WHILE AMERICA AGED

Lowenstein (Origins of the Crash: The Great Bubble and Its Undoing, 2004, etc.) probes a dangerous miscalculation made by American private and public enterprise: laying off responsibility for workers’ pensions and retirement health benefits on some unspecified future.

As baby boomers move into the retirement mainstream, the former Wall Street Journal columnist warns, the worst is yet to come. Examining how such situations evolved at General Motors, one of capitalism’s former crown jewels, and in two of the nation’s largest cities, he argues that confrontation-averse executives and pension trustees allowed hardball labor unions threatening crippling strikes to leverage benefit packages that were unsustainable from the beginning. Competitive pressures on the GM side and electoral politics in New York and San Diego also played their part in getting the unions attractive early retirement deals that, when workers began opting for them, brought crushing “future costs” closer than anyone had imagined. The GM story is perhaps the most tragic. In the late ’90s, the company found itself with some 180,000 hourly employees on its payroll—and 400,000 retirees. Unable competitively to raise prices, GM cuts its dividend; stockholders, the company’s nominal owners, begin to pick up the bill for retirees. In the cases of New York’s Transit System workers and San Diego city employees, the same syndrome was made more sordid by political infighting and backroom deals. Others simply buried their heads in the sand. Former New Jersey Governor Christine Whitman, for example, bet that pension-fund investments in a booming stock market would cover unfunded liabilities—then the market went down. Some form of paid national healthcare is inevitable for the future, says Lowenstein: “Business is global, and U.S. companies compete against foreign-based firms whose home-countries do pick up the tab.” Fixing pensions, he notes, will be even tougher, but at minimum Congress needs to regulate 401(k)s, which were “essentially developed in a social and legislative vacuum.”

A chilling anatomy of one bad decision followed by another—and another.