But muscular interests have huge stakes in keeping all existing airlines flying. The government has invested $9.5 billion in various subsidies for the big carriers which, in dire straits, might try to hand another $20 billion in pension obligations to Washington. Since 9/11, General Electric, which manufactures and maintains jet engines and leases more than 700 aircraft to airlines, wants all carriers to survive. American Express has paid Delta $750 million for frequent flier miles to award certain card users.
The public sector's problems with retirees are about to become more visible. The GASB, which writes accounting rules for state and local governments, is going to require them to reveal the cash value of their retirees' health care entitlements. Janice Revell, writing in the May 2 Fortune, notes that when in 1990 such rules were applied to corporations, revealing huge health care liabilities, Wall Street blanched. So between 1993 and 2003 the percentage of companies offering medical coverage to retirees plummeted from 40 percent to 21 percent.
But what are corporations to do, given their duty to enhance shareholder value and their need to compete in the global economy? They should start by encouraging workers to use health savings accounts.
The public sector is facing similar pressures. All but two states, and a majority of municipalities, have increasingly crushing legacy costs because they provide health care to their retired workers. Buffalo, Revell writes, pays $26 million a year -- equal to a fifth of property tax revenues -- for such benefits. After just five years on the job, any North Carolina state employee is eligible for free retiree health insurance for life, and the GASB's new accounting rules will reportedly add a $13 billion liability to the state's books -- about 40 times the state's annual retiree health care costs.
In what is perhaps anachronistically called the private sector, Standard & Poor's recently reduced its rating of General Motors' and Ford's bonds -- nearly half a trillion dollars of debt -- to junk status, largely because of upward spiraling legacy costs. But, then, to what extent is there a really private sector in an economy that socializes huge obligations through the PBGC?