It may be a consequence of the types of blogs I read, but I’ve noticed a bit more postings on class warfare recently. In particular, I’d like to draw your attention to Class Warfare American Style from Jesse’s Café Américain. I’d recommend reading it and the two articles it refers to (by the acclaimed Matt Tiabbi and Zero Hedge).

I’ve also thought of the war against the middle class being waged, partly because I’ve recently been reading Michael Panzner’s Financial Armageddon (the book, but also the blog). More on that in a bit, but reading the book put me in such a mindset that I immediately thought of class warfare when I read discussion of allowing banks to halt money market fund redemptions (Jesse’s take on it here, also worth a read). While there are systemic stability reasons to allow banks to halt redemptions of demand deposits, it is a direct choice of banks’ rights over customers’ rights (particularly because money market funds don’t directly threaten banks’ roles as depository institutions). Who are the customers? The middle class. The vast majority of payroll accounts actually reside in money market accounts (compared to only 20% of private savings). So, if the banks halt redemptions, they also halt everyone’s paycheck. The money market funds survive, the working and middle class starve.

Back to Financial Armageddon. It’s an interesting book, though I certainly find some chapters more entertaining than others (card-carrying Democrats will find a bit more pleasure in the read). What makes it particularly interesting is that it was written in 2006, and even when it came out in 2007, it was still calling for a crisis that most claimed impossible. Some calls were way off, such as all consequences of the conjecture that the US would not back Fannie and Freddie debt. Many were spot on, and many haven’t had enough time pass to know which category they fall into. One call that has started to transpire is the consequence of the pension crisis. Panzner claimed that the pension system was woefully underfunded, and even the acknowledged problem was underestimated because public pensions were allowed to use different accounting rules. Using the same accounting rules as the private sector would actually double the size of the problem, and we know how reliable the accounting rules for the private sector have been shown to be. Well, Orin Kramer, chairman of New Jersey’s pension fund, says that there’s a $2 trillion shortfall for public pensions. That’s a big problem, and doesn’t even mention the problems that private sector retirements face. Panzner believed that the war against the working and middle class would, in part, be fought by changing the definitions behind defined benefit plans. There’s the usual idea of moving the retirement age back. Another is to allow the payouts to be eroded by inflation. This could be accomplished by changes to the cost of living index (read anything on changes to CPI over the years) or by capping the cost of living adjustments just as big inflation becomes a more worrisome prospect. As if trying to follow the script, Colorado’s Public Employees Retirement Association (PERA) is attempting to limit cost of living adjustments to 2%. It is extremely likely that at some point down the road that 2% will be dwarfed by the actual costs of living increases. Unfortunately, this is going to be a necessity. Public employees have promised themselves rather costly benefits without providing a method to fund those benefits. The pension funds could assume 8% or better returns because the taxpayer was the one left covering the shortfall if the assumptions were too optimistic. The Social Security construct is similar, provided we prefix “future” to “taxpayer.”

Promises will be broken, and many disputes will be taken to the courts and the legislature. I have a hunch that the nobility will be better prepared with their lawyers and lobbyists than the other classes.