American-appointed Governing Council was abolished. The hated
      United Nations was asked to come in and create and bless a new body. In
      recent months, the reversal is wholesale. The United States has been bribing
      tribal sheiks, urging the Iraqi government to end de-Baathification and make
      a concerted effort to bring the Sunnis back into the political process.

      Where is Iraq today? The continuing violence in the Sunni areas has kept
      most Americans from recognizing what is actually happening in the country.
      America's blunders forced Washington, hastily and with little planning, to
      hand over power to those Iraqis who were organized for it - the Kurds and
      the Shiite religious parties. Iraq is currently three different lands -
      though not three different countries. In the north, the Kurds run a
      relatively benign form of one-party democracy. In the south, while things
      are stable, in several places, Shiite religious groups, often with their own
      militias, have imposed their rule. Packer describes the disjuncture: "Inside
      the Green Zone, long hours of negotiation about the role of Islam and
      women's rights . . . outside a harsh social code enforced by vigilante
      rule." And in the center, of course, is a war zone.

      Let's be clear: Iraq today is a much better, even more liberal, place than
      Saddam Hussein's Iraq. It has elements that are more progressive than many
      Arab countries. Divided rule and a federal structure may produce real checks
      and balances on absolute power. And its negotiations, debates and elections
      have had a positive effect. But Iraq is also plainly not what so many had
      hoped it would be - a model and inspiration for the Arab world. For every
      day of elections, there are months of chaos, crime and corruption. Things
      will improve but it will take years, not months. And the costs have been
      unconscionably high - for Americans and Iraqis.

      Was all this inevitable? Did the United States take on something impossible?
      That seems to be the conventional wisdom today. If so, what to make of
      Afghanistan? That country is deeply divided. It has not had a functioning
      government in three decades, some would argue three centuries, and yet it is
      coming together under a progressive leader. Two million Afghan refugees have
      voted with their feet and returned to their country (unlike Iraq, where
      people are leaving every day). And the reasons? The United States allied
      itself with forces on the ground that could keep order. It handed over the
      political process to the international community, preventing any stigma of a
      neocolonial occupation (it was the United Nations that created the loya
      jirga, the national assembly, and produced Hamid Karzai). It partnered with
      NATO for much of the routine military work. In fact the Afghan National Army
      is being trained by the United States - and France. And it has accepted
      certain facts of Afghan life, like the power of its warlords, working slowly
      to change them.

      "The Iraq war was always winnable," Packer writes, "it still is. For this
      very reason, the recklessness of its authors is hard to forgive." But it is
      not just recklessness. The book that Drew Erdmann should have been reading
      in Iraq was not "Strange Defeat" but his dissertation adviser Ernest May's
      recent emendation to it, "Strange Victory." In it, May explains that the
      fall of France was not inevitable at all. It happened because the French
      made some key misjudgments. Presciently, May argues that "Western
      democracies today exhibit many of the same characteristics that France and
      Britain did in 1938-40 - arrogance, a strong disinclination to risk life in
      battle, heavy reliance on technology as a substitute and governmental
      procedures poorly designed for anticipating or coping with ingenious
      challenges from the comparatively weak." Above all, he emphasizes the fatal
      cost of arrogance, closing his book with the injunction of Oliver Cromwell
      in 1650 to the General Assembly of the Church of Scotland: "I beseech you,
      in the bowels of Christ, think it possible you may be mistaken." No one in
      the Bush administration ever did, and so we are where we are in Iraq.

      Fareed Zakaria is the editor of Newsweek International, the author of "The
      Future of Freedom" and the host of the PBS show "Foreign Exchange."


      http://www.nytimes.com/2005/10/30/books/review/30zakaria.html
    • Nibedita Ghosh
      The End of Pensions By ROGER LOWENSTEIN I. THE LATEST FINANCIAL DEBACLE When I caught up with Robert S. Miller, the chief executive of Delphi Corporation, last
      Message 2 of 4 , Oct 30, 2005
        The End of Pensions
        By ROGER LOWENSTEIN

        I. THE LATEST FINANCIAL DEBACLE

        When I caught up with Robert S. Miller, the chief executive of Delphi
        Corporation, last summer, he was still pitching the fantasy that his
        company, a huge auto-parts maker, would be able to cut a deal with its
        workers and avoid filing for bankruptcy protection. But he acknowledged that
        Delphi faced one perhaps insuperable hurdle - not the current conditions in
        the auto business so much as the legacy of the pension promises that Delphi
        committed to many decades ago, when it was part of General Motors. This was
        the same fear that had obsessed Alfred P. Sloan Jr., the storied president
        of G.M., who warned way back in the 1940's that pensions and like benefits
        would be "extravagant beyond reason." But under pressure from the United
        Auto Workers union, he granted them. And as future auto executives would
        discover, pension obligations are - outside of bankruptcy, anyway -
        virtually impossible to unload. Unlike wages or health benefits, pension
        benefits cannot be cut. Unlike other contracts, which might be renegotiated
        as business conditions change, pension commitments are forever. And given
        the exigencies of the labor market, they tend to be steadily improved upon,
        at least when times are good.

        For the U.A.W., Miller noted forlornly, "30 and Out" - 30 years to
        retirement - became a rallying cry. Eventually, the union got what it
        wanted, and workers who started on the assembly line after high school found
        they could retire by their early 50's. "These pensions were created when we
        all used to work until age 70 and then poop out at 72," Miller told me. "Now
        if you live past 80, a not-uncommon demographic, you're going to be taking
        benefits for longer than you are working. That social contract is under
        severe pressure."

        Earlier this month, Miller and Delphi gave in to the pressure and sought
        protection under the bankruptcy code - the largest such filing ever in the
        auto industry. It followed by a few weeks the Chapter 11 filings of Delta
        Air Lines and Northwest Airlines, whose pension promises to workers exceeded
        the assets in their pension funds by an estimated $16 billion.

        The three filings have blown the lid off America's latest, if
        long-simmering, financial debacle. It is not hedge funds or the real-estate
        bubble - it is the pension system, both public and private. And it is
        broken.

        II. THE MORAL HAZARD OF INSURANCE

        The amount of underfunding in corporate pension plans totals a staggering
        $450 billion. Part of that liability is attributable to otherwise healthy
        corporations that will most likely, in time, make good on their obligations.
        But the plans of the companies that fail will become the responsibility of
        the government's pension insurer, the Pension Benefit Guaranty Corporation.
        The P.B.G.C., which collects premiums from corporations and, in theory, is
        supposed to be self-financing, is deeply in the hole, prompting comparisons
        to the savings-and-loan fiasco of the 1980's. Just as S. & L.'s of that era
        took foolish risks in part because their deposits were insured, the
        P.B.G.C.'s guarantee encouraged managements and unions to raise benefits
        ever higher.

        In such situations, individuals are tempted to take more risk than is
        healthy for the group; economists, in a glum appraisal of human nature, call
        it "moral hazard." In effect, America's pension system has been a laboratory
        demonstration of moral hazard in which the insurance may end up bankrupting
        the system it was intended to save. Given that pension promises do not come
        due for years, it is hardly surprising that corporate executives and state
        legislators have found it easier to pay off unions with benefits tomorrow
        rather than with wages today. Since the benefits were insured, union leaders
        did not much care if the obligations proved excessive. During the previous
        decade especially, when it seemed that every pension promise could be
        fulfilled by a rising stock market, employers either recklessly overpromised
        or recklessly underprovided - or both - for the commitments they made.

        The P.B.G.C. is now $23 billion in the red - a deficit that is expected to
        grow, significantly, as more companies go under. The balance sheet for the
        end of September will very likely show a deficit of more than $30 billion.
        If nothing is done to fix the system, the Congressional Budget Office
        forecasts, the deficit will mushroom to more than $100 billion within two
        decades. This liability will almost certainly fall back on the taxpayers,
        since the alternative to a bailout - letting the pension agency fail - would
        force aging former auto workers and other retirees onto the street.

        As bad as that sounds, the problem of state and local government pensions is
        even worse. Public pensions, which are paid by taxpayers and thus enjoy an
        implicit form of insurance, are underfunded by a total of at least $300
        billion and arguably much more. While governments have been winking at these
        deficits for years, they are now becoming intolerable burdens for taxpayers.
        In San Diego, pension abuse has effectively bankrupted the city. Thanks to a
        history of granting sweeter and sweeter pension deals that it has neglected
        to fund, the city has been forced to allocate $160 million, or 8 percent of
        the municipal budget, to the San Diego City Employees Retirement System this
        year, with similar allocations expected for years to come. San Diego has
        tabled plans for a downtown library, cut back the hours on swimming pools,
        gutted the parks and recreation budget, canceled needed water and sewer
        projects and fallen behind on potholes.

        State or local governments in New Jersey, New York, Illinois, Ohio, West
        Virginia and elsewhere face similar budget strains aggravated by runaway
        pension promises. According to Carl DeMaio, director of the Performance
        Institute, which advocates better government accountability, "There is a San
        Diego brewing in every community."

        Not only are taxpayers certain to suffer, but senior citizens in the future
        may also have to settle for less secure retirements anchored only by Social
        Security and whatever they've managed to put away into their 401(k)
        accounts. A backlash already has begun in state capitals, where the
        political forces that have been lobbying for Social Security reform have
        been rallying lawmakers to get out of the pension business altogether.
        Alaska's Legislature recently passed a shotgun bill to deny pensions to
        future employees. This mimics a trend in the private sector, in which
        corporations have been leaving the system, either by paying off their
        workers and terminating their pension plans or by "freezing" their plans, a
        step recently taken by Hewlett Packard, so that many current employees will
        no longer accrue benefits and new employees will not participate at all.

        If the pension system continues to wither, it is not hard to envision a
        darker future in which - as was true until early in the 20th Century, before
        the advent of pensions - many of the elderly would be forced to keep working
        to stave off poverty.

        III. THE SHRINKING PENSION SYSTEM

        Congress has been debating legislation to fix the private system, but it has
        been unable to resolve a basic tension: anything it does to ease the burden
        on failing or failed pension plans lessens the penalty for failure and
        enhances moral hazard. By making it easier for, say, a Delta or a Delphi to
        offer benefits, it raises the possible cost of a future bailout.

        The tough medicine favored by the Bush administration, which would eliminate
        loopholes in the system as well as much of the subsidy that now exists in
        the insurance system, would lead to more companies freezing their plans or
        leaving the system outright. The number of pension plans would continue to
        shrink and in time all but disappear. This would strip the elderly of the
        future of what is still the most secure form of retirement income.

        The fear of runaway pension costs plainly echoes the Social Security debate,
        and many suspect that the Bush administration would not much mind if
        pensions did disappear. "I don't think the administration is very interested
        in creating a future for traditional pensions," says Julia Coronado, a
        senior research associate at Watson Wyatt, a human-resources consulting
        firm. "It doesn't fit very well with their vision of the ownership society."

        Bradley Belt, executive director of the P.B.G.C., shrugs off the charge.
        "The last thing we want to do is chase people out of the system," he says.
        Besides, the government doesn't need to chase. As Belt points out, the
        number of workers covered by pensions is shrinking without government help.
        In 1980, about 40 percent of the jobs in the private sector offered
        pensions; now only 20 percent do. The trend is probably irreversible,
        because it feeds on itself. Hewlett Packard, for instance, must compete with
        younger companies like Dell Computer that do not offer traditional pensions.
        Freezing its plan, which was a legacy of the company's famously
        employee-oriented founders, was an embarrassing step for H.P.'s present
        managers - but freeze it they did.

        This may have made economic sense, but federal law has long recognized a
        social purpose to pensions as well. By allowing companies to deduct from
        taxes the money they contribute into their pension funds, the government
        encourages employers to provide a safety net for their workers. This remains
        a legitimate function, and if pensions were allowed to die, we would need
        something to take their place.

        IV. WHY PENSIONS MATTER

        To understand why pensions are still important, you have to understand the
        awkward beast that benefits professionals refer to as the U.S. retirement
        system. It is not really one "system" but three, which complement each other
        in the crudest of fashions. The lowest tier is Social Security, which
        provides most Americans with a bare-bones living (the average payment is
        about $12,000 a year). The highest tier, available to the rich, is private
        savings. In between, for people who do not have a hedge-fund account and yet
        want to retire on more than mere subsistence, there are pensions and
        401(k)'s. Currently, more than half of all families have at least one member
        who has qualified for a pension at some point in his or her career and thus
        will be eligible for a benefit. And among current retirees, pensions are the
        second-biggest source of income, trailing only Social Security.

        During most of the 90's the decline in pension coverage was barely lamented.
        It was not that big companies were folding up their plans (for the most
        part, they were not) but that newer, smaller companies weren't offering
        them. As the small companies grew into big ones (think Dell, or Starbucks,
        or Home Depot), traditional pensions covered less of the private-sector
        landscape. This did not seem like a very big deal. Younger workers
        envisioned mobile careers for themselves and many did not want pension
        strings tying them to a single employer. And most were able to put money
        aside in 401(k)'s, often matched by an employer contribution.

        It happened that 401(k)'s, which were authorized by a change in the tax code
        in 1978 and which began to blossom in the early 1980's, coincided with a
        great upswing in the stock market. It is possible that they helped to cause
        the upswing. In any case, Americans' experience with 401(k)'s in the first
        two decades of their existence was sufficiently rosy that few people shed
        tears over the slow demise of pension plans or were even aware of how
        significantly pensions and 401(k)'s differed. But 401(k)'s were intended to
        be a supplement to pensions, not a substitute.

        From the beneficiary's standpoint, pensions mean unique security. The worker
        gets a guaranteed income, determined by the number of years of service and
        by his or her salary at retirement. And pensions don't run dry; workers (or
        their spouses) get them as long as they live. Because the employer is
        committed to paying a certain level of benefits, pensions are known as
        "defined benefit" plans. Since an individual's benefit rises with each year
        of service, the employer is supposed to sock money away, into a fund that it
        manages for all of its beneficiaries, every year. The point is that workers
        don't (or shouldn't) have to worry about how the benefit will get there;
        that's the employer's responsibility. Of course, the open-ended nature of
        the guarantee - the very feature that makes pensions so attractive to the
        individual - is precisely what has caused employers to rue the day they said
        yes. No profit-making enterprise can truly gauge its ability to meet such
        promises decades later.

        A 401(k), on the other hand, promises nothing. It's merely a license to
        defer taxes - an individual savings plan. The employer might contribute some
        money, which is why 401(k)'s are known as "defined contribution" plans. Or
        it might not. Even if the company does contribute, it offers no assurance
        that the money will be enough to retire on, nor does it get involved with
        managing the account; that's up to the worker. These disadvantages were, in
        the 90's, somehow perceived (with the help of exuberant marketing pitches by
        mutual-fund firms) to be advantages: 401(k)'s let workers manage their own
        assets; they were a road map to economic freedom.

        Post-bubble, the picture looks different. Various people have studied how
        investors perform in their 401(k)'s. According to Alicia Munnell, a pension
        expert at Boston College and previously a White House economist, pension
        funds over the long haul earn slightly more than the average 401(k) holder.
        Among the latter, those who do worse than average, of course, have no
        protection. Moreover, pensions typically annuitize - that is, they convert a
        worker's retirement assets into an annual stipend. They impose a budget,
        based on actuarial probabilities. This might seem a trivial service (some
        pensioners might not even realize that it is a service). But if you asked a
        65-year-old man who lacked a pension but did have, say, $100,000 in savings,
        how much he could live on, he likely would not have the vaguest idea. The
        answer is $654 a month: this is the annuity that $100,000 would purchase in
        the private market. It is the amount (after deducting the annuity provider's
        costs and profit) that the average person could live on so as to exhaust his
        savings at the very moment that he draws his final breath.

        So the question arises: what if he lives longer than average? This is the
        beauty of a pension or of any collectivized savings pool. The pension plan
        can afford to support people who live to 90, because some of its members
        will expire at 66. It subsidizes its more robust members from the resources
        of those who die young. This is why a 401(k) is not a true substitute.
        Jeffrey Brown, an associate finance professor at the University of Illinois
        at Urbana-Champaign and a staff member of the president's Social Security
        commission, notes that as baby boomers who have nest eggs in place of
        pensions begin to retire, they will be faced with a daunting question: "How
        do I make this last a lifetime?"

        V. FROM MANAGEMENT TOOL TO EMPLOYEE BENEFIT

        The country's first large-scale pension plan was introduced after the Civil
        War, when the federal government gave pensions to disabled Union Army
        veterans and war widows. Congress passed an act in 1890 that extended
        pensions to all veterans 65 and over. This converted pensions into a form of
        social welfare. Over the next 20 years, states and cities added pensions for
        police officers and firefighters. By World War I, most teachers had been
        granted pensions as well. Governments couldn't offer big paychecks for
        workers - teachers, the police, firefighters - so it offered stability and
        pensions instead.

        In the private sector, the first pension was offered by American Express, a
        stagecoach delivery service, in 1875. Railroads followed suit. Employees
        were required to work for 30 years before they qualified for benefits, and
        thus pensions helped companies retain employees as well as ease older
        workers into retirement. These employers thought of pensions as management
        tools, not as employee "benefits." But in the first half of the 20th
        century, as the historian James Wooten put it, government policies turned
        pensions into a tool of social policy. First came the tax deduction. This
        feature was abused, as companies used pensions to shelter payments to their
        executives. The rules were gradually tightened, however, forcing plans to
        include the rank and file. World War II gave more incentives to create
        pensions: punitive tax rates made the pension shelter enormously attractive
        and a government freeze on wages meant that pensions were the only avenue
        for increasing compensation.

        The effect of these policies was to encourage unions to bargain for pensions
        and to pressure employers to grant them. After the war, John L. Lewis, the
        legendary labor leader, staged a strike to win pensions for miners. Ford
        Motor capitulated to the U.A.W. in 1949. G.M., headed by the reluctant
        Sloan, followed in 1950. This led to a so-called pension stampede; by 1960,
        40 percent of private-sector workers were covered. Meanwhile, in the auto
        industry, the seeds of the problem were already visible.

        Companies might establish plans, but many were derelict when it came to
        funding them. When companies failed, the workers lost much of their promised
        benefit. The U.A.W. was acutely aware of the problem, because of the failing
        condition of several smaller car manufacturers, like Packard. The union
        didn't have the muscle to force full funding, and even if it did, it
        reckoned that if the weaker manufacturers were obliged to put more money
        into their pension funds, they would retaliate by cutting wages.

        Thus in 1959, Studebaker, a manufacturer fallen on hard times, agreed to
        increase benefits - its third such increase in six years. In return, the
        U.A.W. let Studebaker stretch out its pension funding schedule. This bargain
        preserved the union's wages, as well as management's hopes for a profit,
        though it required each to pretend that Studebaker could afford a pension
        plan that was clearly beyond its means. Four years later, the company
        collapsed.

        The Studebaker failure was a watershed. Thousands of employees, including
        some who had worked 40 years on the line, lost the bulk of their pensions.
        Stunned by the loss, which totaled $15 million, the U.A.W. changed its
        tactics and began to lobby in earnest for federal pension insurance. A union
        pension expert tellingly explained to Walter Reuther, the U.A.W. chief, that
        insurance would reconfigure the "incentives" of both labor and management.
        Though business was skeptical of the idea, a decade later, in 1974, Congress
        finally passed the Employee Retirement Income Security Act, or Erisa, which,
        among other protections, established the P.B.G.C. to insure private
        pensions. Erisa, according to Wooten, who wrote a history of the act,
        completed the transition of pensions into a part of the social safety net.
        It was also the birth of moral hazard.

        VI. THE SURPRISINGLY PLIABLE SYSTEM OF PENSION ACCOUNTING

        Erisa, which would be amended several times, was supposed to ensure that
        corporate sponsors kept their plans funded. The act includes a Byzantine set
        of regulations that seemingly require companies to make timely
        contributions. As recently as 2000, most corporate plans were adequately
        funded, or at least appeared to be. Their assets took a serious hit,
        however, when the stock market tumbled. (In retrospect, they had been
        cavalier in assuming the bull market would continue.) And they were burned
        again when interest rates fell.

        Since pension liabilities are, for the most part, future liabilities,
        companies calculate their present obligation by applying a discount rate to
        what they will owe in the future. As interest rates move lower, they have to
        set more money aside because it is assumed that their assets will grow more
        slowly. The principle is familiar to any individual saver: you need to save
        more if you expect, say, a 5 percent return on your investment instead of a
        10 percent return. What is much in dispute is just which rate is proper for
        pension accounting.

        Corporations have been gaming the system by using the highest rates
        allowable, which shrinks their reported liabilities, and thus their funding
        requirements. The P.B.G.C., when calculating the system's deficit, uses what
        is in effect a market rate; whatever it would cost to buy annuities for
        everyone covered in a pension plan is, it argues, the plan's true
        "liability." The difference between these measures can be extreme. Depending
        on whom you talk to, General Motors' mammoth pension fund is either fully
        funded or, as the P.B.G.C. maintains, it is $31 billion in the hole.

        What is not in dispute is that when interest rates fell, the present value
        of pension liabilities (by whatever measure) soared. The confluence of
        falling stock prices, plunging interest rates and a recession in the
        beginning of this decade was the pension world's equivalent of the perfect
        storm. An unprecedented wave of pension sponsors failed and then dumped
        their obligations on the P.B.G.C. (To do so, a sponsor generally must prove
        that it could not re-emerge as a viable enterprise without shedding its
        pension plan.) By far the most costly failures were in airlines and steel,
        although the list ranges from Kemper Insurance and Kaiser Aluminum to
        Murray, a lawn-mower manufacturer.

        As the P.B.G.C. assumed responsibility for more and more pensioners, it
        became clear that the premium it charged was way too cheap. Mispriced
        insurance, like mispriced anything, sends the market a distorted signal.
        Belt, the P.B.G.C. director, who served as counsel to the Senate Banking
        Committee in the late 1980's during the savings-and-loan crisis, says that
        cheap pension insurance gave rise to flawed incentives: namely it kept
        companies in the pension business who didn't deserve to be there. He also
        argues, rather convincingly, that lax rules allowed pension sponsors to get
        away with inadequate funding.

        For example, United Airlines did not make contributions to any of its four
        employee plans between 2000 and 2002, when it was heading into Chapter 11,
        and made minimal contributions in 2003. Even more surprisingly, in 2002,
        after two of its jets had been turned into weapons in the Sept. 11 disaster,
        and when the airline industry was pleading for emergency relief from
        Congress, United granted a 40 percent increase in pension benefits for its
        23,000 ground employees.

        Bethlehem Steel similarly enjoyed a three-year funding holiday as it was
        going through hard times, letting its liabilities swell in advance of
        turning them over to the government. Meanwhile, in order to gain its unions'
        approval for plant shutdowns, it agreed to costly benefit enhancements. In
        2001 Bethlehem filed for Chapter 11 bankruptcy. It was guided through its
        bankruptcy by none other than Miller, now the Delphi C.E.O. Miller disputes
        the notion that capital-scarce companies like Bethlehem intentionally game
        the system by shirking funding. "Companies don't like falling behind," he
        says. "When you have a hard choice between starving the capital base to feed
        the pension plan, or making capital investments to become more productive,
        to the extent there is permission that's what you do." The point is, they
        had permission.

        Neither Bethlehem nor United broke any laws. Both companies made the full
        contributions required under Erisa. When the P.B.G.C. seized their plans,
        however, Bethlehem was only 45 percent funded, and United was only 42
        percent funded. For companies that terminate their pension plans, such gross
        underfunding has become the norm. Either assets suddenly vanish when the
        P.B.G.C. walks in the door, or, evidently, the system for measuring "full"
        funding is broken. As Belt testified to the Senate Committee on Finance in
        June, "United, US Airways, Bethlehem Steel, LTV and National Steel would not
        have presented claims in excess of $1 billion each - and with funded ratios
        of less than 50 percent - if the rules worked."

        Even leaving aside the debate over which rate to use in calculating pension
        liabilities, there is no doubt that Erisa permits companies to use some
        doubtful arithmetic. For instance, the law lets corporations "smooth"
        changes in their asset values. If the stocks and bonds in their pension
        funds take a hit (as happened to just about every fund recently), they don't
        have to fully report the impact. Nor do they have to ante up fresh funds to
        compensate for the loss for five years. A similar smoothing is permitted on
        the liability side. And though, in theory, Erisa discourages underfunding by
        requiring offenders to pay higher premiums, its various loopholes render the
        sanction toothless. Thanks to another loophole, companies that contribute
        more than the required amount get to skip future contributions even if they
        later become underfunded. These companies are awarded so-called "credit
        balances," which remain in place even if the actual balance is showing red.

        Incredibly, when United's plans were terminated, earlier this year, even
        though they were groaning under $17 billion in pension liabilities and a
        mere $7 billion in assets, they still had credit "balances" according to
        Erisa. (By law, the P.B.G.C. will be on the hook for most, but not all, of
        United's shortfall. The agency guarantees pensions up to $45,000 a year;
        employees, mostly pilots, who were owed richer pensions are uninsured above
        the cap.)

        Their dubious funding history notwithstanding, corporations - airlines in
        particular - have been lobbying for greater permissiveness for several
        years. And they have gotten it. Congress has twice relaxed the rules,
        permitting pension sponsors to use a higher rate to calculate their
        liabilities.

        VII. WHAT BUSH WOULD DO?

        Enter the Bush administration: it has essentially declared the era of
        permissiveness over. Among other changes, it wants the funding rules
        tightened. To tackle moral hazard, it wants to stop companies with poor
        credit ratings from granting benefit hikes, or from doling out unfunded
        pension benefits to unions who agree to plant shutdowns. It even wants to
        prevent workers at some companies whose bonds are given a "junk" rating from
        accruing more years of service. This would be painful to employees at many
        industrial companies, possibly including G.M.

        Indeed, one reading of the administration proposal is that, having seen the
        steel and airline industries raid the P.B.G.C., it is drawing the line at
        the auto industry - whose initial distress, of course, prompted the agency's
        founding. Asked about that before Delphi went bust, Belt admitted: "Eight
        auto-parts suppliers have come under Chapter 11 so far this year. No
        question our single largest source of exposure is the auto sector."

        Since G.M.'s stock was downgraded to junk status earlier this year, the
        possibility that it would file for bankruptcy has been the subject of
        on-again, off-again debate on Wall Street. G.M.'s pension plan totals an
        astronomical $90 billion; a bankruptcy filing would be the P.B.G.C.'s
        biggest nightmare. G.M. says the notion is far-fetched. The company seems to
        have plenty of liquidity and, just two weeks ago, with retiree costs a major
        concern, it reached an agreement with the U.A.W. to trim health benefits.
        G.M. and other industrial companies, along with their unions, have harshly
        attacked the Bush pension proposal, which would force many old-economy-type
        corporations to put more money into their pension funds just when their
        basic businesses are hurting.

        Alan Reuther, Walter's nephew and the U.A.W.'s legislative director, says
        the provisions to restrict benefits would be "totally devastating for
        workers and retirees." He makes no apologies for "30 and out" - a fair
        reward, he maintains, for hard service on the assembly line - and he wonders
        at the post-modern notion that blue-collar workers should be responsible for
        their own retirements because giant corporations can't handle it. Also, a
        typical G.M. pension for someone with 30 years on the job is about $18,000 a
        year. That is hardly to be compared with an airline pilot's. "The P.B.G.C.
        is focused on protecting themselves from claims and not on protecting the
        claims of workers," he says. "They forget why they were created." Social
        safety nets have their price - in this case, a little moral hazard - and
        that is really what the debate is about.

        What has emerged from the Beltway skirmishing thus far are bills on either
        side of Congress that would in some ways tighten funding but give a special
        break to airlines. Premiums to the P.B.G.C. would rise from $19 per plan
        participant to $30, and variable premiums on distressed companies would be
        enforced. The bills would chip away (but not eliminate) gimmicks like
        "smoothing."

        The Senate is still divided, however, on how to treat corporations with junk
        credit ratings - the ones most likely to wind up in the P.B.G.C.'s lap.
        Hard-liners like Senator Chuck Grassley insist they should be forced to
        strengthen their pension plans in a hurry; Senators Mike DeWine and Barbara
        Mikulski (both from states with blue-collar constituencies) want to give
        such companies lenience. So after months of lobbying, politicking and deal
        making, moral hazard is still alive.

        VIII. PENSION VS. POTHOLES

        The P.B.G.C. does not protect government pensions, but dynamics similar to
        those in the private sector have also wrecked the solvency of public plans.
        Even in states where budget restraint is gospel, public-service employees
        have found it relatively easy to get benefit hikes for the simple reason
        that no one else pays much attention to them. In the corporate world,
        stockholders, at least in theory, exert some pressure on managers to show
        restraint. But who are the public sector "stockholders"? The average voter
        doesn't take notice when the legislature debates the benefits levels of
        firemen, teachers and the like. On the other hand, public-employee unions
        exhibit a very keen interest, and legislators know it. So benefits keep
        rising.

        As a matter of practice, those benefits are as good as insured. Because
        public pension benefits are legally inviolable, default is not an option.
        Sooner or later, taxpayers will be required to put up the money (or
        governments will be forced to borrow the money and tax a later generation to
        pay the interest). Thus, unions can bargain for virtually any level of
        benefits without regard to the state's ability, or its willingness, to fund
        them. This creates moral hazard indeed. At least in the private sphere,
        there are rules - ineffectual rules maybe, but rules - that require
        companies to fund. In the public sector, legislatures wary of raising taxes
        to pay for the benefits that they legislate can simply pass the buck to the
        future. This explains how the West Virginia Teachers Retirement System has,
        embarrassingly, only 22 percent of the assets needed to meet its expected
        liabilities. It also explains how Illinois, a low-tax state, is underfunded
        by some $38 billion, or $3,000 per every man, woman and child in the state.

        California is a good example of the political forces that have driven
        benefits higher. In the 90's, Gov. Gray Davis, a Democrat who was strongly
        supported by public-employee unions, pushed through numerous bills to
        increase benefits. One raised the pension of state troopers retiring at age
        50 to 3 percent of final salary times the number of years served.
        (Previously, the formula was 2 percent at age 50, more if you were older.)
        Thus, a cop hired at age 20 could retire at 50, find another job and get a
        pension equal to 90 percent of his final salary.

        The higher benefits trickled down to the local level, as counties that
        feared losing police officers to the state felt forced to copy the formula.
        Counterintuitively, as benefits were going up, the California Public
        Employees Retirement System (Calpers), which was boasting high returns in
        the stock market, allowed state agencies and local governments to reduce
        their contributions.

        Contra Costa County, which adopted the "3 percent at 50" formula for its
        Police Department, got by with contributing only $55 million to retirement
        costs in 1999, near the market peak. When the market tanked, the county
        found itself with lower assets and greater obligations. Six years later, the
        county's retirement bill had more than tripled to $180 million. Bill
        Pollacek, the county treasurer-tax collector, says the excess earnings from
        the bull market were spent, among other things, on higher benefits; "the
        losses were left for the taxpayers."

        This example was repeated with various twists across the country. In New
        Jersey, for example, Christine Whitman, the Republican governor in the 90's,
        ultimately relied on buoyant stock-market predictions to finance hefty tax
        cuts, which were the centerpiece of her administration. In 1997, New Jersey
        borrowed $2.8 billion, at an interest rate of 7.64 percent. The money was
        advanced to its pension system, on the convenient theory that its pension
        managers would make more in the market than the state paid out in interest.
        For a while, they did. The state even raised benefits.

        Meanwhile, Trenton achieved a sort of transitory budget balance by
        contributing less to its pension system. New Jersey's contribution to the
        Police and Firemen's Retirement System was zero in 2001 through 2003. But
        during the dot-com debacle, its investments plunged. And the state came
        under intense budget pressure because of the recession, and so gave itself a
        few years more to start paying down its pension liability (which further
        widened the gap). This year, the last easy-funding year, New Jersey will
        contribute $220 million to its pension system; by 2010, the annual bill will
        be an impossible-seeming $2.5 billion.

        I spoke to Jon Corzine and Doug Forrester, the candidates in next Tuesday's
        gubernatorial election, and while each expressed the proper horror with
        regard to past mismanagement, neither had much to say about how they would
        replenish New Jersey's pension system. State pension officials say that if
        New Jersey were a private corporation, its system would be nearly bankrupt.
        "In the real world this is a P.B.G.C. takeover," Fred Beaver, the head of
        the pension division, told me. Raising taxes is politically forbidden
        (Forrester has been campaigning to cut property-tax rates).

        And the state's reported pension underfunding, officially $25 billion, is
        undoubtedly optimistic. It assumes that New Jersey's pension assets will
        earn 8.25 percent, a number collectively determined - some say pulled from
        thin air - by the state's pension council. Even Orin Kramer, a private
        hedge-fund manager who also is also chairman of the council, says that any
        assumption higher than 7.5 percent is unrealistic. "The published numbers
        are divorced from economic reality," Kramer says. "No one even does the math
        for what will happen if you only do 7 percent because it's too serious. You
        start firing cops and teachers."

        According to Barclay's Global Investors, if you use realistic assumptions,
        the total underfunding in all public plans is on the order of $460 billion.
        If this figure is even close to true, future taxpayers will be hopelessly in
        hock to the police, firefighters and teachers of the past.

        Cutting pensions (unlike health benefits) is simply not an option. State
        constitutions forbid public entities, even prospectively, from reducing the
        rate at which employees accrue benefits. They can tinker with, or abolish,
        benefits for future employees, as Alaska did, but for a worker already on
        the payroll, benefits - even benefits that might not be earned for many
        decades hence - are sacrosanct. These benefits are like headless nails; once
        driven in they can never be removed. This year, New York's Legislature
        approved 46 new bills - more headless nails - to increase pension benefits,
        according to E.J. McMahon, an analyst at the Manhattan Institute. New York's
        benefits already rank among the most generous in the country, and the new
        bills would expand categories of workers who can retire early, or who can
        qualify for higher rates. Such bracket creep is pervasive.


        One of the biggest pension offenders is San Diego, where six members of the
        pension board, including the head of the local firefighters' union and two
        other union officials, have been charged with violating the state's
        conflict-of-interest code, a felony. What is interesting about San Diego is
        that, juicy details aside, its pension mess actually looks rather
        commonplace. The six board members are accused of making a deal to let City
        Hall underfund the pension system in return for agreeing to higher benefits
        - including special benefits for themselves. Explicitly or otherwise, this
        is what unions and legislators have been doing all over the country. A
        senior adviser on pensions to Gov. Arnold Schwarzenegger told me he fears
        that ever higher benefits are inescapable, given the fact that legislators
        control the benefits of people whose support is vital in elections.

        Calpers, the country's biggest state-employee retirement system, responds
        that the pension system has worked well. And for Calpers's 1.4 million
        members, it has. The average benefit for retirees is $21,000 a year, more
        than most at General Motors. But at some point, the interest of the public
        and the interests of public employees diverge.

        Earlier this year, Schwarzenegger tried to move California to a 401(k)-style
        defined contribution plan (for new employees), but the Legislature refused
        to go along. Schwarzenegger has vowed to revisit the issue in 2006. This
        battle is being fought from statehouse to statehouse. Michigan (mimicking
        Alaska) has closed its pension plan to some new employees, and various
        states, including Florida, Colorado, South Carolina, Arizona, Ohio and
        Montana, are taking a partial step of letting employees choose between
        defined contribution plans and traditional pensions. This compromise does
        not really change much. Most employees who are given the choice opt, quite
        naturally, to keep their pensions.

        Partly for that reason, the Citizens Budget Commission, a politically
        neutral watchdog, concluded that only by ending pensions outright (for new
        employees) could New York avert a future fiscal calamity. "Changes in
        pension benefits for future workers would yield fiscal gains only slowly,"
        the commission noted in a position paper, "but the service to the future
        fiscal health of the City and State would be enormous."

        Most legislatures are not about to do that anytime soon. There is a
        legitimate argument for preserving public pensions, however, if only they
        could be put on a sound fiscal basis. Critics like Grover Norquist, the
        tax-cut crusader, lampoons pensions as remnants of a stodgy, Old World
        economy. The desire to collect a pension, he argues, keeps workers from
        moving to better opportunities and shackles employers to workers who are
        just marking time.

        But while mobility is generally considered a virtue in the modern economy,
        it isn't appropriate everywhere. It may be desirable for a software engineer
        to move from job to job, notes Robert Walton, a Calpers assistant executive;
        "for teachers, firefighters, nurses, engineers, that isn't the type of work
        force you want." Stability is a virtue. The trick is to force legislatures
        to commit to funding with the same zeal with which they commit to benefits.

        De Maio, the San Diego watchdog, is lobbying for a federal law that would
        impose Erisa-type rules on public plans. Another solution might be found in
        the Texas Municipal Retirement System, which represents 800 cities and towns
        in the state. It has a blended system of automatic employer and employee
        contributions that are managed by the system and turned into an annuity upon
        retirement. These sorts of remedies could avert plenty of future San Diegos.
        In principle they are quite simple. It is only the politics that are
        difficult.

        IX. HOW DO YOU MAKE SAVINGS LAST A LIFETIME?

        On the private side, benefits professionals have been touting so-called
        cash-balance plans, a hybrid that in some ways looks like a 401(k), as the
        best hope for saving the pension industry. With a traditional pension,
        employees accrue benefits very slowly during their first 20 years and very
        rapidly during their next 10 (this is why pension plans act as retention
        tools; you pay a penalty for leaving early). Thus, an employee who stays at
        a company for 30 years gets a much bigger pension than one who works at
        three companies for 10 years each. Cash-balance plans were devised to appeal
        to younger workers, most of whom do not envision retiring at the firm that
        hired them out of college. In these plans, employees accrue benefits
        steadily, one decade to the next. There is no penalty for leaving, and
        workers who change jobs simply roll their accrued benefits into their next
        plan, as with a 401(k). Many firms converted to cash-balance plans in the
        90's to attract younger and more mobile workers.

        But the downside of giving more to junior employees is that senior employees
        get less. When I.B.M. converted, it reduced the rate at which some employees
        of long standing would accrue benefits, touching off a firestorm. The
        company was sued, I.B.M. lost and the legal status of similar plans remains
        in doubt. The pension industry has been lobbying Congress to clarify the
        status of existing cash-balance plans, but neither the administration nor
        anyone on Capitol Hill has done so.

        To some people, this is further evidence that the Bush administration would
        just as soon be done with pension plans altogether. I put that recently to
        Elaine Chao, the secretary of labor, and while her answer was diplomatic,
        she made no bones about the fact that, in the administration's view,
        traditional pensions are losing their relevance. "Defined benefit plans have
        their advantages," she told me, "but in an increasingly mobile 21st-century
        work force, the lack of flexibility of D.B. plans is yielding to greater
        usage of defined contributions plans."

        It's hard to argue with her, if you look at the numbers. Although 44 million
        people are covered by private-sector plans, half are people who have already
        retired and are collecting benefits or whose plans have been frozen or
        terminated. In other words, on-the-job employees accruing benefits - once
        the backbone of the system - constitute only half. At that rate, even
        without legislation, the private-sector pension community will mostly die
        off in a generation.

        And pension sponsors are likely to get another jolt soon. Under current
        accounting standards, companies can "smooth" their earnings reports, so that
        each quarter's net income reflects the average assumed performance of the
        company's pension assets, whether up or down, but not the actual
        performance. (Discrepancies from the average are sifted back into the
        earnings stream over time.) This means that reported earnings are often
        wildly misleading. Robert Herz, chairman of the Financial Accounting
        Standards Board, has criticized this practice as "a Rube Goldberg device."
        If FASB follows up and disallows it, corporate pension sponsors would have
        to cope with a lot more volatility in their earnings. Managers hate
        volatility, and such a change would prompt many of them to fold their plans.

        If defined benefits are on their last legs, then it would make sense to try
        to incorporate their best features into 401(k)'s. The drawback to 401(k)'s,
        remember, is that people are imperfect savers. They don't save enough, they
        don't invest wisely what they do save and they don't know what to do with
        their money once they are free to withdraw it. Quite often, they spend it.

        Here there is much the government could do. For instance, it could require
        that a portion of 401(k) accounts be set aside in a lifelong annuity, with
        all the security of a pension. Behavioral economists like Richard Thaler
        have demonstrated that you can change people's behavior even without
        mandatory rules. For instance, by making a high contribution rate the
        "default option" for employees, they would tend to deduct (and save) more
        from their paychecks. If you make an annuity a prominent choice, more people
        will convert their accounts into annuities.

        Otherwise, it's not hard to predict that as octogenarians and nonagenarians
        become commonplace in society, many are going to outlive their savings,
        which is even more scary than outliving the savings of the P.B.G.C.
        Promoting an annuity culture is probably the single best way to make up for
        the demise of pensions. Yet most companies that provide 401(k)'s don't even
        give the option of purchasing an annuity when people cash in their accounts.
        As Brown, the Illinois professor, notes, "There is no box to check that says
        'annuities."' That is a minor scandal. "I wish someone in Washington were
        thinking bigger thoughts about what the optimal retirement package should
        look like," says Watson Wyatt's Coronado.

        What are Secretary Chao's thoughts? She bounced the question to the Treasury
        Department. Mark Warshawsky, the Treasury's top economist, has written about
        the need for annuities, and in an interview he allowed that as 401(k)'s
        become the primary, or the only, source of retirement income for more
        people, "I think it is a concern that annuities are not being offered in
        those plans." When I asked what the Treasury was doing about encouraging
        annuities, Warshawsky merely said that it was under study. Anything that
        smacks of regulation (like rules to make sure employees get a particular
        menu of choices, whether for annuities or for their portfolios) gives the
        administration shivers. This is what you would expect, given the
        administration's strong free-market tendencies.

        But the government is already deeply involved, since it shelters retirement
        savings - pensions, yes, but also 401(k)'s, which are similarly permitted to
        grow tax-free. When it passed Erisa, Congress agreed that corporations that
        invested tax-sheltered retirement funds - pensions - should have to live by
        certain rules. But in the defined contribution world - the world of 401(k)'s
        - there are no rules. Employers can contribute or not. Employees can
        diversify or blow it all on the company stock (even if it is Enron). If
        nothing else, the century-long experiment with pensions has proved that in
        the absence of the right rules, the money will not always be there. The
        purpose of pension reform should be not merely to avoid a fiscal disaster
        but to find a fiscally sound way to preserve the likelihood of secure
        retirements. If people are going to retire on 401(k)'s, those should be
        subject to rules, and guidance, as well.

        It would be nice to think that reform would include a future for pensions,
        but on the private side at least, it is doubtful. As Delphi's Miller put it
        simply: "A pension plan makes no sense in today's world. It's not wise for a
        company to make financial promises 40 or 50 years down the road." Most
        American executives would agree. Miller says he has not decided what to do
        at Delphi. If workers grant wage concessions, he has said, the pension plan,
        which is $4.5 billion shy of what it needs, might even survive. This has the
        sound of a bargaining ploy. Knowing that the P.B.G.C.'s guarantee is in
        place, the unions will probably insist on keeping their wages as close to
        intact as they can, and Miller will probably end up handing the pension plan
        over to the agency, just as he did at Bethlehem. Then, Miller and other
        executives will get stock and dandy bonuses in a new Delphi that is happily
        stripped of pension obligations, and some 45,000 employees and retirees
        will, in time, happily collect their pensions - courtesy of the U.S.
        Government. Moral hazard at work.

        Roger Lowenstein, a contributing writer, has written about Social Security
        and health care reform for the magazine.

        http://www.nytimes.com/2005/10/30/magazine/30pensions.html
      • Jayamohan Kothari
        History: The Dragons of Expectation by Robert Conquest REVIEWED BY JOHN CAREY THE DRAGONS OF EXPECTATION: Reality and Delusion in the Course of History by
        Message 3 of 4 , Oct 30, 2005
          History: The Dragons of Expectation by Robert Conquest
          REVIEWED BY JOHN CAREY
          THE DRAGONS OF EXPECTATION: Reality and Delusion in the Course of History
          by Robert Conquest

          Duckworth �18 pp272

          If Robert Conquest�s thought were not so challenging, it would be easy to
          dismiss him as a colossus from a past age. Born in 1917, he counted Kingsley
          Amis and Philip Larkin among his friends, and won fame as a poet as well as
          a historian. He traversed the whole political spectrum, joining the
          Communist party in 1937 and, in the 1980s, writing speeches for Margaret
          Thatcher. As an intelligence officer during the war he was posted to
          Bulgaria, and it was watching the post-war Soviet takeover there that
          disillusioned him with communism. The Great Terror, which he published in
          1968, gave a ground-breaking account of Stalin�s purges in the 1930s, and
          was furiously denounced by western intellectuals. He followed it, in 1986,
          with The Harvest of Sorrow, telling the story of the collectivisation of
          agriculture under Stalin, during which millions of peasants died of
          starvation. The persistent denial of Stalin�s crimes by the leftist
          intelligentsia was, he insisted, �an intellectual and moral disgrace on a
          massive scale�.

          Time has proved him right. After the opening of the Soviet archives under
          Gorbachev, Conquest published The Great Terror: A Reassessment, which showed
          that he had, if anything, underestimated the atrocities. His new book adds
          chilling details from recent archival research, but its eye is on the future
          not the past. What can we learn from the Soviet catastrophe, he asks, that
          will help us survive? 9/11 has brought home to us that �the world that
          Americans and other Westerners full of goodwill want to mount and ride, feed
          and pat, is not a sweet-tempered little pony but a huge vile-tempered mule�.
          How should we respond? The ideas he comes up with have all been aired
          elsewhere in his writings, but that makes The Dragons of Expectation a
          useful compendium of his thought, and it is also a cracking read.

          His starting point is a distrust of all utopias, theories and abstractions.
          He blames the 18th-century continental enlightenment and the French
          revolution for spreading these evils among Europe�s thinking classes.
          Unfortunately, he notes, intellectuals always feel superior to ordinary
          citizens, so they are a prey to �intoxicating generalisations� that common
          sense would instantly dismiss. Usually, too, like the founders of Soviet
          communism, they are seized with an unshakeable sense of their own
          righteousness, which is the most lethal of human infections, and the most
          prolific source of slaughter, terror and savagery. It follows, he deduces,
          that America and the UK have nothing to learn from 300 years of continental
          political thought. Rather their model should be the British enlightenment, a
          slow growth dating back to the middle ages, that has evolved a �disorderly
          pluralist� society, underpinned by custom and the rule of law, which allows
          the maximum individual liberty, and consequently the greatest release of
          creative energy into humanly profitable fields.

          This, for Conquest, is civilisation, and measured against it the rest of the
          world can be divided into �civilised, semi- civilised, and uncivilised (or
          decivilised) countries�. The enemies of civilisation can be identified as
          minds closed to tolerance and pluralism, as exemplified in Iraq and North
          Korea. Fanaticism is always uncivilised. So, too, is over-keenness on
          politics. �All the major troubles we have had in the last half century have
          been caused by people who have let politics become a mania�. He prefers
          apathy, and sees nothing wrong with 30% or 40% of the population not voting.
          Boredom with politics and politicians has saved Britain from the worst
          excesses of doctrinaire thought, and from the illusion that all problems
          have a �solution� that the state can put into effect. One of our few utopian
          mistakes, for Conquest, was the introduction of the National Health Service.
          Based on the �absurd assumption� that free health care would mean a great
          improvement in health, and, therefore, less demand for the service, it has,
          he observes, saddled us with limitless expenditure that no party knows how
          to handle.

          This judgment, flung off casually in the course of an argument, is typical
          of Conquest�s fasten-your-seatbelts thinking. He has little time for the
          United Nations. Although it has been offered to the world as the highest
          representation of humanity, many of its member states are, he judges,
          uncivilised, and hold out no hope of becoming civilised in the future. Its
          debates are dominated by the �unreal, high-flown, old continental
          vocabulary�, which demands that declarations must be made about �human
          rights�, although it is taken for granted that about half the membership
          have no intention of conforming. It follows that it cannot be effective in
          preventing hunger, poverty and genocide. Conquest proposes instead, as an
          immediate stopgap, a new western alliance of the states that supported
          America and the UK in 2003. They should, he believes, use military force if
          necessary to bring rogue states to heel, and prevent the kind of barbarism
          seen recently in the Sudan. Such intervention will, he realises, be
          denounced as �imperialism�, but that word, like �fascism�, �racism� and
          others, is for him simply one of the �mind-blockers� that befuddle thought
          in utopian backwaters such as the UN.

          However, the most monstrous modern outgrowth of utopianism is not, he
          believes, the UN but the EU. Ruinously expensive, riddled with corruption,
          and bureaucratic on a Byzantine scale, it aims, as he sees it, to build a
          �regulationist superstate� in pursuit of the kind of high, transcendental
          dreams that have always seduced ideologues. Britain should, he counsels,
          withdraw from it and join, in due time, a much looser association of
          English-speaking nations which he calls the Anglosphere. This would have a
          consultative council, with the USA appointing 49% of the members, and the
          rest divided between Britain, Canada, Australia, the Caribbean, and others.
          The association would be headed by the President of the United States, and
          the Queen would be incorporated with �some such title as �Queen in the
          Association��. Its Foreign Policy and Military committees would have
          competence over the entire world, and would raise its own forces in order,
          for example, to prevent coups by pro-totalitarian elements.

          All this sounds just as utopian as anything Conquest derides, and it calls
          to mind, indeed, the fantasies of HG Wells, who was similarly convinced of
          the superior civilisation of the English-speaking races. However, Wells,
          like Conquest, has been proved right by history � on such matters as
          overpopulation and the destruction of the planet�s natural resources.
          Besides, Conquest is careful not to present his ideas as a blueprint, just
          the way things might develop, �an exercise in political and cultural
          science-fiction�. He has a historian�s long perspective, usefully reminding
          us that in a couple of centuries, let alone a couple of millennia, all our
          cherished credos and politically correct assumptions may appear as primitive
          delusions. This is a book that leftist intellectuals should read a little of
          every day, being sure to breathe deeply and loosen any constrictive clothing
          beforehand.

          Available at the Sunday Times Books First price of �16.19 on 0870 165 8585

          http://www.timesonline.co.uk/article/0,,2102-1842786,00.html
        • Jahed
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