A nation’s choice between spending on military defense and spending on civilian goods has often been posed as "guns versus butter." But understanding the choices of many nations’ political leaders might be helped by examining the contrast between their runaway spending on pensions while skimping on military defense.
Huge pensions for retired government workers can be found from small municipalities to national governments on both sides of the Atlantic. There is a reason. For elected officials, pensions are virtually the ideal thing to spend money on, politically speaking. Many kinds of spending of the taxpayers’ money win votes from the recipients. But raising taxes to pay for this spending loses votes from the taxpayers. Pensions offer a way out of this dilemma for politicians.
Creating pensions that offer generous retirement benefits wins votes in the present by promising spending in the future. Promises cost nothing in the short run — and elections are held in the short run, long before the pensions are due.
By contrast, private insurance companies that sell annuities are forced by law to set aside enough assets to cover the cost of the annuities they have promised to pay. But nobody can force the government to do that — and most governments do not.
This means that it is only a matter of time before pensions are due to be paid and there is not enough money set aside to pay for them. This applies to Social Security and other government pensions here, as well as to all sorts of pensions in other countries overseas.