Interesting article by Fareed Zacharia on pensions and bankruptcy:
California's pension-related costs rose 20-fold in the decade since 1999. This frightening trend is true almost everywhere in America. And it’s simply not sustainable. A recent Pew research survey found that the gap between state assets and their obligations for public sector retirement benefits is $1.38 trillion. It rose by 9 percent in 2010 alone – and it will likely keep rising until these obligations are renegotiated.
The truth is America is sacrificing its future to pay for its past. To keep up with burgeoning pensions, states and cities are slashing services. It's also feeding into the unemployment problem. State and local governments have 445,000 fewer workers today than in 2007. Even if you exclude teachers from that number, we have 231,000 fewer workers.
For decades now, local governments have doled out patronage by increasing pension benefits – these costs impact the budget years later, when the officials who gave the benefits are safely retired themselves. We're now having to reckon with those choices.
I'm not saying bankruptcies are a good thing. But they are a mechanism that allows us to admit an emergency and renegotiate the deals that are, well, bankrupting the country.